Sustainable Procurement Beginner’s Guide

The supply chain plays a significant role in a business’ emissions. The CDP’s recent Global Supply Chain Report mentions that a company’s greenhouse gas (GHG) emissions in a company’s supply chain are 11.4 times higher on average than its operational emissions.

Additionally, the PwC Digital Trends in Supply Chain Survey 2022 found that 40% of surveyed leaders in the supply chain space consider supplier ethical concerns as a moderate or major risk.

Pursuing sustainable procurement strategies can help with these concerns by bringing greater transparency into a business’ supply chain. Businesses can implement policies to manage GHG emissions and get ahead of other potential risks.

This guide will give an overview of what sustainable procurement is, examples of how it relates to carbon and GHG management, its benefits and potential challenges, and how businesses can put this strategy into practice.

What Is Sustainable Procurement?

Sustainable procurement is the process of incorporating environmental, social, and governance (ESG) considerations when acquiring services and goods.

Some may also prioritize the triple bottom line (people, planet, and profit) in addition to or instead of ESG. Sustainable procurement includes assessing suppliers against criteria and collaborating to pursue sustainability objectives like reducing GHG emissions.

Pursuing sustainable procurement practices can create opportunities to reduce risks and costs while improving overall efficiency. It also allows organizations to use their capital and purchasing power to positively influence the overall procurement process. The Material Handling Institute’s Annual Industry Report found that 66% of surveyed supply chain and manufacturing leaders plan on increasing supply chain innovation investments by more than $1 million over the next two years.

Implementing sustainable procurement is especially important for the public sector. These entities typically have a large supplier budget that enables them to greatly influence suppliers.

The City of Portland’s Sustainable Procurement Program aims to influence suppliers with several initiatives. For instance, their Low-Carbon Concrete Initiative aims to reduce the carbon intensity of concrete mixes in city projects. This can lower Portland’s overall emissions since construction services are their top spend category that contributes the most supply chain GHG emissions. Concrete is also one of the most GHG-intensive materials used in construction projects for the city.

Some jurisdictions started incorporating sustainable procurement practices in mandated policies and laws.

The U.K.’s Procurement Policy Note 06/21 requires suppliers to disclose details of their GHG emissions and environmental management measures. The German Supply Chain Due Diligence Act (LkSG) requires companies to take appropriate measures to respect the environment and human rights within their supply chains.

Sustainability-related regulations like these are likely to become more common, similar to the rising prevalence of carbon disclosure mandates.

Sustainable Procurement Steps and Best Practices

Businesses can implement sustainable procurement strategies by determining their baseline and setting measurable goals, implementing holistic policies and initiatives, and managing progress and feedback.

There are a number of sustainable procurement best practices businesses can take at each of these steps.

Step 1: Establishing the Baseline

Businesses should consider their current sustainability initiatives, primary areas of interest, and how they compare to peers when establishing their baseline.

For example, businesses can evaluate the effectiveness of a policy to reduce waste by investigating how many vendors in their supply chain follow their requirements and to what extent they’re following them.

This first step will also require measuring quantifiable impacts to see where a business stands. This can include measuring fuel usage, or miles traveled to see where a business is before implementing changes. However, some metrics, like GHG emissions, may be tougher to measure since some suppliers won’t have this information readily available.

Peer benchmarking is also a critical step to take to understand how businesses measure up to peers. Using resources like Persefoni’s Climate Impact Benchmarking Module can help companies see how the industry performs and the types of goals competitors set. With this data available, businesses can use their peer’s data to set expectations of what they could realistically reach.

Step 2: Set Goals

When setting goals, businesses should account for baseline measurements, stakeholder requests, and regulatory requirements to understand what to prioritize.

For example, if investors demand less reliance on fossil fuels, businesses can create a goal to reduce fossil fuel consumption by switching to suppliers with hybrid electric or fully electric fleets. If that’s not possible, businesses can instead make a goal to create more efficient transportation routes to reduce overall fuel usage.

This is also the time to set appropriate KPIs to measure progress toward their goals. For the previous goal of reducing fuel usage, businesses can measure progress by looking at the distance traveled or fuel purchased. Businesses may also need to calculate their fuel consumption in terms of carbon dioxide equivalents (CO2e) to determine emissions generated from fuel consumption.

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Companies can also approach sustainable procurement in a few ways:

• Product-based: This approach focuses on the product’s movement along the supply chain.
• Supplier-based: This approach focuses on the overall practices of the supplier.

The best approach depends on the company’s priorities and can include a combination of both approaches.

Step 3: Create and Implement Policies and Initiatives

Policies and initiatives can impact all parts of the value chain. A company may enforce a policy to only work with suppliers that meet their sustainability criteria (like a low amount of workplace injuries per year). Smaller actions, like upgrading equipment with more energy-efficient alternatives, can also make an impactful difference in the value chain.

Implementation can begin with communicating the goals or principles on which the company bases its policies. Doing so can help educate suppliers, stakeholders, and the general public about how these policies align with their overarching objectives.

Companies can then promote these practices in a number of ways, by:

• Educating their internal team and partners throughout their value chain by sharing best practices, providing access to tools and resources, and implementing training programs.
• Providing financial incentives or penalties for suppliers subject to new policies and initiatives.
• Championing success in implementing these practices through supplier awards or recognition programs.

Step 4: Manage Progress and Feedback

Shifts in consumer demand, new disclosure requirements, or the emergence of new technology can all result in updates to an existing sustainable procurement system.

Companies should monitor and report updates, good or bad, to relevant internal and external stakeholders. This can help maintain buy-in for these initiatives, help stakeholders understand the impact of these initiatives, and provide an opportunity to collect feedback. For example, companies may learn that their employees aren’t following procedures because they don’t have the right training in place.

Examples of Sustainable Procurement Practices

Several companies today already employ sustainable procurement practices to improve the overall sustainability of their supply chain.

For example, Unilever’s Responsible Partner Policy provides all partners with the fundamental principles and requirements they must follow to work with them. Requirements range from paying workers a fair wage to reducing GHG emissions in line with the Paris Agreement’s goals.

Walmart’s Project Gigaton™ is another well-known example of a global effort to implement sustainable procurement. Their goal is to reduce or avoid a gigaton of GHGs from the global value chain by 2030. To participate, suppliers sign up, set a science-based target, and report emissions reductions annually to Project Gigaton™.

Sustainable Procurement Organizations and Resources

Professionals can turn to a variety of organizations to become more well-versed in sustainable procurement. Many organizations also provide guidance and resources to help businesses establish their own strategies. Below are a few examples.

• The Sustainable Purchasing Leadership Council is a global community that supports members in making a positive impact through procurement. They provide resources like coaching, category and issue-level guidance, and support with designing custom roadmaps.
• The Responsible Purchasing Network is an international buyers network committed to environmentally sustainable and socially responsible purchasing. They promote these practices through education, developing effective purchasing tools, and highlighting best practices.
• The Sustainable Procurement Pledge is an international organization of procurement academics, practitioners, and professionals that promote sustainable procurement. They provide tools and education with the goal of ultimately embedding sustainable procurement practices in all supply chains.

Practitioners may also take sustainable procurement courses when pursuing professional certifications. For instance, the International Supply Chain Educational Alliance’s Certified Sustainable Supply Chain Professional program includes a course on sustainable supply chain planning, sourcing, and procurement.

Benefits of Sustainable Procurement

Companies benefit from implementing sustainable procurement by reducing costs and risks, meeting current or incoming sustainability regulations, and staying ahead of competitors that don’t engage in sustainable practices.

These are some potential benefits businesses can look forward to:

• Cost reduction and improved operational efficiency via reduced waste production and energy consumption
• Improved resilience against supply chain issues and disruptions as a result of using sustainable and resource-efficient practices
• Relevant data to communicate progress and help ease stakeholders’ real or potential sustainability concerns
• More comprehensive supplier transparency to easily identify and engage with suppliers that aren’t meeting expectations
• Systems and preparations in place to comply with current and upcoming sustainability disclosure requirements
• Differentiation from other businesses that don’t engage in sustainable procurement

Challenges of Sustainable Procurement

Common challenges for implementing sustainable procurement practices can range from measurement difficulties to the lack of resources or buy-in needed to implement change.

Companies may encounter the following roadblocks:

• Difficulty identifying actionable steps to achieve sustainable procurement
• Lack of buy-in from key stakeholders
• Insufficient access to data and tools needed to create a sustainable procurement strategy
• Lack of education on effective ESG-related KPIs to measure progress
• Inadequate resources (including labor and technology) needed to adjust and incorporate existing procurement processes
• Difficulty identifying high-problem areas, like parts of the value chain that produce the most emissions

What Software and Technology Can Businesses Use?

The best sustainable procurement solution depends on the needs of the business and its goals. For example, a business that needs to improve its supply chain’s overall sustainability in addition to reporting its scope 1, 2, and 3 emissions should consider a Climate Management and Accounting Platform (CMAP).

Persefoni’s CMAPs can automate data collection and analysis to reduce time spent on tedious calculations. Once companies have their data, they can drill down to see their GHG Inventory (also referred to as your Carbon Footprint) trends over time through different breakdowns, including the supply chain. After exploring their footprint, businesses can see their decarbonization pathway to reduce their emissions.

Our tool can also help companies meet compliance requirements. Persefoni’s platform can create a complete GHG inventory across scopes 1, 2, and 3 in compliance with the GHG Protocol.

Learn more about how Persefoni’s AI-powered carbon management software can help business operations teams improve their carbon footprint along their value chain.