Procurement: 1st steppingstone to integrated sustainability?

By Iris van der Velden | Global Director Innovation & Insights at IDH | The Sustainable Trade Initiative
Integrating procurement with sustainability can accelerate progress towards a more holistic business approach

Imagine you invite a new guest to a dinner party with all the ‘usuals’ at your house. But, when they arrive, you seat them at a faraway table on their own in the corner of room. The rest of the guests sit together, chatting away, telling in-jokes.

The new guest tries to weigh in on the conversation but is barely audible over the raucous laughter from the others. Not the best environment to integrate.

Why the analogy? It’s not dissimilar to how we deal with sustainability in our supply chains. 

Although many companies are adjusting how they do business to deal with the "VUCA” (Volatile, Uncertain, Complex, and Ambiguous) world; most still have a sustainability (environmental or social) department that works in its own silo, speaks its own language, and may have different KPI’s to the rest of a company’s key departments.

Right now, we are facing multiple global interconnected issues: the food crisis, energy crisis, climate change, increased poverty, gender inequality, the ongoing pandemic, and conflicts.

We have seen value chain disruptions meaning low to no availability of (raw) materials, instability of supply, unstable and low-quality levels, volatile prices, and high transport costs. All these disruptions are rooted in systemic issues like poverty and climate change.

At the same time, companies face increasing demands to not only deliver on efficiency targets but also on sustainability targets. Upcoming regulation in markets such as the EU, related to reducing carbon footprints and human rights (including living income and living wage), will require companies to take responsibility for the sustainability of their entire supply chain. 

To deal with these issues, so far there has been a segregated approach within companies: Finance and Operations departments are investing in ESG and compliance, whilst Supply Chain Officers invest in traceability and transparency, and in parallel, Sustainability departments invest in improving livelihoods, gender equality and climate resilience to contribute to the Social Development Goals. 

With this fragmented way of working companies leave money at the table and miss out on opportunities to accelerate positive outcomes for livelihoods, climate and gender. By creating synergies between these topics, sustainability issues can be tackled holistically, and benefit business.

For example, regenerative agricultural practices can positively influence farmer incomes, instead of being only an extra cost to factor in. Also, when sustainability activities are set at the core functioning of a business, this can create impact in supply chains.

For example, when sustainability investments lead to higher volumes, higher loyalty, and better quality, this can allow for direct sourcing efficiencies. 

There are some front-running companies that have started working on an integrated agenda by including ESG targets in their executive schemes. This can help to cultivate “long-termist” behaviour within business and is a first step, yet we see a crucial missing piece: procurement practices.

At a session on environmental and social resilience at The World Economic Forum Annual Meeting earlier this year, this missing piece became glaringly obvious. During the session, participants from major multinational companies and investors identified potential solutions to create an integrated sustainability agenda in this “fragmented” world.

Procurement incentives and access to finance came out as significant enablers for climate change adaptation and resilience for both companies and producers.

Instead, what we see happening is that companies utilise their sustainability departments to invest in improving sustainability within their supply chains, yet all too often the procurement departments are not anchored by the same sustainability targets.

This means there is no real incentive to source from those supply chains, and the business loses out on access to higher quality, more reliable, and traceable produce that could be marketed with a sustainability premium and creates sourcing efficiencies for the company.

Procurement practices are therefore a key opportunity for businesses to jump-start their transition towards an integrated sustainability agenda.

This means bringing the sustainability and procurement departments together to create a common business language, learn from concrete examples of best practices, driving and accelerating action, and forging the business case for an integrated sustainability agenda.

This will enable companies to better reach their commercial and sustainability targets.

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