In the last decade corporate environmental, social and corporate governance (ESG) initiatives have taken the world by storm. Even in the last few years alone, the rapid increase in support for sustainable operations has spread through not only governments but organisations and consumers too.
“This year, for the first time, supporting corporate sustainability appears in the list of procurement's top 10 agenda items in our annual Key Issues study,” said Mélani Flores and Laura Gibbons.
“Meeting environmental, social and corporate governance (ESG) compliance objectives has become a critical element of procurement’s value proposition. On the other hand, organisations that want to do more than just meet internal KPIs can find themselves in challenging and uncertain territory. Understanding best practices to support long-term sustainability goals is key.”
Procurement is being asked to support three categories of corporate sustainability
These three categories include economic development, social well-being, and environmental protection, of which 92% of enterprises aim to have sustainable procurement programmes in place for these by 2023.
However, with this in mind, companies have a lot to do if these projections are to be met. Currently, only 40% of sustainable procurement strategies are clearly aligned with the enterprise’s corporate social responsibility (CSR) or ESG strategy, with 33% of procurement organisations not having a formal programme.
What is the value of sustainable procurement?
When it comes to reasons for driving sustainable procurement, 74% report compliance as their top objective. Other core objectives for driving sustainability included:
- Reducing risk (69%)
- Emissions saving (56%)
- Brand value/increased sales (55%)
- Waste savings (53%)
- Energy savings (53%)
- Improve customer satisfaction (52%)
- Product/service differentiation (45%)
- Recycling savings (39%)
- Reduce input costs (27%)
- Internal efficiencies (21%)
- Reduce compliance costs (19%)
- Staff retention (13%)
“While only 55% of organisations cite brand value as a main objective, we expect this percentage to grow, given current high levels of media and consumer attention to ‘green’ brands,” said Flores and Gibbons.
“It might be easier to convince company management to get behind procurement sustainability initiatives if they understood that doing so does not hurt the bottom line. Based on a set of indicators (including productivity levels, adoption of best practices and value generated for the company), top-performing sustainable procurement programs create strategies that enable both increased spend savings and delivery of sustainability-related targets.”
Best practices for sustainable procurement
Government, organisations and policies
Hackett Group starts by explaining the importance of implementing a cross0functional governance mechanism to align initiatives and actions, as well as defining accountability of sustainable procurement activities with clear roles and responsibilities.
Hackett Group follows on from government and organisations with policies, outlining five core practices for organisations to consider:
- Establish or expand the supplier code of conduct related to sustainability
- Establish a mutually agreed upon buyer-supplier code
- Formally communicate supplier responsibilities, audit and reporting mechanisms, including identification and review of risks and materiality
- Require suppliers to manage their network of suppliers
- Make policies and guidelines available electronically in local languages for supplier
Talent, performance management and Category management
Other considerations when it comes to sustainable procurement include talent, performance management, and category management.
Organisations should look to provide sustainable procurement training for their staff, with the necessary adjustments depending on their role and responsibilities. Hackett Group also explained that organisations should consider sustainability goals as part of the procurement staff’s targets and objectives, and align staff recognition and compensation incentives with the achievement of goals.
When it comes to performance management, Hackett Group detailed that organisations should have a sophisticated sustainable procurement performance management process, ensuring adequate scope and quality of sustainable procurement metrics and scorecards.
Integrated external sustainability-related content and knowledge with core procurement applications, should also be considered as well as incorporating sustainability-related metrics into supplier scorecards.
Organisations should also look to ensure that their category management approach considers the major sustainability objectives, managing spend categories according to complexity and risk exposure on sustainability aspects.
Sourcing, contracting, supplier management, partnering and technology
When it comes to sourcing and contracting, Hackett Group Discussed the significance of enriching the TCO analysis with sustainability criteria, as well as agreeing on sustainability policies and guidelines during pre-qualification and mandate agreements within the contracting process, incorporating sustainability-related clauses.
After sourcing and contracting, organisations should monitor, assess and audit their suppliers regularly for sustainability factors, expanding their scope of sustainability beyond tier 1 suppliers.
Finally, when it comes to technology, organisations can benefit from automating sustainable supplier performance management, self-service capabilities, and the use of online collaborative platforms to access, compare and share performance data.