Recent environmental and social concerns raised many questions on how companies and organisations can perform to reduce negative impacts and improve positive actions and sustainable development. In addition, in Europe, the EC (European Commission) has just adopted the new CSRD directive (Corporate Sustainability Reporting Directive) that will oblige companies to work on their sustainable goals. One of the goals that companies can rely on to help them achieve many sustainability objectives is “Sustainable Procurement”.
What is sustainable procurement? What is sustainable procurement policy? How to implement the sustainable procurement policy?
Consumer behaviours and requirements are evolving and now, they tend and care more about the environmental and social impacts that the products and services might have. According to the International Trade Center (TIC), there is an increase of around 85% in sales of sustainable products in the last 5 years. In addition, according to EcoVadis’ Sustainable Procurement Barometer in 2021, 61% of procurement leaders believe that social issues will be essential regarding procurement policies.
Nowadays, the importance of social issues in addition to environmental issues is being translated by adopting and issuing regulations, laws, directives and standards to make companies more responsible towards the environment and society, such as the CSRD in Europe, and IFRS and ESRS draft standards.
Moreover, all around the world, many governments have put in place regulations and measures to apply and encourage sustainable procurement practices and policies. We can mention Green Public Procurement in Europe and Green Purchasing in the United States.
No matter the industrial activity of a company, sustainable procurement is a huge step for organisations when it comes to adopting a CSR (Corporate Social Responsibility) policy and an ESG (Environmental, Social and Governance) strategy, this is due to the 3 pillars (Environment, Social and Governance) on which sustainable procurement is about.
What is sustainable procurement?
According to ISO 26000, the definition of sustainable procurement is as follows:
“In its purchasing decisions, an organisation should take into account the environmental, social and ethical performance of the products or services being procured, over their entire life cycles. Where possible, it should give preference to products or services with minimized impacts, making use of reliable and effective independently verified labelling schemes or other verification schemes, such as eco-labelling or auditing activities”.
Therefore sustainable procurement is one of the major steps in the CSR and ESG policies of a company. Where the questions raised are not only about the purchased product or services itself but also about the conditions in which the latter has been brought up in terms of human rights, labour and all the related social topics around it. Moreover, a company must always be aware of the CSR strategies of their suppliers and if their requirements are not met or comply with the company’s internal policy, you must change your supplier.
This brings us to talk about the 2 approaches to sustainable procurement:
Product-based approach. This approach concerns the development of a product or service through the supply chain of an organisation while assessing the environmental credentials of itself and its suppliers. This process is applied to understand a product's or service's impact for strategic and marketing reasons. Moreover, a complete record of the supplier’s process is provided by this approach.
Supplier-based approach. This approach consists of analysing and evaluating the CSR approach and policy of the supplier and checking its compliance with your CSR requirements. This is an interesting approach because you can assess the environmental impact and social risks of the supplier’s activity. This approach can be seen as a positive impact approach, where you can motivate other businesses to be more sustainable and improve the whole supply chain process.
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Sustainable procurement policy
What is a sustainable procurement policy?
A sustainable procurement policy is an approach adopted by businesses to help them acquire products and services based on their social and environmental impact. It is a critical policy when an organisation has adopted a CSR or an ESG strategy.
Many organisations are adopting a sustainable procurement policy for many reasons. Here are 2 examples of these reasons:
- Risk reduction regarding the financial impact of their brand image and value by relying on suppliers that have a great CSR strategy in place to avoid any bad reputation in terms of local environmental pollution or child labour
- Cost reduction and revenue growth are purely economic reasons but also important in terms of sustainability where lower consumption of resources and energy is used in the supply chain of products reducing the environmental impact and carbon footprint.
Moreover, to help organisations better understand and implement a sustainable procurement strategy there are means and certifications to guide them, among which is the ISO 20400:2017 standard about sustainable procurement - guidance.
Sustainable procurement policy and ISO 20400 standard
Since 2017, the ISO 20400 international standard has provided guidelines for all companies, regardless of their size or activity, to provide a universal methodological framework to design, prepare, deploy and enhance their sustainable procurement strategy.
This standard supports the company by helping them integrate and include in its sustainable procurement strategy: risk management, planning and integrating sustainability into procurement processes and strategy and organising the procurement function towards sustainability. In addition to its purchasing maturity, in particular with control of the purchasing portfolio, shared processes, distribution of roles, training and supply chains. To ensure the success of this sustainability strategy all stakeholders must be fully engaged and committed throughout the whole supply chain. This will improve the social, economic and environmental sustainability of the organisation.
When a company relies on ISO 20400 standard to build up its sustainable procurement policy, it directly contributes to achieving 9 of the 17 sustainable development goals. Moreover, implementing this sustainable procurement policy means that your company is already engaged with CSR and more recently with the new ESG goals and standards.
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Major steps to creating a sustainable procurement policy
Relying on international standards can be helpful to build up your sustainable procurement policy. However, you must go through some steps to complete its successful implementation.
1 - Identification of your starting point.
Before implementing any sustainable procurement policy, you must know and identify the status of the sustainability policy (CSR and ESG strategies) in the company itself. Afterwards, you must assess the involvement of top management and their views about sustainability and where they stand concerning the new procurement policy. And of course, you must fully know and be aware of the company’s operations and the products and services' whole life cycle and the impact of their corresponding impact on the environment and society (GHG emissions, carbon footprint, etc.).
2 - Build an action plan based on domain improvement.
Once you have identified all the products and services of your company, you must consider the most significant and strategic ones. Afterwards, you must point out the ones with the most important impact on the environment and society. With this information, you can start prioritising sustainable goals and requirements regarding limiting their impact taking into account the company’s activity.
The action plan is built based on the requirements and the sustainable criteria that you prioritised, which will allow you to evaluate each purchase and classify your purchasing strategies accordingly. Your criteria can be contained, for example, the supplier ESG score, certification requirements from the supplier, etc.
3 - Reshape the purchasing process.
Include new sustainability criteria in your search for suppliers. Remodelling your purchasing process will be a crucial step for selecting suppliers which will start to push innovation to the limit when it comes to including sustainability goals and environmental certifications in their management systems. Therefore, you can include green choice criteria or sustainable choice in your offers to narrow the selection of your suppliers and choose between the most compliant with your sustainability requirements.
4 - Apply your policy/approach internally and externally.
After setting up a new action plan and redesigning your purchasing process, you must successfully communicate and apply your new policies with your internal stakeholders: communicate your KPIs and progress monitoring and involve everyone when you set the sustainable objectives in the company. Therefore you must determine your Key Performance Indicators (KPIs) and targets to reach. Some of your KPIs can be about: the number of products purchased by the sustainable procurement requirements; the number of suppliers you seak vs the total number in the market (local vs national or international); reduction of waste; reduction of GHG emissions; percentage of re-used materials; etc. The choice of KPIs will greatly depend on the company’s activity and industry.
As for the external application of your policy, this will concern your suppliers by helping their businesses to shift towards sustainable development, and this can be done by sharing the necessary information with them and the improvement areas to complete the shift.
5 - KPI monitoring.
Once your sustainable procurement policy is in place with the new related action plans, you must report and evaluate your activity’s performance by monitoring and measuring the KPIs that you have previously defined. The KPI monitoring and measurement can be done via digital technology and dedicated applications. The digital platform will then provide real-time follow-up and representation of KPIs via dynamic dashboards. The real-time data feed will allow fast decision-making and direct detection of any anomaly or deviation from the action plan.
Applying sustainable procurement practices and policies in your company can bring great benefits, not only economically but at a much bigger scale. An effective ESG strategy and a sustainable procurement policy can greatly contribute to preserving the environment and reducing economic and social risks. This approach can also push many suppliers to innovate and provide the best sustainable products and services. This will lead to better investment and greater projects. Finally, ISO 20400 standard can be a great ally to help your company apply a sustainable procurement policy.
To go further:
> To help you apply your sustainable procurement policy discover the Sustainable Procurement Policy Application on the BlueMarket.