Sustainability & Diversity

5 key steps to take on your sustainable procurement journey

Heta Pirttijärvi Jun 28, 2021

Corporate social responsibility saw the largest increase of any CPO priority between 2019 and 2021 (Deloitte 2021).  

The percentage of FTSE 100 companies that have committed to carbon neutrality jumped from 19% in 2019 to 45% in 2020 (Ecoact 2020).   

Court orders Shell to slash its own and suppliers’ CO2 emissions in landmark climate ruling (BBC 2021).

There’s no denying that something is happening in the world and in procurement’s priorities. Long supply chains and sourcing from developing countries expose companies to a wide range of risks. Therefore more and more companies and procurement organizations are thinking about what they can do to have more sustainable procurement, to reach their targets, comply with their customers’ and other stakeholders’ demands, mitigate their environmental impact, improve supply chain transparency, and simply do good for the world. There are many options, and this blogpost will explain the 5+1 key steps to take when embarking on your sustainable procurement journey.  

Sustainable procurement can be defined as the process of finding, sourcing, and acquiring goods and services while considering environmental and social factors. The last few words are important, as sustainability is indeed both environmental (think carbon footprint) and societal (think ethical labour). It may also differ per region, as in Europe talk is especially around carbon footprints, while in the US, a diverse supply base is crucial for investors and consumers alike.   

In terms of the environmental emissions, for procurement especially the so-called scope 3 emissions are the most important, as they are the ones that come from the value chain and also account for approximately 70-80% of the entire emissions. At Google, the number is 93%, at Shell 88%, and at Microsoft 97% (1). Therefore procurement is also in a unique place unlike any other function to affect the emissions of the entire organization significantly. And the fact that corporate social responsibility (CSR) is now discussed regularly at the board level and sustainable investment is raising interest also shows that procurement can actually do societal good.  

The drivers for sustainable procurement can be classified to three:

  1. Tightening reporting requirements and consumer/NGO pressure 
    - The ScienceBasedTargetsInitiative and the Carbon Disclosure Project as some 3rd parties to report to, to state a few 
  2. Increased business 
    - Clear impact on revenue growth, brand value increase (15-30%+), and risk reduction (can reduce costs by 9-16%) (2), with high performing CPOs prioritizing CSR topics far higher (13-44%) than everyone else, especially in environmental protection topics (3) 
  3. Actually wanting to do something 
    - Although certifying your organization and brand is important to keep the business running and pressure is coming from tightened requirements from both officials as well as consumers, companies themselves are increasingly also wanting to do more. This is proven to also increase employee satisfaction and helps in getting the best talent for your organization (4).  

A few years ago, competitive advantage perhaps could have been listed as a fourth driver, but times have changed. Sustainable procurement is no longer a nice-to-have, but a must-have. A good example of this was the case of Shell, where in May of 2021 a landmark judgment ruled that the oil giant Shell and its suppliers must cut emissions by 45% by 2030, while finding Shell’s current commitment to reduce emissions intensity by 20% was not enough. This has been called a “turning point in history”, and will without a doubt not be the last of its kind.   

So, why isn’t everyone doing this then? Two reasons: resources and data accuracy challenges.

Although ambitions to be sustainable are often limitless, resources quite often are not. Still to this day it requires a lot of resources to understand especially your upstream scope 3 emissions, which means the emissions largely coming from procurement. 

In order to get the best possible accuracy, one would need to assess each supplier and their emissions individually. This brings us to the next challenge: accuracy. Getting the relevant data from the entire organizations’ supply chain is extremely difficult. Even if you manage to get the carbon footprint or environmental score of every single supplier (of which the number can often be in the tens of thousands), you would still need this for each category, and for each individual product in order to be able to get the highest accuracy. And when you get this information, how do you verify it and ensure that they are comparable? There are certain challenges, and to be completely frank, it may be that organizations’ aspirations are often higher than what is even possible today.

With this being said, there are already ways to tackle this issue of measuring sustainable procurement and scope 3 emissions.  The main ways to address the challenges are: 

  • improving primary data availability and quality (for example, collecting more data from your primary suppliers and verifying it)
  • using high-quality secondary data (using industry-averages for emissions factors can help in getting the big picture, but also incorporating e.g. the manufacturing location into the secondary data already provides a much more accurate view)
  • focusing on emission hotspots in the supply chain (determining which ones are the most important suppliers or categories by spend and focusing on those) 

The sustainability indicators can be generally split into two: supplier scorecards and category indicators.  

SUPPLIER SCORECARDS are, as the name suggests, scorecards to assess your individual suppliers. Either the supplier assesses themselves or an external company is involved. These scorecards highlight the differences of each supplier, are helpful in assessing risks, and are critical for tactical sustainability sourcing. On the other hand, what supplier scorecards lack is achieving high coverage and getting category or product specific views. 

CATEGORY INDICATORS on the other hand, means calculating the emissions for each category. In general, often spend data is used for the categories, and different databases from sustainability data providers like Ecoinvent, Exiobase, or OpenLCA for the emissions. This approach is especially helpful in category risk management, it highlights the overall category impacts, and provides a strategic sustainability view. The challenges with this approach, however, are that it requires at least the manufacturing location, and that supplier specificity can be lacking if not enough primary data is gotten.

So, how to choose between the different methods and where to start? Here are 5+1 key steps to take when embarking on your sustainable procurement journey.  

1. Define what you want to do and what your priorities are.   

What is your key priority in sustainable procurement? Why do you wish to measure your sustainability performance? Do your customers / investors / suppliers require it? How about your current and future employees? Answering these questions help you to define the direction, method, and accuracy that is required. It could make sense to benchmark with your peers by looking into their carbon disclosure project (CDP) or annual sustainability reports. After all, the requirements are often industry specific. With this being said, embarking on your sustainable procurement journey will require your time and resource investment - the urge to begin this journey must come from you. 

2. Build your business case. 

There are two steps here in building your business case: understanding your needs, but also your limitations. First, to understand your needs, understanding how big of a challenge we are talking about is crucial. Say, you’re a company like Google or Microsoft. Most likely your scope 1 emissions (being those of your own manufacturing for example) are not high, whereas your scope 3 emissions are probably quite significant. In terms of different categories or regions then, doing a spend analysis helps you in identifying the best way to proceed. Identifying “hot spots” and prioritizing your efforts can be useful as a major share of your spend could be assigned to a handful of suppliers. These suppliers are likely to contribute a considerable portion of your emissions as well.  

The second step is understanding your limitations. What data and resources do you have available? If you have a sophisticated procurement analytics solution in place, measuring your sustainability performance is a lot easier than by combining thousands of transaction rows in excel. Do you have the capability to master this process yourself, or do you have the resources to acquire a solution that can help you? 

3. Set targets – what are you reaching for? 

What is your ultimate goal? To become carbon neutral, to reach net zero? To engage half of your suppliers, understand their sustainability efforts and become more responsible? Whether your sustainability strategy is supplier or category focused (or both), setting targets and knowing what to compare to gives you a sense of purpose. It also allows you to see if you are going in the right direction.   

If you choose to go with a category level view of your emissions, also setting a baseline is important. This can be done by calculating your spend data and combining that with different emissions factors. This can be done in-house, but may be a long, tedious, and extremely manual exercise. Therefore, partnering with a company who manages your spend data and could combine that with emissions data would save you lots of hours (and tears). Similarly in a supplier scorecard approach combining the scorecards with your procurement data helps you understand where your targets to collaborate with suppliers would be of most impact. 

4. Rally people to collaborate with you 

Sustainability may be a key priority for your company, but where is the driver coming from? Your ESG function, marketing, the management? In many cases, although procurement plays a key role in sustainability in the organization, in the year 2021, the function is often still not the key driver for it in the organization. Consider your options on who you can collaborate with. Whether it be a partner outside your organization, someone from another function, or even a competitor to brainstorm with, new ways of thinking may be needed to progress and understand the full picture. 

Where the future of sustainable procurement is going can be summed up with the words supplier collaboration. How do you understand your supply base's sustainability without collaborating and engaging with your suppliers? Exactly. Therefore, if you're not already engaging your suppliers in your sustainability plans rally them to collaborate with you as well. 

5. Start measuring your sustainability! 

Although the preparing steps are important, they don’t mean anything unless you actually start measuring your sustainable procurement. For simple procurement sustainability reporting we want  

  1. a handful of sustainability KPIs (such as your carbon footprint)… 
  2. which are trusted by domain experts, authorities and the public (perhaps third party verified by an audit company)… 
  3. are compatible with established reporting frameworks (e.g. the GHG protocol)… 
  4. have good coverage across spend categories and suppliers…
  5. and finally deliver actionable sustainability insights to help make an impact. 

6. Share the info (both internally and externally) 

Your findings and insights are just about as useful as buying sand on the beach if they are not utilized. How can you incorporate your results into your business decision-making? In an ideal world, when deciding on a new supplier or changing a transportation route, we would consider the sustainability aspect in addition to the economic impacts of these decisions. In order to be able to do that, the correct people need to have access to these insights. Utilizing sustainability analytics helps in sharing the data to the entire organization. 

In terms of external stakeholders, consider if your sustainable procurement data could be incorporated into existing annual reports, if there is a separate section you could build, and if this is something you can utilize when discussing with your customers and investors.

 

In conclusion...

Sustainable procurement is a journey - not something that happens overnight. The real work begins when you start evaluating your suppliers or measuring your emissions. Despite the sustainable procurement still shaping up, one thing is certain: sustainability is not a passing trend but will be the standard of the future, and the time to act is now. 

We at Sievo can support with combining spend data with sustainability and third party data. Don’t hesitate to contact us for more information! 

Want to learn how Cascades used Sievo to understand their sustainable procurement better or where panelists from Accenture and Ecovadis believe the future of sustainable procurement is going? Watch SievoFriends 2021 on Demand here.  

Sources:

(1) Forrester 2021, (2) Ecovadis 2020, (3) Deloitte 2021, (4) Greener Ideal 2020


 

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