Sustainable Procurement: From Fad to Business Imperative

Sustainability, once considered a “nice to have,” is now standard practice for most businesses. Procurement is leading the way in promoting sustainable operations and supply chains. Already, major global brands like Bain, Bayer, and Air Liquide, are pledging their commitment to sustainable procurement.

How can you be sure you’re increasing the stability and sustainability of your supply chain? How can you partner with vendors that align with the environmental standards of your brand? 

As we discuss the basics of developing a more sustainable procurement process, you’ll learn:

• What is sustainable procurement?
• The benefits of increasing procurement sustainability
• Why companies are moving toward sustainability
• How one top brand makes sustainability a competitive advantage
• Steps to build a sustainability strategy for your brand

What is sustainable procurement?

Sustainable procurement refers to purchasing goods and services produced using more environmentally responsible sourcing and manufacturing practices. 

Though “sustainable” is a vague term covering many practices, it can be understood as any practice that intends to preserve the natural world, conserve resources, conduct environmental stewardship, and reduce negative environmental and social impacts.

Here are some examples of sustainable actions businesses take:

• Reduction of water use or water pollution
• Use of renewable raw materials and natural resources
• Ensuring human rights and safe working conditions
• Reduction of all sources of greenhouse gas emissions
• Production of lower-carbon and recyclable goods
• Localized production to reduce transportation impacts
• Avoiding the use of toxins (for instance, PFAS and other “forever chemicals”) 

Sustainable procurement requires companies to conduct due diligence and vendors to make their sustainable procurement strategies transparent. The goal is to ensure that chosen suppliers—both your direct vendors and those upstream and downstream in the supply chain—proactively seek ways to minimize waste and reduce carbon footprint.

Operations leaders must follow suit to future-proof their businesses. The best way to do this is to procure goods and services from environmentally conscious suppliers and vendors.

Ebook

Choose the Right Procurement Technology With This Decision Matrix

There are A LOT of procurement softwares out there. Make sure you're choosing the right one for your business.

Download the guide

Benefits of sustainable procurement

Sustainability is about more than appearances. Yes, customers connect with the idea of brands acting as environmental stewards as the average person begins to focus more closely on the conditions we create for future generations and the near-term habitability of the planet.  

Implementing sustainable procurement practices in your organization also has its own internal benefits.

Here are some ways sustainability drives cost savings and value creation: 

Better cost efficiency: As it turns out, saving the planet can also translate to saving cash. Because part of sustainable practices is conservation of resources, sustainable brands generate less waste and therefore save money. Strong ESG credentials drive down costs by 5 to 10 percent as these companies focus on operational efficiency and waste reduction.

Early compliance adoption: As the world warms and governments take notice, legislation will enter the sustainability equation. Get ahead of legislation and implement sustainable practices now (versus awaiting some future mandate). This way, you build a more adaptable business that avoids obstacles as new laws come into play. 

Increased brand reputation: Companies that champion sustainability efforts gain recognition in the market. By becoming proactive about sustainability, brands are more likely to connect with impact-minded consumers. In turn, this extends their market reach and strengthens positive brand association. 

Why sustainable procurement is important

Sustainability drives operational and cost benefits, but brands should remember consumers will opt into your brand (or out) based on your perceived ESG commitment.

Brands take a stand on sustainable products and processes because they know the stakes are high. Consumers and investors want businesses to prioritize sustainability, and they’ll favor those that do.

Research from IBM shows that close to 80% percent of consumers say sustainability is important to them. Of those, 60% percent would even be willing to change their shopping habits to reduce environmental impact. With Gen Z shoppers leading the way in this consumer shift, these numbers will only grow.

Climate change is a reality consumers and corporations can no longer ignore. One hundred- and even 500-year outlier events such as fire, flood, drought, and superstorms occur more frequently, making environmental impacts part of the daily news cycle. 

Consumers literally can’t avoid the conversation on sustainability. Gen Z (who, along with Gen Alpha, will bear the brunt of climate change over the next 50 years) views it as the most important global issue.

Much of the environmental crisis is the result of commodity production. Almost 90% of global deforestation is related to the expansion of agriculture, such as production of key commodities like timber, cattle, palm oil, and soybeans. 

Consumers that make that connection change their behavior—they vote with their wallets. Following last year’s cattle-ranch-related fires, for example, some consumers took a stand by becoming vegetarian. 

These trends will continue as the next generation becomes more aware of the risks commodities and consumer goods production has on the environment. 

Investors care about sustainability, too 

Investors increasingly move their capital to funds related to Environmental, Social, and Governance (ESG) matters to guard against risk—both from disillusioned consumers and from business-continuity issues. If companies don’t respond to these shifts, they put their share price in jeopardy. Companies should take heed or risk sinking their share prices.

ESG assets are set to expand exponentially, rising to $53 trillion dollars by 2025, according to data analysis from Bloomberg. BlackRock even went so far as to say the firm would avoid investing in companies that pose sustainability-related risks.

“I believe we are on the edge of a fundamental reshaping of finance,” Larry Fink, CEO of BlackRock, wrote in an annual letter to chief executives.

Companies have a duty to their shareholders to respond to this shift, and sustainable procurement is one of the most straightforward ways to do that. 

It doesn’t require you to invest years into building wind turbines or reducing your emissions—although these things are also important. You just need to take a strong stand and eliminate suppliers that expose your business to environmental-related risks. After all, guarding against risk is one of procurement's primary objectives.

Ebook

Choose the Right Procurement Technology With This Decision Matrix

There are A LOT of procurement softwares out there. Make sure you're choosing the right one for your business.

Download

"*" indicates required fields

First Name*

Last Name*

Company*

Email*

Phone

Name

This field is for validation purposes and should be left unchanged.

Sustainable brands are already winning

The data is in, and it shows that brands prioritizing sustainable procurement will outperform those that don’t. 

ESG investing is already paying off. Higher ESG-rated companies fared better than lower ESG-rated companies when markets tumbled at the start of the COVID-19 crisis, and BlackRock believes this trend will continue. 

In a recent report, the firm said, “We believe companies managed with a focus on sustainability should be better positioned versus their less sustainable peers to weather adverse conditions while still benefiting from positive market environments.”

The evidence from successful companies concurs. One example to consider: Patagonia.

Patagonia is a champion for sustainable initiatives, even encouraging consumers to repair their old gear before purchasing something new. In 2011, their famous ad in the New York Times told customers, “Don’t buy this jacket.” 

The ad was a hit. Patagonia saw a 30% increase in sales.

More recently, the company went so far as to change its entire value proposition. The company website now features, as part of its core values, items like “build the best product” to reduce waste and prolong usability and “cause no unnecessary harm” in the operation of its stores and manufacturing. The brand also strives to “use business to protect nature” by identifying and solving social problems. As Patagonia is a privately held company, exact growth figures related to their corporate social responsibility efforts aren’t publicly available. However, given the positive response on social media, we have to assume their strategy is working. 

Whether you’re a privately owned company with just 100 or so products, or a publicly traded behemoth owning more than 400 brands, sustainable business practices can win for you too.

How to create a sustainable procurement plan

Building sustainability standards for your business is a long-term, thoughtful process. It presents its own unique challenges and requires strong change management. When considering moving to a sustainable procurement strategy, start with these six steps:

1. Identify and align sustainable goals

Knowing the outcomes you’d like to achieve is the first step in crafting sustainable development goals for your organization. There are a few common goals organizations look to achieve when implementing sustainability: 

• Reducing waste in internal manufacturing processes
• Reducing water usage and impact 
• Minimizing carbon footprint or emissions 
• Increasing vendor diversity and equity
• Increasing use of fair market suppliers and products

Take time to interface with the various stakeholders and departments involved in this process, from the executive team and finance department to legal and manufacturing. 

2. Establish sustainability standards

Build a framework to evaluate potential new suppliers and move toward sustainability within your current supply chain. Using the goals identified in step one of this process, create a baseline for your sustainable supply chain. Identify standards across the value chain and commit to incremental improvements toward your end goals. 

Focus on a few standards to look for in new and existing vendors: 

• Carbon emission reduction reports
• Utility and energy consumption
• Waste reduction and recycling targets
• Freight distance and logistics practices 
• Supplier diversity metrics 

3. Assess your current supply chain

Once you have standards in place, take a look at the current state of your supply chain. How many of your vendors (if any) meet the standards you’ve set? Take time to interface with your suppliers. Conduct due diligence into their internal sustainability goals, and use that information to inform future contract decisions and negotiations. Where possible, consolidate vendor lists, which can reduce secondary sources of emissions by ordering from fewer sources.

4. Implement a sustainable procurement policy

With goals and standards in place, put your baseline plan into action. The idea to keep in mind here is “progress over perfection.” Begin with a small-scale deployment. Identify opportunities to improve sustainability as contracts come up for renewal. Add to your plan as your understanding of desired outcomes and objectives improves.

5. Educate stakeholders

Driving sustainable change is a top-down measure. Educate your buyers and other stakeholders on the new practices in place. Be sure to pair your program with a strong procurement process that enables end-to-end visibility in all of your purchases. 

6. Measure and refine

Sustainability requires long-term maintenance to be successful and ensure the continued strength of your sustainability partners. Once your first iteration of the program is in place, commit to regular vendor lifecycle reviews to ensure your vendors meet your sustainability and performance benchmark. Conduct internal audits to ensure your brand is meeting its sustainability goals.

How Order.co supports sustainable procurement

Procurement platforms help create visibility in the procurement process, a key condition to improve sustainability in your purchasing. Using Order.co, companies increase the efficiency of their supply chains and streamline their order process to reduce issues like redundancy and ordering errors. 

Order.co allows buyers to take control of their purchasing process through: 

• Buying from preferred vendors and curated selections 
• Understanding usage trends to make better purchasing decisions
• Reducing waste and unnecessary spending in the procurement process

If you’d like to learn more about driving efficiency in the procurement process, take a look at our free resource, The Operational Efficiency Handbook. It offers even more ideas to increase the efficiency and visibility of your purchasing process.