What is Sustainable Procurement?

There are a wide range of definitions for sustainable procurement. Still, we like this one from the state of Oregon because of its simplicity: Sustainable procurement is an effort to procure products and services in a way that seeks to optimize net environmental, social, and economic benefits for society. Sustainable procurement, also called “green procurement,” is comprised of three critical areas – policies, target purchasing decisions, and sustainability/Scope 3 emissions – that allow purchasing managers to correctly identify and reduce environmental risks within a supply chain. Think of it as part of the movement toward companies adopting environmental, social, and governance (ESG) policies and procedures to improve our world. Here is a quick summary of why it is important for businesses to embed each of the three critical areas into everyday operations:

Sustainable procurement policies:

Clear guidelines, standards, and objectives must be set by an organization to ensure that environmentally friendly practices are consistently integrated into the procurement process. Sustainable procurement policies can mandate compliance, promote transparency, and create accountability to achieve positive social-impact goals. Internal policies may account for factors such as environmental stewardship, responsible purchasing, and supply chain targets, while external policies may consider regulations, government incentives, and reporting requirements.

Target purchasing decisions:

Organizations need to act strategically when acquiring products, materials or services to accomplish goals such as supporting diverse suppliers, minimizing environmental impact, and promoting sustainability. Purchasing decisions based on environmental considerations should account for energy consumption and efficiency, greenhouse gas (GHG) emissions, water consumption, and waste minimization. For example, the opportunity may exist to purchase environmentally friendly products that have been certified by third parties such as GreenSeal and EPA Safer Choice. Purchasing decisions can also factor in diversity and social-benefit considerations, such as by prioritizing vendors that are owned by women or minorities.

Sustainability/Scope 3 emissions:

Maximum environmental value can be realized by focusing on Scope 3 emissions, the only category of emissions directly impacting procurement due to their origin in an organization’s supply chain. Supply chains often represent more than 90% of a company’s emissions, which reinforces the importance of including sustainability when choosing new vendors or working with existing partners, especially if the goal is Net Zero GHG emissions.

The Benefits of Adopting Sustainable Procurement

Procurement optimization benefits more than our environment. It is also a smart financial and operational decision. In today’s hyper-competitive and rapidly changing business landscape, companies are increasingly pursuing sustainability to maintain current market competitiveness while also positioning themselves for long-term success. Here are four ways sustainable procurement can benefit an organization:

1. Improve financial performance

Price and quality are not sacrificed when environmental and social factors are integrated into sustainable procurement. For example, AArete’s experience spearheading green procurement for an R1 research university (the highest rank possible) resulted in the elimination of single-use plastics, the identification of alternatives (aluminum water bottles, hydration stations) and the realization of $2 million in cost savings. Additionally, the adoption of sustainable practices often leads to increased revenue as environmentally conscious stakeholders (consumers, investors, employees) are more likely to support and engage with companies that share their values.

2. Minimize environmental impact

Climate change and environmental degradation are critical global challenges. Sustainable procurement plays a crucial role in helping to protect our environment. Solutions can range from simple actions, such as reusing wastewater within the same manufacturing facility​, to more complex changes, such as switching to solar and wind power. Regardless of where a company is in its sustainability journey, the development of a systemic approach – where sustainable procurement practices are integrated throughout the company and its supply chain – is vital to success.

3. Mitigate risks, build resilient supply chains

Global supply chains face numerous risks, ranging from geopolitical instability to unforeseen environmental disasters. Sustainable procurement promotes transparency throughout the supply chain, helping businesses identify and mitigate risks while building resilience in the face of uncertainties.

Moreover, when competitors make Net Zero commitments but do not follow through, they risk losing business to organizations with sustainability practices that align with their own Net Zero targets. AArete’s experience conducting scope analyses, with a focus on measuring Scope 3 emissions occurring within the supply chain, helps companies mitigate the risk incurred from failing to gain visibility into vendors’ practices and performance​.

4. Ensure compliance, preempt regulatory changes

Governments around the world are enacting stringent environmental legislation that requires organizations to adopt sustainable procurement practices to ensure compliance. In the U.S., the current regulatory framework for sustainability programs is shaped by the Securities and Exchange Commission (SEC), individual states, and voluntary organizations, such as the Global Reporting Initiative, Sustainability Accounting Standards Board, and Task Force on Climate-Related Financial Disclosures. While the SEC continues to signal shifts towards increased climate regulation, as evidenced by its 2022 proposal to enhance the standardization of climate-related disclosure by public companies, states such as California are now instituting requirements for emissions numbers to be publicly disclosed, with plans for future reduction.

Measuring and managing emissions will therefore ensure compliance with existing reporting obligations, while also allowing businesses the foresight to react proactively to future regulatory changes and avoid potential disruptions to operations.

To help achieve this, AArete was approached by a multi-billion-dollar energy company to deploy a comprehensive ESG strategy focused on sustainable procurement, supply chain, and corporate governance tools. The strategies AArete established led to many successes, including LEED (Leadership in Energy and Environmental Design) certifications for new construction, carbon emission controls, reduced water and electricity usage, as well as an overall more sustainable supply chain. Additionally, AArete created dashboards to capture all ESG metrics that will allow this organization to quickly adapt to any new policies and procedures that get implemented by the government. With 80-85% of a company’s emissions coming from procurement, and with a growing number of regulatory requirements across the U.S., a strong sustainable procurement plan will become increasingly important.

Additional Sustainable Procurement Strategy Considerations

Foster alignment and inter-departmental collaboration:

Achieving sustainability goals is contingent on breaking down functional/department silos (procurement, manufacturing and distribution, to name a few) and fostering communication throughout the organization. Moreover, sustainability initiatives should be championed by company leadership and communicated consistently through appropriate channels to maximize compliance and participation across all levels of the organization​. Lack of alignment among different departments is a common pitfall in sustainable procurement programs, making effective communication from company leadership a key to success.

Encourage education and training:

Education is important in overcoming the challenges associated with sustainable procurement. Training programs ensure employees understand the importance of sustainability, are familiar with best practices, and feel empowered to make informed decisions that align with the organization’s goals. Investments in infrastructure must always be supported by the appropriate staff training and education.

Supporting the road to Net Zero emissions:

Sustainable procurement is a critical component of the global pursuit of Net Zero emissions. Organizations should not view it as a standalone initiative but as an integral part of their broader commitment to environmental stewardship.

Sustainability is here to stay and there is no turning back. Leaders who embrace this change and embed sustainability throughout their organizations will emerge as winners. Sustainability practices, including procurement, can drive cost savings and enhance an organization’s reputation, while also improving our planet’s environment and making a meaningful contribution to a more responsible and resilient global economy. Through cross-functional collaboration, education, and a unified commitment to shared goals, businesses can navigate the path to Net Zero while ensuring long-term success.

3 Key Takeaways for Sustainable Procurement

1. Cost savings can be achieved by implementing sustainable procurement initiatives

While many leaders may view sustainability initiatives as an added expense, AArete has a breadth of expertise in creating sustainable procurement plans that lead to significant cost savings in both the short and long term.

2. Many consumers have started to pay attention to businesses’ commitment to sustainability

In today’s digital age, many consumers are more aware of organizations’ impact on the environment. Consumers have increasingly voted with their wallets that they prioritize supporting environmentally conscious organizations.

3. The number of environmental/sustainability regulations and policies continues to increase

New policies will continue to roll out with an increased focus on accurate sustainability reporting similar to what is being seen in Europe. Organizations with strong sustainability measures in place will be much better able to adapt to any new regulations while also seeing cost savings throughout the organization.

Is your organization searching for practical, cost-effective sustainability solutions to minimize environmental impacts, ensure regulatory compliance, and achieve cost savings? Our team of ESG experts is ready to help.