As sustainability becomes more important for businesses, sustainable procurement has become a hot topic.
Businesses are investing more in traceability and sustainable sourcing practices as consumers take to social media to criticize brands that build unethical or unsustainable supply chains.
Sustainable procurement doesn’t just make a business greener—it’s also become good business sense. This is why businesses should adopt sustainable procurement strategies to improve ESG performance and gain a competitive advantage.
What Makes Procurement Sustainable?
Depending on who you ask, sustainable procurement can have varying definitions. In most cases, the term refers to procurement practices that ensure the raw materials and components a business purchases are ethical, sustainable and responsible.
For example, sustainable procurement for a chocolate manufacturer may involve the sourcing of cacao beans that are grown using eco-friendly farming methods and safeguards to ensure the supplier employs farmers who are paid fair wages for their labor.
The sourcing practice is both ethical in terms of supplier business practices and sustainable in the production, processing and manufacturing practices the business is willing to accept.
Responsible sourcing involves businesses ensuring that suppliers—including tier two, three and four suppliers—aren’t engaging in unethical or unsustainable business practices that could have a negative environmental or social impact
These sourcing practices help ensure the business’s manufacturing or production workflows don’t produce negative externalities.
Sustainable procurement is often transparent procurement. To assure customers the products they purchase are sustainably sourced and manufactured, businesses may track and provide information on the provenance of goods and the raw materials used in their manufacture.
In addition to other traceability strategies, like the use of AI and IoT devices to monitor goods in transit, sustainable procurement helps guarantee product quality and origin.
The chocolate company described above may gather and include origin information with its products. With this information, customers know exactly where the cacao used in the manufacture of their chocolates originated, and the practices used to grow it.
In practice, the business’ supply chain upholds the same core values that are practiced elsewhere in the organization. The business will also ensure it only works with suppliers willing to hold themselves to certain standards.
Sustainability in procurement often dovetails with a business’s larger environmental, social and governance (ESG) strategy. Unethical or unsustainable procurement can harm a business’s ESG score or make certain good ESG practices less achievable.
Why Invest in Sustainable Procurement?
Sustainable procurement is often a key component of a business’ broader ESG strategy.
While effective ESG begins with internal practices, no business operates in a vacuum. Business partners and suppliers will both affect the business’ overall impact and public perception. A business with good ESG performance will likely be held back by partners and suppliers that don’t invest in ESG.
There are significant benefits to good ESG performance. The top ESG performers enjoy faster growth and higher valuations than their competition, often by a margin of 10 to 20%, according to data from McKinsey. In general, paying attention to ESG tends to improve a company’s performance, rather than cost resources.
Sustainable procurement allows a business to extend internal ESG practices to processes and workflows that the business has less direct control over—like the practices of third-party partners and suppliers.
Changing Customer Preferences Drive Sustainability Boom
Customers are paying more attention to how brands act right now than ever before. In addition to monitoring advertisements and social media, customers are also interested in how businesses source goods, the suppliers they work with and their commitments to causes like environmental stewardship.
Customers are closely observing how businesses act, and many are willing to pay a premium for ethical and green business practices. A majority of customers say they would spend more for green products and at least 40% of customers are willing to boycott a company for not being “eco-conscious.”
Sustainable procurement and transparent procurement are good ways to demonstrate a business’ commitment to environmental stewardship and ethical business practices.
By investing in sustainable sourcing, it’s possible to avoid scandal, minimize the risk of potential negative impacts due to sourcing and actively court customers who are looking for green brands to purchase from.
Sustainability Initiatives are an Opportunity to Review the Supply Chain
Suppliers that fail to act responsibly can also struggle with other aspects of business management—making them potentially unreliable in a crisis.
Sustainable procurement can be an opportunity to review or audit a business’s entire supply chain.
Crises like the COVID-19 pandemic have demonstrated the consequences of supply chain vulnerabilities. Sustainable procurement provides an opportunity for businesses to identify risks and diversify the suppliers they work with.
The investigation of suppliers can also be a good way to build stronger relationships with the suppliers a business works with. By choosing to consistently partner with suppliers that prioritize green or sustainable processes, a business can create a mutually beneficial relationship with these suppliers.
There’s a number of advantages to having strong supplier-business relationships.
For example, eco-friendly packaging is one way for businesses to make their supply chain operations more sustainable. Suppliers and logistics companies that invest in sustainable procurement or ESG may be able to advise on eco-friendly packaging options as well as other strategies for supply chain and manufacturing sustainability.
Sustainable Procurement May Help Future-Proof a Business
It’s likely that emerging consumer trends and demands for sustainability will only become more prominent over the next few years. There’s no evidence that consumers are going to become less eco-minded or that ESG performance will offer less of a competitive edge.
If customers continue to demand eco-friendly products, sustainable procurement could soon become the standard approach to procurement. Businesses that fail to build a sustainable supply chain could be left behind by their competition.
Businesses that invest in sustainable procurement practices now may be able to build and sustain a competitive advantage. Having a strong, sustainable foundation will allow a business to innovate in sustainable business practices and supply chain management strategies in the future.
Sustainable Procurement May be the Only Way Forward
Businesses that invest in sustainability and ESG performance sometimes leave their supply chains behind. Sustainable procurement is a way for businesses to extend ESG to practices they don’t control directly.
Sustainability in procurement could also unlock other benefits—like improved resilience, public image, and supplier relationships.
In the near future, sustainable procurement as it exists today may become the standard. Businesses that want to stay ahead of their competition may need to act now to stay ahead of the curve.
