To achieve environmental and social sustainability, procurement must be fully on board. Only pursing sustainability internally means the main opportunities for sustainability are missed in the supply chain.
Procurement is at the core of any business effort to achieve sustainability. Sustainable procurement contributes value in many ways by reducing costs and minimizing the risk of disrupted sources of materials. This is a minimal perspective however, because sustainable procurement is also at the core of the world’s ability to reach environmental and social sustainability. Business leaders are focused on responsibility, resilience, and supply regeneration of critical resources, and for too long, procurement has been relegated to the background when it should have an equal voice at the table. Only this way can supply chain models be reinvented and procurement become a central player in developing sustainable products and services.
Embedding (Real) Sustainability
A research project called The Embedding Project is a global public-benefit research project collaborating with companies ready to embed environmental and social factors into their operations and decision-making. The ultimate goal is progress towards a regenerative economy, which requires conscientious procurement. The white paper “Procuring a Regenerative Economy” addresses the fact that “a truly sustainable and impact-free sourcing network can only be implemented by rethinking the overall company business model,” and goes on to say that today’s “sustainable procurement largely entails check-lists pushed onto suppliers, often through third parties, and the results can be overridden if short-term financial conditions make it seem preferable to do so.”
The future of sustainable procurement is marked by necessity. Without sustainable procurement, a regenerative economy is not possible, but the question is how to get buyers and suppliers focused on sourcing sustainable products and services. The sustainability efforts going on right now are not producing the desired results, and one of the biggest challenges is connecting the strategic plan to actual procurement processes and systems. Regenerative sourcing has challenging goals which include generating net-zero GHG emissions, restoring ecosystems, and providing inclusive, fair and safe livelihoods for people. As the white paper points out, sustainable procurement is about more than material flows; it recognizes purchasing decisions made at the business will impact a multitude of organizations in terms of community, climate, resources, and the environment.
Sustainable procurement is not altruistic. It is crucial to business reputation, minimizing the risk of scarcity of supply in the future, and maintaining competitiveness by managing costs through energy consumption and waste reduction. It is a risk management strategy for competitive endurance as much as an environmental and social strategy. True sustainable procurement requires deep analysis, and a commitment to ensuring suppliers are adhering to sustainability values as much as the buyer.
Cosmetic companies are expected to act responsibly in many areas – product testing, diversity, environmental protection, fair labor practices, packaging and logistics. The RBI was founded by L’Oréal, Coty, Groupe Rocher, and Clarins to promote sustainability best practices and processes. The mission statement provides insight into what sustainable procurement is really all about, saying, “Responsibility is spread all along the value chain” from the small-holder producer to the final consumer, including of course all the manufacturers and intermediaries that enable to produce and distribute a good.” RBI established sustainability ratings to measure and benchmark Corporate Social Responsibility and engaging suppliers more effectively is a core strategy. L’Occitane is a French cosmetics company that signed onto the RBI, which was a public commitment to sustainable supply chains.
A company like Elate Beauty is a good example of a business that has innovatively developed products based on sourcing sustainable ingredients. This company looks at every step of the supply chain and product design to ensure maximum sustainability is achieved. The company has an impressive procurement process, in which ingredients sourced are 75% organic, but they will choose fair trade over organic if unable to have both. All products are 100% vegan and cruelty free. Bamboo used in products comes from suppliers with Forest Stewardship Council Certification, mica comes from suppliers who are members of the Responsible Mica Initiative, and wood for pencils comes from suppliers who can demonstrate the Californian cedar wood is certified by the Program for Endorsement of Forest Certification. As the company says, innovation and ethics in sustainability are core values.
Optimizing Sustainability Internally and Externally
Elate Beauty is offered as an example of procurement innovation in sustainability because the company has considered every stage of its procurement and production processes. McKinsey research has found that two-thirds of a company’s ESG (environment, social, and governance footprint) is with suppliers. ESG can lead to higher business performance too. Companies focused on ESG experience faster growth and higher valuation compared to the competition by 10-20%. However, optimizing resource consumption internally is not enough, and that is where procurement becomes so important.
Per McKinsey, as much as 80-90% of greenhouse-gas emissions of products are indirect emissions in procured goods and services, travel, commuting, and the use and end of product life cycle treatment. Two-thirds of the emissions are from the upstream supply chain. Procurement can have an enormous influence on ESG by influencing product design and purchasing decisions. McKinsey suggest building sustainability as a procurement standard, expanding collaboration with suppliers, evaluating ESG credentials of potential suppliers, and employing carbon accounting principles. This requires procurement having access to the right tools, resources, and data sources.
It is no secret that lower levels of suppliers in the supply chain often violate sustainability principles, yet most companies concentrate on Tier 1 suppliers. One of the procurement challenges is developing supplier networks that are sustainable down to the lower levels, which is not only the right thing to do, but can save a company from reputational damage. A good example is when the media reported Nestle was using forced labor in its supply chain. A long investigation uncovered the slave labor was actually in the Fancy Feast supply chain.
Every supplier should adhere to procurement policies and requirements for sustainability, meaning all tiers of suppliers should be included in the procurement sustainability strategy. Tier 1 suppliers can play a major role here, because they have the ability to assess their own suppliers.
Sincere Effort
Companies are adopting sustainable procurement best practices because environmental and social sustainability is directly connected to business sustainability. The future of sustainable procurement depends on the honest, transparent, and sincere effort of businesses.