Increasing consumer awareness and a growing raft of regulations put businesses under more pressure than ever to make responsible purchasing decisions
Coping with this pressure can be made all the more challenging by a lack of supply chain transparency or leverage. However, businesses that embed sustainability into purchasing decisions not only mitigate risks, but also reap significant rewards.
This week Ardea published a white paper on sustainable and ethical procurement. The white paper contains a more in-depth look at some of the tools at procurement professionals’ disposal. It also highlights some useful research to consider should you want to look further still into the subject.
Ardea International also recently published a series of practice notes in collaboration with LexisNexis, one of which covers sustainable procurement from a private sector perspective that can be accessed here.
What are ethical and sustainable procurement?
A widely used definition of sustainable procurement is ‘a process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis in terms of generating benefits not only to the organisation, but also to society and the economy, whilst minimising damage to the environment’.
The International Standards Organisation offers a more concise definition: ‘[sustainable procurement] has the most positive environmental, social and economic impacts possible over the entire life cycle.’
Ethical procurement is defined by the Ethical Trading Initiative as: ‘the assumption of responsibility of a company for the labour and human rights practices in its supply chain’.
Essentially, both require procurement strategies that incorporate the wider impacts of products or services. This means weighing up more than just the initial cost of a purchase or contract to encompass its broader implications.
Why should businesses take sustainability into purchasing decisions?
With the rise of conscious consumerism and global trends becoming increasingly centered on sustainability, businesses must adapt and prepare for the future. There are some key reasons why business should incorporate the principles of sustainability into purchasing decisions. We have set out 5 reasons below.
According to Ecovadis, supply chains represent 50% to 70% of a company’s sustainability footprint. This means a company’s suppliers have the potential to be by far its greatest risk in terms of labour rights and environmental infractions. Equally, well developed policies and procurement procedures can eliminate a great deal of a company’s overall risks. Consequently, robust procurement strategies can improve perceptions among stakeholders and investors.
Whilst sustainable procurement is legally enforced in the public sector, it is not in the private sector. There is, however, a great deal of recent and upcoming legislation for businesses to integrate into their purchasing strategy. 66% of businesses surveyed by Ecovadis in 2019 stated that compliance with existing regulations is a critical priority of their procurement initiative.
As well as bolstering regulatory resilience, companies can prepare for changing industry demands and the proliferation of new markets. In the long term, less resources will be required to address changes to the landscape in which an organisation operates. As a result, businesses can enjoy greater flexibility in terms of supplier selection and purchasing.
From a consumer-facing company perspective, the benefits of sustainable procurement can be relatively direct. A recent Deloitte survey found that 80% to 83% of consumers believe environmental and social factors should be core business objectives. In response to this trend, sustainable procurement has seen more enthusiastic buy in from household names.
The return on investment is not restricted to consumer-facing companies. Sustainable procurement can minimise long-term operational overheads as utilities, staff turnover, and supply chain disruptions are all managed. In turn, companies with the most sustainable procurement initiatives are able to gain a competitive advantage over those who do not manage it as effectively.
A central principle of sustainable procurement is lifecycle costing. This allows buyers to take a long term view and maintain more visibility and control over costs.
For more information on challenges and practical steps to implement sustainable procurement, see white paper: sustainable and ethical procurement.