Sustainable Procurement: Everything You Need To Know

We’re often told about the importance of individual action in the ongoing fight against climate change and environmental degradation. This might involve making better purchasing decisions at the supermarket, installing solar panels on our rooftops or switching to LED light globes.

But the reality is that there are limits to even the most environmentally-conscious individual’s power to make a difference … unless that individual happens to be a procurement professional.

Wielding millions of dollars in purchasing power, procurement professionals have the genuine ability to make a real difference in terms of sustainability. Collectively, procurement has the power to solve (or worsen) many of the major environmental challenges facing the planet today, such as plastic pollution, water loss, deforestation, and global warming.

In this comprehensive article, we cover everything you want to know about sustainable procurement, such as:

• What is sustainable procurement?

• Is sustainable procurement similar to social procurement?

• The benefits of sustainable procurement

• Pitfalls to avoid with sustainable procurement

• The industries with the most to benefit from sustainable procurement

• Who is doing it?

• Building a business case for sustainable procurement

• How to find sustainable suppliers

• How to monitor your suppliers for compliance

• How technology can help

Sustainable procurement aims to reduce the environmental impact of purchasing goods and services. Benefits include lowering carbon footprints, reducing waste to landfill, promoting a circular economy (recycling and reusing), and boosting innovation in areas such as sustainable packaging and renewable energy.

By embedding sustainability as a consideration in procurement processes, organisations consider environmental impacts alongside traditional procurement metrics such as cost and risk.

The terms sustainable procurement and social procurement are often used interchangeably, but for the purposes of this guide:

• Sustainable procurement focuses on purchasing decisions that reduce environmental impacts, but can also include social and economic impacts.

• Social procurement involves purchasing from social enterprises (organisations that improve social objectives). In many cases, these social objectives include protecting the environment.

Sustainable procurement matters for two reasons: it’s crucial for protecting the planet, and it is also good for business.

Protecting the planet: Better procurement decision-making has the power to redirect private sector and government spend away from organisations with unsustainable practices and channel it towards environmentally proactive suppliers. Doing so will help these suppliers grow and, collectively, contribute to the fight against environmental degradation and combat climate change impacts such as severe fires, floods, and species extinction.

Good for business: Sustainable procurement isn’t just the right thing to do. It is increasingly important for:

• Building organisational resilience

• Reducing risk

• Reducing life-cycle costs including end-of-life disposal

• Creating social licence

• Meeting government regulatory/compliance targets

• Protecting brands

• Lowering costs through reducing unnecessary consumption, reusing, and recycling

• Increasing revenue by appealing to environmentally conscious consumers

• Finding new sources of revenue such as repurposing waste.

ESG (Environmental, Social, Governance) is now firmly on the agenda of company boards around the globe. Recently, the major credit rating agencies (Moody’s, S&P) have incorporated ESG into their rating methodologies. Company reports increasingly include climate risk disclosure, and climate-related shareholder activism is on the rise.

While sustainable procurement has many positives, there are also some challenges you should consider and prepare for.

1. Greenwashing: Greenwashing is a form of marketing spin where a vendor makes claims about environmental sustainability that are not based on fact.

2. Lack of visibility beyond tier one: While tier one (direct) suppliers may tick all the right boxes in terms of sustainability, it is important that tier two (your suppliers’ suppliers), and their suppliers (and so on), also operate sustainably. A truly sustainable supply chain has full visibility all the way down to the primary resource suppliers of minerals or crops.

3. Lack of balance: As with any sourcing activity, multiple factors should be taken into account when purchasing sustainable products or services. This means balancing sustainability benefits with cost, risk, value, and any other metrics that are important to your organisation.

4. Higher prices: A study in the Netherlands by Kearney warned that sustainable products can be at least 20% (and up to 220% in some categories) more expensive than conventional ones. While customers are willing to pay more for sustainable products or services if they know the reasons for doing so, beware of suppliers ramping up prices simply because something comes under the green label.

Every industry that wants to protect its future stands to benefit. While short-term profits can be made by taking environmental shortcuts, sustainability is essential for long-term business survival and growth. Here are five industries among those that have the most to gain.

1. Government:

While value for money is a core principle in all levels of government procurement, this does not mean simply looking for the lowest price. Government buyers must take all relevant costs and benefits over the entire lifecycle into account, including sustainability.

Benefits include saving taxpayer money, encouraging the development of a green, sustainable industry by increasing market opportunities, boosting innovation, reducing the use of natural resources, decreasing landfill and pollution, and encouraging the growth of new skills in the workforce.

2. Mining and Energy

Miners and energy producers are increasingly adopting sustainable procurement policies in order to create and maintain a licence to operate, or community acceptance of their projects. Sustainable procurement can be employed to reduce operating costs – for example, miners are increasingly installing on-site renewable-powered microgrids.

In the long term, these industries have the opportunity to adopt circular economy initiatives with downstream measures such as recycling of precious metals, and upstream innovation including material design.

3. Fashion

Fast-fashion is currently one of the most wasteful industries, producing between 2 to 8% of global carbon emissions and requiring vast amounts of water. According to the UN, the equivalent of one garbage truck of textiles is dumped or burned every second.

Sustainable initiatives in this industry include the use of recycled materials in clothing, reducing the energy and water used in manufacturing, and returning raw materials (such as shredded cotton) to the soil to help grow more crops.

4. FMCG

FMCG and food are full of opportunities for sustainable sourcing, with well-publicised issues including deforestation and overfishing. The food supply chain is also problematic in terms of ethical/human rights abuses, particularly in industries including chocolate and coffee production.

Procurement can partner with accreditation providers such as the Roundtable on Sustainable Palm Oil or Sustainable Fisheries. Sustainability in food must also take into account the problem of excessive food miles and the benefits of local sourcing.

5. Construction

The construction and operation of buildings contribute to one-quarter of greenhouse gas emissions in Australia. A sustainable approach to procurement in this sector can include higher energy efficiency standards (beyond mandatory requirements), increased use of recycled materials, and a reduction of waste (rubble) going to landfills.

Aspirational or voluntary measures include Green Star and the National Australian Built Environment Rating System (NABERS).

Innovative solutions: Sustainable procurement provides plenty of exciting opportunities to innovate. For example, rather than looking for sources of sustainable palm oil, a better approach may be to look for innovative alternative ingredients. Similarly, procurement professionals in construction can consider reusing or repurposing existing buildings rather than demolishing and building from scratch, while digital transformation in the sector has been shown to reduce waste and rework.

Organisations leading the way in sustainable procurement are doing so by not only cleaning up their own operations but by requiring their suppliers to commit to sustainability targets.

Government jurisdictions: Australian government bodies at every level are taking action through the implementation of sustainable procurement policies, particularly in regard to renewable energy. LGAs are ‘greening’ their fleets and the ACT has purchased Australia’s biggest fleet of hydrogen-fuelled cars, with procurement underway for 90 electric buses as part of its commitment to a zero-emissions public transport system by 2040.

Patagonia: Outdoor clothing company Patagonia’s brand is synonymous with sustainability, almost entirely due to its Supply Chain Environmental Responsibility Program. The program is implemented at supplier facilities all over the world, covering environment management systems, chemicals, water use, energy use, greenhouse gases, and waste. Patagonia is on track to meet its goal of becoming carbon-neutral by 2025.

Starbucks: Coffee chain Starbucks is committed to 100% ethically sourced coffee by following its Coffee and Farmer Equity (C.A.F.E.) Practices. C.A.F.E. covers four areas: quality, economic accountability and transparency, social responsibility and environmental leadership. This means evaluating coffee producers for managing waste, protecting water quality, conserving water and energy, reducing agrochemical use and protecting biodiversity. Additionally, Starbucks has implemented several innovations in its cafes including biodegradable cups and plates made of bagasse (sugarcane waste).

Coles: Closer to home, Coles recently announced its Together to Zero program which includes a commitment to net-zero greenhouse gas emissions by 2050, 100% renewable electricity by the end of June 2025, and a focus on reducing food waste. As major buyers, Coles and its competitor Woolworths have the ability to influence entire industries to comply with initiatives such as cage-free eggs or sow-stall-free pork.

For procurement professionals, the best advice for building a business case for sustainable procurement is to become familiar with your organisation’s enterprise-level goals and targets, and then clearly link these to each aspect of your business case.

Although leadership teams and boards are increasingly open to considering environmental and social benefits because it is “the right thing to do”, it also helps to link sustainable procurement activities to revenue creation, cost-savings, risk mitigation, and brand-building.

Finding sustainable suppliers is made possible with the help of RFPs, partner organisations, procurement software, and ecolabels/certifications.

• RFPs: Sustainability requirements can be incorporated into RFPs to attract proposals from suitable suppliers. The Federal Government’s Sustainable Procurement Guide recommends listing physical or descriptive requirements (such as recycled content in products), functional requirements, or performance requirements. Requirements can be mandatory, minimum, or desirable (not compulsory).

• Specialist organisations: Organisations can outsource supplier discovery to organisations that specialise in finding and assessing sustainable suppliers.

• Supplier discovery portals and marketplaces: Sustainable suppliers can increase their visibility to purchasing organisations by joining a vendor marketplace like VendorPanel Marketplace.

• Certifications: Working with certification/ecolabel providers is another option for sustainable supplier discovery. Usually, suppliers have to meet the ecolabel providers’ standards to attain membership and are audited regularly to retain the label on their products.

Supplier performance and compliance to sustainability targets can be managed by establishing and tracking sustainability KPIs, such as greenhouse gas emissions, water usage, percentage of recycled content in materials or the amount of waste going to landfill.

Use best-practice Vendor Relationship Management techniques and a dedicated software solution to drive visibility and improve compliance.

Trusted accreditation/ecolabel providers have their own auditing and assessment programs to ensure compliance with their standards. This can be an effective time-saver for purchasing organisations.

One of the most powerful tools you can use to engage in sustainable procurement is a Source-to-Pay solution. By keeping everything in one system for procurement and contract management, you can keep track, manage and easily report on sustainability KPIs.

With VendorPanel, badges can be added to supplier profiles to indicate their sustainability compliance status. This allows buyers to identify at a glance who will meet your organisation’s sustainable procurement requirements. Compliance data may come from contractor management tools such as Rapid, LinkSafe, iPRO or Avetta.

Want to learn more about how VendorPanel can help your organisation engage in sustainable procurement? Contact us today to learn more about how our solutions can help.