Blog
Aug 16, 2022
The benefits of sustainable procurement and sustainable sourcing strategy
6
min
Sustainable procurement is a very hot topic in the procurement industry at the moment. Organizations, particularly procurement professionals, are under increasing pressure to improve environmental, social, and governance (ESG) performance. In addition, big businesses and their stakeholders increasingly expect it from them. Elevating the role of sustainable procurement is crucially important and necessary in responding to these pressures. What the industry sees is that Chief Procurement Officers (CPOs) have now been tasked to lead the transformation of the function in a world where sustainable procurement is becoming the norm and not the exception. As such, investing in a sustainable procurement and sourcing strategy will protect and create value for an organization while helping it realize its ESG targets. But while it is crucial for organizations to do good in our society, they also must generate returns for their shareholders. Therefore, corporations, investors, and c-level executives demand that potential business partners have a clearly defined ESG proposition before engaging. This protects an organization’s long-term success, and companies that actively promote environmental, social, and governance concerns are reaping the benefits.
According to a report by Mckinsey, global sustainability investment now tops $30 trillion—up 68 percent since 2014 and tenfold since 2004. The acceleration has been driven by heightened social, governmental, and consumer attention on the broader impact of corporations and by the investors and c-level executives who realize that a strong ESG proposition is critical in future-proofing a company’s long-term viability. Investing in developing a corporate social responsibility and sustainable procurement strategy is not a threat to a company’s bottom line. On the contrary, a sustainable approach to procurement makes higher returns on shareholder investments, positively impacts the broader set of stakeholders such as regulators and communities, and promotes the well-being of employees. It also pressures suppliers to get their houses in order, increases organizational transparency, and holds them more accountable for the impact of their business operations. Simply put, unethical business has no place in a business landscape where ESG is taken seriously. In procurement, no one with any business sense will engage with an unscrupulous supplier for fear of backlash from regulators, investors, employees, and reputational damage. Is that a risk worth taking in today’s ever-complex business landscape?
A solid business case exists for integrating a “value-led” sustainable procurement approach into your organization’s sourcing and procurement processes. Following COVID-19, geopolitical shocks, political turmoil, resource scarcity, and inflation are starting to pinch. In today’s economy, entire industries depend on the agility and long-term strategy employed by CPOs in protecting their organizations from potentially fatal setbacks and enabling them to continue to operate efficiently in volatile times. As such, the necessities for business continuity are evolving, and with that, the role of sustainable procurement is in ensuring that the planet’s resources are managed responsibly and that fundamental human rights are upheld. Business is no longer all about the relentless pursuit of profit at the expense of society’s well-being and detriment to the environment. We have reached boiling point, and rightly so; the tide is turning thanks to ESG and sustainable procurement initiatives becoming mainstream. In the face of what can only be described as a perfect storm over the past few years, it’s no surprise that sustainability and environmental, social, and governance (ESG) issues are likely to remain a key priority on the corporate agenda well into the foreseeable future. A comprehensive sustainable sourcing strategy can significantly improve an organization’s ESG rating. Potentially, this can improve access to capital, sharpen competitive advantage, and increase shareholder and stakeholder value while attracting next-generation “conscious talent” to the procurement function. Overall, the strategic business case for sustainable procurement is straightforward, and investing in a sustainable supply chain will create and protect long-term value for an organization and its shareholders. Sustainable procurement is the future, but its execution is left to individual decisions and tactical approaches. Striking a balance between sustainability and cost efficiency goals will be challenging for many companies and countries. Like a “procurement strategy,” “sustainability” risks becoming a nice-to-have topic for years. It shouldn’t be; it’s a must-have.
