The way organizations spend – what, how, and from whom they source – is a big part of the ESG push. As a result, sustainable procurement practices have emerged as a critical factor in assisting organizations in meeting their ESG objectives. According to a recent Gartner research report, 93% of organizations intend to invest in sustainable sourcing initiatives. However, procurement leaders seeking to develop a sustainable sourcing strategy frequently struggle to determine which environmental, social, and governance (ESG) issues should be incorporated into their sourcing and procurement strategy. In this blog, we attempt to deconstruct sustainable procurement and its outcomes, as well as shed some light on how to develop an effective sustainable procurement strategy and the tools that can aid in its implementation
Why is Sustainable Procurement/Sustainable Sourcing Important?
Sustainable procurement or sustainable sourcing, also known as responsible sourcing, is a method of sourcing materials in which an organization consciously considers social, ethical, and environmental factors, in addition to traditional cost and quality factors, when selecting suppliers.
It is critical to ensure that prospective suppliers adhere to social and environmental standards in order to limit the organization’s risk exposure from the supply base. Many countries and governments are requiring businesses to include environmental and social safeguards in their supply chain processes. Germany, for example, has passed the German Supply Chain Due Diligence Act, which goes into effect in January 2023 and requires larger companies to conduct supply chain due diligence.
Effective sustainable procurement practices can not only help ensure compliance and mitigate risks, but can also deliver other outcomes such as brand differentiation, enabling revenue growth, and ecosystem enablement, in which a company and their peers go above and beyond to impact common issues such as deforestation, water use, greenhouse gas emissions, and so on.
Furthermore, procurement departments report gains in supplier collaboration, sales, brand perception, and product/service quality. According to a Mckinsey report, implementing ESG effectively can help drive down costs by 5 to 10% as these companies focus on operational efficiency and waste reduction. According to a Deloitte survey, respondents’ top benefits were brand recognition and reputation, as well as customer satisfaction.
The following are the primary advantages of responsible sourcing programs:
- Higher product/service quality
- Improved adherence to legislation/regulation
- Decreased supply chain risks
- Supplier relationships have improved
- Cost savings
- Brand perception has improved
- Employee satisfaction has increased
- Offering and/or operational innovation
Responsible sourcing has been around for quite some time. However, most companies’ initiatives continue to be limited to compliance and check-the-box activities, such as a supplier code of conduct. While there are some baseline activities that every organization must follow in order to be compliant, it is entirely up to the organization to decide on the positive impact they wish to create and set their ESG goals.
