By Bárbara de Faria Lopes, Sustainability Consultant, IQbusiness, and Christelle Marais, Sustainability Lead, IQbusiness
Financial factors are no longer the only consideration for businesses. Governments, investors, non-governmental organisations (NGOs) and society at large are increasingly holding companies accountable for their social and environmental impact. Organisations, therefore, need to identify and address sustainability risks within their own operations and supply chains. Sustainable supply chains require the implementation of sustainable procurement (SP) practices or the joint consideration of social, environmental and economic factors in an organisation’s purchasing behaviour as well as supplier engagement. The uptake of SP within South Africa and the broader African continent, unfortunately, appears to be lagging behind developed economies. To drive a change in procurement behaviour requires awareness, buy-in and a compelling business case. Here are five principles to achieving this:
Principle 1: Start at the top Leadership buy-in has been ranked as one of the biggest challenges in implementing SP. This seems to be changing and corporate commitment to SP has increased by more than 80% over the past three years. Surveys, such as the BlackRock 2020 Global Sustainable Investing Survey, echo this reality with 86% of European, Middle Eastern and African respondents stating that sustainability investment is, or will become, a key consideration for their investing strategies. When considering that supply chains account for more than 70% of the sustainability footprint of an organisation, procurement has a critical role to play in enhancing investor sentiment. Furthermore, both the King IV and the Global Reporting Initiative are emphasising organisational accountability for their supply chains’ sustainability performance. From a governance perspective, executive leadership is a critical stakeholder in creating sustainable sourcing and buying practices.
Principle 2: You can only manage what you can measure It is estimated that more than 90% of sustainability programmes fail, owing to the inability of organisations to track and measure progress. As such, it is critical for organisations to attribute accountability for sustainability initiatives at executive level, set clear targets, define key performance indicators (KPIs) and link the progress made to employee incentives. Companies such as Apple, Danone, Intel and Siemens are already linking executive compensation to the performance of environmental, social and corporate governance (ESG). This is important from both an investor and a consumer perspective: 89% of investors demand the inclusion of sustainability metrics in short- and long-term executive incentives, and 88% of consumers link their brand loyalty to sustainability practices.
Principle 3: KISS it (Keep It Simple Stupid) SP should be integrated into sourcing and buying decisions. SP should not be viewed as a separate initiative and category managers should assume accountability and ownership for its integration. As such, it is critical that sustainability risks relevant to procurement categories are identified and that mitigation strategies form part of sourcing strategy, product specifications and supplier requirements. The International Organization for Standardization (ISO) has developed a SP standard (ISO 40200) that provides guidance on implementing SP.
Principle 4: It can still be ‘all about the money’ The World Economic Forum (WEF) reports that sustainable purchasing strategies can reduce costs by up to 16%. Additionally, more than 50% of large businesses and 25% of their suppliers have experienced cost reductions as a result of carbon management processes. By way of example, PepsiCo was able to uncover more than $60 million in energy-saving opportunities as well as a 16% overall reduction in per-unit energy use by implementing carbon management processes.
Principle 5: Work collaboratively Research shows that 70% of companies hold multi-stakeholder collaboration as crucial to more sustainable and ethical supply chains. Furthermore, 20% of sustainability professionals see industry collaboration as an exciting opportunity in SP in the coming years. Cross-functional and cross-industry collaboration between all stakeholders within a supply chain ecosystem is key to addressing social, environmental and operational risks. It also creates opportunities for shared value through improved product design, production processes, distribution and product end-of-life. Unilever has already implemented a supplier collaboration programme to address challenges and opportunities in innovation, sustainability, service, value and capacity. Since its inception, around 70% of innovations were contributed from suppliers – with significant cost savings, supply chain improvements, and reduced environmental and social impacts. Some initiatives include the development of more sustainable farming practices, lightweight packaging and improved logistics.
These five principles are key in mobilising organisational change towards more SP practices that address organisational risks and create shared value for organisations as well as the societies in which they operate.