Green Sourcing: The Sustainable Future of Procurement

In 2023, many companies are facing larger disruptions, with more outsize impacts than ever before. These disruptors range from the coronavirus pandemic to the semiconductor shortage, the conflict between the US and China to the sanctions imposed against Russia for the war on Ukraine, and from the skyrocketing prices of energy and raw materials to stricter regulations on climate protection and social issues. In light of today’s volatility, uncertainty, and complexity, it has become clear that the procurement function needs to evolve and align itself along sustainability principles to stay resilient.  

These issues have catalysed opportunities for procurement professionals to pave the way for sustainability and reiterate long-term strategies. While it may seem overwhelming, adopting sustainable procurement strategies can be a tipping point for companies towards global sustainability initiatives. 

Green Sourcing

Until recently, most professionals limited eco-friendly procurement only to its environmental aspects. However, green procurement (also known as green or environment purchasing), takes a step ahead and compares price, technology, and quality, along with measuring the environmental impact of the product, service or contract. 

Because of the product shortages and shipping delays caused by the COVID-19 pandemic, interest has grown in supply chain optimisation, sustainability, and sustainable procurement. Many procurement leaders are now acknowledging their responsibility to drive change by taking action to reduce their carbon footprint, trim energy consumption, and optimise shipping practices. 

‘Green’ goods and services are designed to use fewer resources, last longer, have a smaller environmental impact, reduce expenditure and generated waste, improve resource efficiency, and impact market, production, and organisational behaviour. Harnessing green sourcing not only helps companies comply with international laws on environmental protection, but also enhances their products and brands, thereby giving them a competitive advantage. 

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How Procurement Takes Center Stage

The procurement vertical is uniquely positioned to support sustainability in an organisation, owing to its role in sourcing goods and services across the other verticals. The secret to success in green procurement lies in addressing critical issues — cost, prioritisation, transparency, and complexity — while developing strategies to assist organisations in methodically and systematically reducing their carbon footprint.

While corporate transformation may take time, firms cannot afford to delay necessary measures. Below, we’ve described certain near-term actions that companies can take to get ready.

1.Deriving Baseline Insights for Sourced Materials: In order to prepare for supply chain decarbonisation, companies need to comprehend the emissions produced during the manufacturing of all the components and materials they purchase as well as their exposures to supply, demand, and price volatility. Many leaders also benchmark their organisation's ESG performance against those of their rivals and other industry participants. Such practice can expose hidden ESG strengths across the value chain and highlight improvement areas needed to keep up with or outperform industry standards.

2.Aligning Suppliers with Respect to ESG Goals: To achieve climate-related goals, it is essential for procurement teams and suppliers to foster a mutually-beneficial partnership mentality. To monitor their sustainability journey, many organisations broadly split emissions into three categories:

• Scope 1 emissions - direct greenhouse gas (GHG) emissions discharged from combusting natural gas, refrigerants or transportation fuel, at a company-owned facility or fleet
• Scope 2 emissions - indirect GHG emissions associated with the electricity that companies source from utility providers.
• Scope 3 emissions[1] - indirect emissions that start from Scope 1 & 2 emissions, upstream and downstream supply chains, and typically represent the largest amount of emissions.

Procurement teams can unlock greater impact against scope 3 emissions discharged in their respective industries. To evaluate their scope 3 emissions, procurement professionals need to collect detailed data from suppliers in their industry and assess their specific contributions. The emissions intensity of the materials used by each supplier within a specific industry can then be displayed in a matrix, indicating suppliers who pollute particularly heavily. Procurement teams can then collaborate with these suppliers and work on creating an action plan to reduce emissions.

3.Implementing Value-Creation Initiatives: Incorporating “Sustainability as Standard” practices into procurement operations is an efficient way to reduce ESG-related risks. Furthermore, it can also help ensure that internal consumers and procurement teams are aware of the social and environmental effects of their choices.

Leading procurement professionals are making significant achievements in sustainability by devoting their time and resources on targeted value-creation initiatives. From its initiation as a small pilot project, businesses are exploring options, creating and testing new strategies, determining the ones that matter, and implementing the right ones at organisation and supply chain levels for lasting impacts. To enable such ESG restructuring and resource optimisation, the procurement function requires cutting-edge technological solutions and data sources. 

Conclusion

On their way to reducing the environmental and social impact of their operations, many companies are now identifying new risks and opportunities in their supply chain. Companies are gradually reinventing their procurement processes to advance sustainability and adopt green business models. Leaders are now seeking digital tools and capabilities to support this shift and get started on the journey of constant evolution.