Net Zero for Procurement Professionals

Amplifying Supplier Commitments: Prioritising Sustainability in Contractual Agreements

Engage your supply chain in your sustainability journey to accelerate carbon reduction.

Within the evolving landscape of corporate responsibility, businesses are increasingly recognising the pivotal role of sustainability in shaping a resilient and responsible future. Sustainable procurement emerges as a strategic methodology, actively integrating environmental, social, and economic factors throughout supplier identification and negotiation processes. This approach becomes integral to the success of businesses, not only in achieving financial objectives but also in effectively reducing carbon emissions.

Sustainable procurement recognises the intricate web of global supply chains and their profound influence on the planet. It goes beyond the conventional approach by seamlessly integrating environmental, social, and governance (ESG) criteria into the procurement framework. This holistic perspective aligns with the goal of preserving the planet and fostering societal well-being.Paragraph.

By incorporating these considerations into procurement processes, a transformative impact is achieved. Suppliers are prompted to reassess their business practices, aligning them with your organisation’s values and rendering them more purposeful in meeting the challenge of emission reduction.

Engaging your suppliers in your sustainability journey is a key part of reducing your emissions. Your Scope 3 emissions typically take up around 80% of your organisational carbon footprint. A large amount of your Scope 3 emissions can be traced back to suppliers. Focusing on creating sustainable supply chains to meet ESG requirements can help you make impactful carbon reductions of between 13-22% of your overall footprint, along with supporting suppliers in repositioning themselves in line with social challenges such as child labour issues. 

Historically, supply chains have been optimised for minimal costs. Incorporating other goals, including ESG into contracts, change the manner of production, may increase supplier costs, and force businesses in the supply chain to rethink other processes. To tackle these obstacles, heightened collaboration between businesses, suppliers, and stakeholders is becoming more frequent and accessible; and supply chain contracts are more flexible than ever, driving sustainable procurement. There are also opportunities for businesses to work with suppliers who are reluctant to engage, using existing knowledge to educate, inform, and lay out a timeline for the implementation of sustainable reporting.

To get the ball rolling, a simple solution can be the inclusion of accepted legal standards in supplier contracts. This can often result in less friction from suppliers due to the formality of the requirements, along with less complexity and cost for compliance compared to ongoing negotiations. As standards are set in stone and enforceable, suppliers will have to conform if they wish to continue their operations.

Another suggestion to drive sustainable procurement is LCC. LCC considers all costs that will be incurred during the life cycle of the product, from purchasing price, to externalities like greenhouse gas emissions. Businesses can use LCC to show that procurement decisions should go beyond just looking at the initial cost.

The purchase price doesn’t capture the full financial and non-financial benefits of environmentally and socially preferable assets over their entire life cycle, including the operational and usage phases. Procurers are obliged to share all factors incorporated in the life cycle cost of the product, including ESG, encouraging them to shine a light on sustainability within the supply chain.

When incorporating sustainability obligations in your supplier contracts, there are several benefits both for you and your suppliers.

Analysing the whole life cycle of products and services allows businesses to adopt a wider approach, and have complete visibility of spending hotspots. By doing so, this can enable businesses to control costs to make future savings, improve processes, and manage capital more effectively within key areas of your organisation.

Risks associated with unethical behaviours, greenhouse gas-intensive operations, or financial performance or management can all be highlighted through sustainable procurement. The heightened visibility will help mitigate potential issues relating to sustainability and improve resource efficiency throughout the supply chain.

On a consumer level, commitments to sustainability leave businesses well-positioned to attract and retain customers. A study conducted by McKinsey and NielsenIQ over five years found that products making ESG-related claims accounted for 56% of all growth. The same can be said for sustainable suppliers. Using your sustainable credentials as a unique selling point (USP) sets you apart from your competitors operating in the same market.

To conclude, commitment to sustainable procurement highlights your core sustainability values, from your company culture to the life cycle of your products and services. By engaging your suppliers, you are not only future-proofing your own business but have the opportunity to educate and influence other organisations within your industry. This collaboration creates a lasting positive impact which is imperative in achieving our collective sustainability goals.

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