Consumers are increasingly embracing sustainability as a value, often looking beyond product quality to determine the extent to which a brand’s environmental and social values align with their own. This is good news for businesses that not only advocate sustainability, but follow through.
Implementing sustainability initiatives at scale does come with significant initial costs. However, the costs of not going through with such transitions may be even greater; CDP estimates that environmental risks, impacts and consequent regulatory changes will cost companies up to $120 billion during the next five years.
The largest environmental risks and cost savings opportunities stem from the supply chain, not the value chain, though both are important. To retain market share, businesses need to create more sustainable practices across the board, from sourcing to production to point of sale to point of disposal and beyond.
Given procurement’s role in informing and validating an organization’s competitive strategy, the bulk of the challenge when developing sustainable initiatives falls on procurement leaders. Keeping in mind that procurement departments are historically underfunded and underutilized, an unsurprising 35% of businesses have yet to enact formal sustainability goals and initiatives.
Here’s how procurement leaders can take action:
1. Outline sustainable and ethical sourcing criteria
Prepare a list of requirements that upstream suppliers must meet in order for your organization to fulfill its own sustainability goals. Metrics should be standardized, specific and actionable; the Global Reporting Initiative’s (GRI) Standards are a good place to start.
2. Enforce sustainability reporting for upstream suppliers
Referencing your organization’s sourcing criteria, ask new and existing suppliers to disclose the required sustainability data. Consider embedding sustainability data into the procurement process, as Unilever, a multinational consumer goods company, does by collecting carbon declarations for each incoming invoice.
3. Categorize upstream suppliers by impact or risk levels
Although spend analysis is a foundational form of procurement analytics, segmenting suppliers by spend shifts the focus away from sustainability and can obscure the worst environmental offenders. Instead, try prioritizing suppliers based on their environmental impact or the level of environmental risk they pose to your operations.
4. Encourage upstream suppliers to be more sustainable
Remind upstream suppliers of your organization’s sustainability goals and urge them to minimize their own environmental impact. Consider allocating resources to help them develop these capabilities, if needed, and track suppliers’ performance to evaluate their ongoing compatibility with the defined sourcing criteria. For example, Adidas monitors its suppliers’ monthly emissions and issues individual emissions reduction plans based on each supplier’s energy sources and average energy efficiency.
5. Suspend relationships with suppliers that perform poorly
Depending on the urgency and priority level of your organization’s sustainability initiatives, consider temporarily or permanently suspending relationships with suppliers that fail to meet baseline environmental performance metrics. Target, for instance, regularly verifies that its suppliers are actively minimizing their carbon footprint and ceases working with those that aren’t.
6. Invest in self-sustaining supply chains
Reduce, reuse, recycle: The three tenets of environmentally responsible behavior apply not just to consumers but to businesses as well. The three R’s are taking on new meaning as closed-loop supply chains that minimize and reuse waste whenever possible become the new norm. It doesn’t hurt that source reduction is considered the most likely environmental initiative to have an immediate and pronounced financial payoff.
7. Take restorative and regenerative action
Whereas financial benefits are an obvious target when investing in sustainable supply chains, business value can be created through sustainable investment further down the value chain. For example, Walmart diverts unsold products and packaging from landfills and incineration facilities; Amazon maintains a multibillion-dollar fund to innovate against climate change; and L’Oréal drops vendors linked to deforestation. Because value chain investments often solicit greater consumer awareness, such efforts can contribute to a sustainable competitive advantage in lieu of providing direct financial benefits.
8. Collaborate with third-party environmental groups
No path toward sustainable operations is free of hidden obstacles and costs. To maximize impact and resource efficiency, consider collaborating with environmental NGOs, membership organizations, category-focused responsible sourcing groups, technology vendors and other like-minded organizations. The SME Climate Hub, for instance, provides tools and resources to support small and midsize businesses in halving greenhouse emissions before 2030.
Ultimately, the long-term cost advantages and public favor gained by committing to sustainability are driving businesses to invest. The most successful sustainability initiatives, though, require all parties to have a vested interest in preserving and improving the health of the environment. Consumers are on board and soliciting business owners’ attention; the next phase of the sustainability wave requires businesses to adopt responsible sourcing and ensure that upstream suppliers are just as committed to disclosing, measuring and acting on their environmental obligations. Some motivation, on behalf of Unilever CEO Alan Jope: Sustainable practices save money.
By: Ayanna Leaphart
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