What SMEs Should Know About Sustainable Procurement
In recent years, sustainable procurement has become a top priority for organizations that are serious about their net zero commitments and want to take strong actions to mitigate the most significant impacts of climate change. But what exactly is sustainable procurement, how does it differ from “traditional” procurement, and how will it affect small and medium-sized enterprises (SMEs)?
Traditional versus Sustainable Procurement
Historically, a company’s procurement practices were focused on two factors: price and quality, where the highest quality product or service for the lowest price was preferred. Sustainable procurement is procurement that ensures buyers obtain the best value for money when purchasing the most sustainable goods and services from the most sustainable suppliers, in support of the buyer’s stated organizational purpose and strategic goals. Sustainable procurement considers the sustainability attributes of a supplier’s products and services as well as the sustainability performance of the supplier’s operations while it provides those products and services. It therefore intentionally gives preferential treatment to the most sustainable suppliers who offer the most sustainable products and services as opposed to those who simply offer the lowest prices (Sustainability Advantage, 2022).
Sustainable procurement considers how a company can identify and reduce the environmental and social impacts of its supply chain, which includes, but is not limited to:
the identification and procurement of suppliers that are low-impact, fair trade, and environmentally-friendly;
the use of production materials that are responsibly and ethically sourced;
the use of reusable packaging material as opposed to single-use packaging material; and
the establishment and maintenance of a healthy and productive work environment where employees feel safe, respected, and valued (Oxford College of Procurement & Supply, 2021).
Why is Sustainable Procurement Important?
In addition to being a fundamental component of corporate social responsibility (CSR), sustainable procurement is essential to reducing a company’s carbon footprint. According to CDP, a company’s scope 3 greenhouse gas emissions (i.e., indirect emissions) are, on average, four times greater than its scope 1 greenhouse gas emissions (i.e., direct operational emissions) (CDP Report, 2015). A large portion of these emissions can be directly attributed to a company’s supply chain; therefore, focusing on sustainable procurement and helping companies to identify and capitalize on opportunities to reduce carbon emissions in their own supply chains is crucial to combating climate change and its impacts.
What is Driving the Move to Sustainable Procurement?
Various factors are driving the paradigm shift to sustainable procurement. As corporate net zero commitments continue to gain momentum on a global scale in response to the climate crisis and in alignment with the Paris Agreement, procurement has become one of the biggest factors in meeting ambitious carbon reduction targets. Furthermore, consumers are becoming progressively more interested in the origin and composition of the products they purchase and the impact that these products have on the environment and society. Companies are aware that consumers will hold them accountable for the environmental impacts they make through their day-to-day business operations and therefore seek to be viewed as leaders who are taking responsibility for their environmental impacts.
Both in Canada and internationally, regulations and impending standards and regulations requiring the quantification of scope 3 greenhouse gas emissions are placing increased pressure on large progressive organizations as wells as SMEs within their supply chains. In the Spring 2021 budget, the Government of Canada required all Crown corporations to adopt the Task Force on Climate-related Financial Disclosures (TCFD) guidelines as part of corporate reporting, with Crown corporations holding more than $1 billion in assets beginning to report on their climate-related financial risks in calendar year 2022 and those with less than $1 billion in assets expected to begin reporting in calendar year 2024, at the latest. TCFD guidelines indicate that scope 3 emissions should be disclosed if material. Further, at its October 2022 meeting, the International Sustainability Standards Board (ISSB) of the IFRS Foundation voted unanimously to make scope 3 greenhouse gas emissions reporting mandatory (IFRS, 2022). With scope 3 greenhouse gas emissions becoming the focus for regulators and many companies worldwide, making the shift to sustainable procurement presents an opportunity to bring accountability, transparency, and management to carbon emissions throughout the supply chain and beyond.
In addition, Canada’s federal Greening Government Strategy—a set of government-approved commitments that apply to all core government departments and agencies—outlines specific measures to achieve net zero emissions by 2050 and defines a broader scope for greening efforts. The Greening Government Strategy states that the federal government will include criteria that address greenhouse gas emissions reduction, sustainable plastics, and broader environmental benefits into procurements by departments for goods and services that have a high environmental impact. In addition, the federal government has committed to incentivizing major suppliers to adopt a science-based target in line with the Paris Agreement and to disclose their greenhouse gas emissions and environmental performance information (Government of Canada, 2022).
The U.S. is also making bold moves to further advance the shift to sustainable procurement. In November 2022, the Biden Administration announced that major suppliers to the U.S. federal government will now be required to publicly disclose greenhouse gas emissions and climate-related financial risk through CDP. It will also ask these companies to set science-based greenhouse gas reduction targets, which are the most ambitious decarbonization targets available. As the U.S. federal government is the world’s largest purchaser of goods and services, this announcement has profound implications for both U.S. and global companies, including Canadian companies that are major suppliers to the U.S. federal government (CDP, 2022). This move will also impact smaller companies within the value chain of major suppliers that will be expected to quantify and disclose their scope 3 emissions.
Benefits to SMEs to Prepare for Sustainable Procurement
SMEs need to be prepared for the shift to sustainable procurement to reap the wealth of associated benefits, particularly if they do business with the Canadian government, Canadian Crown corporations or large private-sector companies with net zero commitments. These benefits include:
gaining a competitive advantage by integration of sustainability into day-to-day operations;
attracting impact-minded consumers by becoming proactive about sustainability, ultimately bolstering brand reputation;
potentially increasing revenue growth, as impact-minded consumers are often willing to pay more for sustainable and responsibly sourced products and services;
attracting and retaining top talent in this tight labour market, as employees, especially millennials, increasingly want to work for sustainable companies; and
reducing costs and maximizing profits associated with reducing operational waste generation, water use, and energy consumption.
How to Prepare for Sustainable Procurement
It is evident that there are numerous benefits associated with sustainable procurement, but how exactly does one prepare for it? As an SME, there are several steps that you can take:
1. Work to understand what is important to your stakeholders—customers, regulators, and others so that you can prioritize what actions to take to improve your standing with your customers.
2. Make sure you understand the environmental and social impacts of your own organization. Start with measuring your organization’s baseline carbon footprint, including scopes 1, 2, and 3 greenhouse gas emissions.
3. Take action to reduce your company’s greenhouse gas emissions and to address the key environmental and social requirements of your main customers.
How Achieve Sustainability Can Help
Achieve Sustainability can help you prepare for sustainable procurement, regardless of where you are in your sustainability journey. We can assist you with stakeholder engagement initiatives, policy scans and interpretation, carbon footprinting, identifying and prioritizing greenhouse gas reduction projects, reporting, setting science-based targets, and sourcing incentive funding. Reach out today for a complementary consultation.
1. CDP (2015). Committing to climate action in the supply chain. https://cdn.cdp.net/cdp-production/cms/reports/documents/000/000/580/original/committing-to-climate-action-in-the-supply-chain.pdf?1470053398 Accessed November 15, 2022
2. Government of Canada (2022). Greening Government Strategy: A Government of Canada Directive. https://www.canada.ca/en/treasury-board-secretariat/services/innovation/greening-government/strategy.html#toc3-5 Accessed on November 15, 2022
3. IFRS (2022). ISSB unanimously confirms Scope 3 GHG emissions disclosure requirements with strong application support, among key decisions. https://www.ifrs.org/news-and-events/news/2022/10/issb-unanimously-confirms-scope-3-ghg-emissions-disclosure-requirements-with-strong-application-support-among-key-decisions/ Accessed on November 15, 2022
4. Oxford College of Procurement & Supply (2021). Sustainable Procurement: What Is It and Why Does It Matter? https://www.oxfordcollegeofprocurementandsupply.com/sustainable-procurement-what-is-it-and-why-does-it-matter/ Accessed on November 15, 2022
5. Sustainability Advantage (2022). 5 Reasons Net-Zero Procurement Can Achieve System Change. https://sustainabilityadvantage.com/2022/04/05/6757/ Accessed on November 15, 2022
6. CDP (2022). In bold new move, Biden Administration makes CDP’s model the law. https://www.cdp.net/en/articles/media/in-bold-new-move-biden-administration-makes-cdps-model-the-law Accessed on November 15, 2022