Sustainable Procurement: Converting Environmental Impact into Financial Impact By Nick Ford

It’s difficult to put a price on pollution. Damage to the environment is something we all end up paying for – through the depletion of resources and decreased quality of life – but how do you assign a figure to that?  In pounds, dollars, yen, euros? Corporations, the world’s biggest polluters, think in terms of money. If something isn’t a line item on a balance sheet then it doesn’t receive any attention. For things to improve, we need businesses to pay attention.

Procurement can help. It’s the procurement team that decides where a company spends their money and with whom. Just as you can boycott a company that uses unjust labour practices or causes damage to the environment, so can – and so should – corporations. It’s simple supply and demand. If companies stop buying products from suppliers who heavily pollute then these suppliers will be forced to change their practices, or cease to exist. Sustainable Procurement, formerly referred to as Green Procurement, does exactly that. It’s a form of procurement where a company’s purchasing decisions are based on not only what is best for the company but also what is best for the world. It takes into account every purchases impact on society, the economic landscape and the environment. By elevating purchasing decisions above the standard price/cost dimension, sustainable procurement has the power to greatly improve businesses’ impact on the global population. What a shame more of us aren’t doing anything about this.

Sustainable procurement is fairly straightforward. There is some initial setup work to be completed, and a company must give serious thought to how it wants to affect the world, but after that, it’s simply a matter of sticking to your own rules. There are essentially two levels at which procurement teams can assess the environmental impact of a purchase: at the product level and at the supplier level. At the supplier level, the procurement team assign a score to all suppliers based on a number of different environmental metrics and then promote the use of the suppliers who have the least negative impact.

At the product level, the considerations become more granular. Procurement teams look at the alternatives for buying a product, good or service and score all aspects of the purchase. They look at everything from the distance the goods will have to travel, the energy it takes to deliver them, the chemicals used in production, the waste produced, the types of cleaning products used, and so on and so on and then they assign weights to each of those aspects. Elements that are especially important to the company will be weighted highly. For example, the price of the product might be given a weight of 50%, the carbon emissions produced, a weighting of 25% and the distance travelled, 25%. The procurement team will then choose the option with the best-weighted average.

Beyond positively affecting the environment and the world – which really should be benefit enough – sustainable procurement benefits the buyer. Over the long-term, it can both save money and potentially make money. Sustainable procurement enables corporations to better manage their resources, reduce waste and improve efficiency – saving money. In my own experience, through sustainable procurement initiatives, we’ve enabled companies to sell their waste. Where they would have been paying to have that waste removed, they are now being paid for it – making money. So why are so few companies committed to sustainable procurement?

The main challenge with sustainable procurement is that the benefits are all in the long-term, whereas, in the short-term, companies see nothing but additional costs. That initial set-up I mentioned earlier comes at a cost. There will also be an increase to the cost of most goods as price is no longer the primary determining factor when sourcing. In an ideal world, corporations would look past the implementation costs and the reality that they will now be paying more for the same goods, and rejoice in the fact that they are helping the world. Peace and love, man. Sadly, companies don’t think like that.

Companies think in terms of money. Pounds, dollars, yen, euros. How do you make the environment a business priority? You attach a price to it. ‘Hello Company X, I can see that you’ve cut down 1,000 trees and released 1 ton of carbon pollution into the air. That’ll be $2 million please. Cash or card?’ Money is one of the only languages corporations understand and until sustainable issues can present themselves on the price/cost dimension, big business won’t take notice.

So, the question is, how do you convert environmental impact into financial impact?

 

Nick Ford is Managing Director for Xchanging Procurement. Xchanging is the third largest procurement services provider globally. Learn more at www.xchanging.com.

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