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Sustainable Procurement – a boost for climate transformation!￼
How can procurement help to stop the exploitation of nature and human beings? In our CHOICE Event #34, Thomas Udesen, Chief Procurement Officer at BAYER AG, elaborated on the opportunities and challenges in building sustainable and profitable procurement. Lara Obst, Co-Founder of THE CLIMATE CHOICE, additionally shared her insights on how improved collaboration between companies and suppliers can help to achieve this goal in practice. These are the key insights of their presentations.
PEOPLE – PLANET – PROFIT
We as humanity are overstepping the Planetary boundaries. Climate, Humanitarian and Geo-Political issues are manifesting itself and we need to make sure we are ready for these changes.
COVID-19 has been a wakeup call for most of us. 2020 represents a turning point in history. It was a year to reflect on ourselves and our business models. The economical impact it had across society caused many losses that we need to respect and learn from. It’s time for businesses to make a decision.
Sustainable procurement is built on three pillars: People, Planet and Profit. The environmental, social and economical dimension must be considered to ensure its integral approach. In this regard each company faces unique challenges they need to address accordingly.
SHIFT TOWARDS IMPACT AND INNOVATION
Financial and Sustainability Targets are merging increasingly. Very few companies nowadays focus exclusively on Shareholder Value. We can see a shift away from that focus towards the aim of being a social innovator. How can that look in practice?
This challenge calls for integrated strategies. As we are making sure to enhance Corporate Sustainability, we also change how we communicate and how we drive our supply chain.
The majority of CO2 emissions originates externally. Reducing carbon emissions along the supply chain is a vital step towards integral sustainability, nevertheless it requires a long term commitment as well as the collaboration across and within industries.
These are potential implications that might occur:
- Product Portfolios:
- Increasing demand for “green” innovations
- Need to establish Circular Business Models
- Clear shift towards bio-based materials
- Introduction of CO2-currency
- Supply Chains:
- Demand for sustainable Procurement (Tiers)
- Drive towards #ZeroImpact Production
- Transparent and resilient Supply Chains
- Company wide collaboration
- Business Relationships:
- Selecting & strengthening relationships
- Transitioning towards ecosystems
- Co-creation of future capabilities
- Eliminating bad complexity
- Building trust & transparency
HELPING HANDS – Sustainable Procurement Pledge (SPP)
Sustainability means that we all must collaborate. The good news is that there are some really clever people with great ideas out there. But often those ideas are not gonna make it to the market if they’re not being rewarded. We need to make sure that innovators are funded. We need to change our buying and make sure discussions are being held in broader forums.
There is an african proverb that says: “If you wanna go fast, go alone. If you wanna go far, go together.” It is time to take a stand.
BAYER is part of a diverse and engaged Ambassador community, the Sustainable Procurement Pledge (SPP), with procurement leaders and practitioners from leading corporates, SME’s and from across different industries, academia and governments.
Their strategy of impact is building on Ambassador feedback and focuses on closing these gaps: Knowledge Gap (SPP Ambassadors don’t know where or how to start in a structured way), Support Gap (SPP Ambassadors are seeking some personal guidance and support), Leadership Gap (SPP Ambassadors report a lack of engagement and mandate from their management), Confidence Gap (SPP Ambassadors are concerned about failing or causing damage). The aim is to empower and equip and to encourage leadership.
The SPP is growing rapidly and is impacting real decisions. So far 73% of the ambassadors confirm the SPP has positively influenced decisions
In his closing statement, Thomas Udesen referred to the saying: With great power comes great responsibility. Procurement is not just a job, but a great chance to actually make a change towards integral sustainability.
OUR OBLIGATION TO ACT NOW
The transition to a low-carbon economy is underway and accelerating globally. It’s now expected that organizations set climate targets that align with the latest climate science and drive action on ambitious emission reduction initiatives. Climate transformation is therefore an existential challenge. It requires us to look beyond competition and come together to cultivate collaboration across all sectors and professions.
Luckily there are already initiatives such as SPP working together to build more equitable, resilient supply chains. These climate commitments need to be met through absolute CO2 reductions and from a large portion of the company’s suppliers achieving their own successful climate transformation. As most emissions are created upstream, so-called „supply-chain emissions“ are often purchased in the course of manufacturing products or services that the company buys.
Companies that already set science based climate targets are facing the challenge of engaging a large number of suppliers to commit to their goals within a relatively short time frame of typically five years. This creates the need to provide suppliers with tools and resources to develop their own climate action plans.
A comprehensive, systematic approach to supplier relationship management is therefore essential to fast-track progress on absolute emission reductions and supplier engagement goals. Whereas working in silos creates inefficiencies and duplicates efforts, supplier engagement and capacity building are essential for corporate and supply chain decarbonisation.
HOW DOES SUPPLIER ENGAGEMENT LOOK LIKE?
We explore the essential steps of a continuous journey that starts with strategy, the Corporate Climate Target Setting. The second step is to establish a scalable supplier management program. The third step focuses on the supplier engagement – and is up until today mostly carried out by data collection. The fourth and final step includes value creation and capturing. Here the measured results are reported, actions are implemented and outcomes analyzed?.
Supplier engagement goes way beyond data collection. So far the term is often understood as the process of simply requesting climate related ESG-data from suppliers. However, true “engagement” requires much more involvement. It includes the three steps: Data collection, analysis and decarbonisation. Each step is an own elaborated phase that needs to be acknowledged in order to successfully carry out the overall process.
Prior to data collection, businesses need to inform and prepare suppliers for an upcoming assessment. Next, the actual data is collected from suppliers on relevant climate ESG topics. Using a single platform for data collection and asking standardized questions are two very important points. This ensures that all information is centralized and that supplier data is formatted in a way that is easily referenceable year over year, for both buying companies and suppliers.
In the third phase the data collected gets analyzed in order to uncover climate relevant hotspots in the supply chain. This third and final phase is the most important and is often where companies struggle. This phase involves driving tangible improvement with suppliers, often through co-creation of action plans, capacity building, training programs, incentives, and more.
A CONTINUOUS PROCESS
To conclude: supplier engagement is an iterative, continuous, and collaborative process, not something you do once every few years. We therefore note that it builds on high quality supplier data, but most important is its actionable usage for decarbonisation efforts. Hence, the following questions arise: How do we collect supplier data collaboratively? And what do we do with it in order to actually improve climate impact?
The study “Net Zero Challenge” from BCG & World Economic forum says that supply chain decarbonisation is the game changer for corporate climate action. However, it also highlights various challenges: Data collection is often a one-way street, where suppliers are being asked to provide complex data without getting much in return. If companies want to see real improvements on their goals, suppliers must be willing to participate. To do this, the preparation and support of suppliers during each phase of the supplier engagement process is not enough, but the real value should be apparent for them. In other words, just like any good relationship, it has to be a two-way street.
TRUST AND TRANSPARENCY
To build these relationships, your suppliers need to trust the data collection process. Today suppliers often do not know what is done with their data, and fear that if they answer “incorrectly,” they will lose their contract. Transparency is crucial in this regard. Be sure to explain how their data will be used, emphasizing that their responses will be the foundation for future collaboration and that there will be no punishment for “wrong” answers.
You then should also clearly communicate what incentives are in place for them to improve. One way to do this is to simply share back your assessment results so your suppliers know where they stand. This is a great way to start a dialogue with your suppliers on what support they may need.
Honor that suppliers are often at different stages of their climate journeys. Some may already have set climate targets, reduction efforts and methods to engage their own suppliers on topics like greenhouse gas emissions whereas others may not know how or even why they should start. Supplier engagement strategies should therefore be segmented by supplier climate maturity, product category, or key impact areas.
Most important of all: provide value for suppliers and communicate clear benefits of your supplier engagement program. Typically supplier gain from a collaborative participation in a supply chain decarbonisation program in multiple ways:
- It drives innovation and transforms business practices
- It enables suppliers to Benchmark & increases their competitiveness
- It builds credibility and reputation
- It ensures their own supply chain resilience
- Last but not least, it demonstrates climate commitments to consumers
To conclude: Supply chain engagement programs need to be built on meaningful, collaborative relationships that provide impactful benefits for suppliers.
HOW WE HELP
That is what we are working on at The Climate Choice with our Climate Data SaaS platform. We provide companies a systematic and collaborative way for the collection of climate relevant supplier data for decarbonisation actions.
Customers use our data driven software platform to either engage their own supply chain and share relevant insights with their suppliers or to assess their own climate maturity compared to market averages.
Our platform therefore offers an „Out of the box“ supplier engagement program that is aligned to international climate standards and regulations and can be adapted to company specific needs. The process is thereby designed along the 3 steps of supplier engagement
- Data collection
- Analysis & Value creation
- Decarbonisation actions & monitoring
In the first phase, the supplier’s climate performance is evaluated using an actionable assessment framework that covers 5 dimensions. From governance to labor & human rights, environment, broader sustainability and specific climate areas.
In the second phase, the analysis,suppliers receive based on their performance an individual CLIMATE Scorecard that can be shared with multiple customers. On top they receive insights on how to improve their climate performance score, which decarbonisation actions fit their potentials and how they benchmark to others. This way the program provides mutual value and a direct approach to impactful climate action management. Finally: the platform provides guidance to buyers, helping them monitor supplier climate performance, decarbonisation actions along the supply chain and decrease potential climate risks.
COVID-19 showed us that there is vulnerability in supply chains that can affect the company tremendously. It is necessary for organizations to choose who to do business with. The commitment to a sustainable journey is becoming a vital criteria in regards to that. Being prepared to address the complexities requires a different type of conversation, based on trust, not pride, and the establishment of long term relationships.
Sustainable Procurement can be a key lever for global climate transformation. It is on us to take chances, honor our responsibilities and use our privilege to contribute to the necessary decarbonisation. Collaboration across industries and continents can drive this mission forward. Let’s learn from each other, with each other and most importantly: Let’s act now!
Make your company a CLIMATE Champion! Contact us now to arrange a free consultation.