Words by Edward Cox, Director
Sustainability has, in many cases, grown into its own business vertical: a specialized team or service within the business, a functional evolution of CSR, with a keen eye on social initiatives, compliance, and reporting. These small teams have branches that increasingly stretch to and influence the C-Suite – but with limited root systems, they are beginning to hit a wall.
Sustainability continues to cement itself within the heart of corporate business strategy. More progressive organizations are recognizing that sustainability is a value lever and that treating it as a business vertical no longer works. Traditional sustainability teams, however adaptable, cannot possess the breadth of skills, resources, or network of influence that will allow their organizations to adapt for success, with the speed required. And so leading organizations are increasingly adopting Sustainability as a business horizontal in response to the need for it to permeate across all functions: from Finance grappling with the updated reporting requirements of new regulations like the Corporate Sustainability Reporting Directive (CSRD), to Marketing seeking the “green premium”, to Procurement playing a central role in delivering against these upstream ambitions. Sustainability is no longer a concern confined to a specific part of an organization – it is a business-wide one.
Sustainability is moving faster than ever today. Companies are preparing to comply with the CSRD from 2025, Carbon Border Adjustment Mechanism (CBAM) reporting is underway ahead of a full launch with carbon credits in 2026, and IFRS regulations will bring many of these components into mainstream accounting. At the time of writing (July 2024), 5,695 businesses have approved science-based targets (SBTs), a 35% boost from 4,205 at the end of 2023.
Amid ongoing macroeconomic and geopolitical uncertainty – from war to trade tensions to political instability – rigorous procurement and supply chain management are more important than ever. Accepting incumbent products, suppliers, and supply chain structures as the status quo is unlikely to build a strong business. We need more data, more transparency, and more change.
“Supply chain emissions typically make up 40-80% of an organization’s total carbon emissions, even reaching over 90%” – while this is often quoted, it’s not just a glib statement: near-term 2030 global commitments, let alone net zero targets, cannot be met without fundamental supply chain change, activated by procurement teams.
Until now, the sustainability demands on procurement teams and their supply chains have often been implicit. Now, they are being actively voiced. Procurement teams are either waking up to this fact or, if we take a more positive perspective on this, are being empowered with funding and commitment to meet their full potential.
Sustainable procurement is therefore becoming more than a buzzword; it speaks to a real need to deliver measurable ESG outcomes through the supply chain. Without this change, organizations cannot be compliant or competitive.
Yet, for many organizations, there is no clear roadmap for what this means, and there is a lot of work to be done – work, however, that presents a strong opportunity for market differentiation for early movers.
The CSRD has been adopted by the EU to promote accountability and reporting on supply chain risk and performance. Containing approximately 44 disclosures referencing procurement or supply chain, it is certainly not just a finance department concern. It will impact nearly 50,000 companies, typically those that meet two of the following criteria: €50m+ net turnover, €25m+ assets, or 250+ employees.
This corporate-level requirement adopts a double materiality approach which considers Impact Materiality and Financial Materiality: organizations must assess their impact on people and the environment alongside sustainability matters that create or erode their enterprise value. This is a clear acknowledgement of the important role sustainability plays in supply chain risk: might your supply chains fail due to changing water availability, environmental degradation, or migration? If so, what will the financial impact be?
Procurement teams will, at minimum, need to feed into these myriad considerations, providing insight, data, assurance, and plans. Much of this may not be readily available. Teams will be stretched, capabilities and capacities tested.
However, many will need to go beyond this, activating a strategy to demonstrate proactivity and measurable results. This becomes even more of a tall order when performed alongside ‘the day job’, but over time, it will enable business value generation through responsiveness to opportunities and mitigation of risks.
In mid-2023, Efficio hosted a CPO dinner where sustainability and its role in Procurement were discussed in an open, informal way. I was heartened by the quality of the conversation where, for almost three hours, attendees showed their passion and ambition for the role Procurement can play. There was also a recognition of barriers around capability, funding, and clarity around Procurement’s strategic role and direction.
Fast forward 12 months, and the landscape feels different. Knowledge has increased, funding has started to open up, and legislation has focussed the need for tangible impact into sharp relief.
We’ve recently seen some negative press around organizations, including high-profile ones, retreating from their climate commitments, especially regarding net zero. But perhaps this isn’t completely gloomy news: in part, it reflects a growing understanding as to what is achievable, especially among the more mature, early adopters who truly recognize the scale and complexity of change required.
Sustainability teams and reporting lines will find a growing presence within Procurement, reporting to the CPO. Sustainable Procurement (aka Responsible Sourcing and Sustainable Supply Chains) will be a key enabler for corporate sustainability strategies.
Suppliers have a unique opportunity to create a competitive advantage for themselves. Supply chains will be disrupted, and suppliers may need to quickly pivot to emerging, must-have “green” technology and materials. Established businesses may have to rapidly adapt, rebuilding supply chains to compete with innovative startups.
We’ve seen this in 2024 and this trend shows no signs of slowing down. Governments and governmental organizations are reacting to growing public awareness and concern by looking to mitigate the climate crisis and the multitude of other ESG issues.
Large businesses will invest further in advocacy and collaborate with NGOs to push for institutional change that will create balancing mechanisms whereby sustainable options can be competitive and fairly recognized.
We will begin to see sustainable procurement as the new normal, not a separate or enhanced process. The next generation of procurement professionals will be sustainability “natives” and will be increasingly literate in these data, processes, and delivery techniques.
GHG emissions will increasingly become a £/$/€ consideration. Carbon pricing will be adopted, for example, in the form of carbon taxes or emissions trading schemes. CBAM will trigger increased carbon quantification rules and the use of credits. Countries may act on trade tensions under the guise of carbon pricing, especially in relation to high-emitting low-cost countries.
Procurement is often tactical and typically aligns with plans that look no longer than 12 months ahead. However, this does not work in a sustainability context, and we will start to see procurement teams adopt a much longer-term planning view. Only in this way can they hope to shape the supply market and transition to sustainability-embedded supply chains.
Long-standing followers of the progress of sustainability or sustainable procurement may have had to moderate their expectations regarding the pace of change, but the direction of change has likely been born out. This will continue, largely because the path is logical and inevitable. Since the Industrial Revolution, the world has ‘boomed’, and we know change is needed to avoid the inevitable ‘bust’. As the costs of inaction continue to tip in favor of the benefits of action, this will accelerate further.
Sustainable procurement approaches and best practices are starting to be defined, and targeted investment to adopt these practices will deliver business value. People have always said that sustainability will only succeed when it is not just the right thing to do but the best thing to do. This is the paradigm that we are quickly moving towards – and it may be just in time for our 2030 commitments.
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