Sustainability is an important factor to most organizations with motivations for acting in a sustainable manner ranging from politicians and society demanding more sustainable products to investment funds pegging their investment decisions to corporate sustainability goals. Either way, many Procurement organizations and professionals struggle with getting started.
The webinar “Making sustainability actionable in sourcing” therefore brought together a diverse panel of speakers with different perspectives and voices respected in their fields, covering the research, corporate, sustainability and tech community. The panel defined sustainability from their respective perspective and discussed how to make it actionable by sharing practical ideas and tips on how to embark on the journey.
Each participant outlined what sustainability means to them and why Procurement is well positioned to drive the initiative. Inspired by their work with organizations, local communities, students and even personal friends, this introduction provided a good understanding of the different motivations to drive sustainability through Procurement teams.
Clare Rowe, CEO of Restor, explained why the term sustainability is both intimidating and misleading when thought of as a purely objective target. She proposed to rather treat our definition of sustainability as a living document and a moving target. With sourcing and sustainability teams working hand in hand rather than in isolation, this would allow them to really make an impact on their organization and reduce the environmental footprint across the supply chain.
Prof. Dr.Stephan Wagner, Chair for Supply Chain Management at ETH Zürich pointed out how the focus and definitions of the research community have changed over the last two decades and what challenges organizations face to make sense of the data. While environmental questions were the starting point, nowadays the scope includes also social and governance (ESG) aspects. He also pointed out the financial impact of negative news on the share price of organizations, building the bridge to supply chain transparency as an associated topic of interest.
The research conducted as part of a master thesis at ETH Zürich that cumulated in the white paper “Sustainability metrics in Sourcing & Procurement” found that Procurement teams are aware of the importance and benefits of integrating sustainability into their decision making yet face challenges with gathering information and integrating them into their decision processes.
The white paper identifies 5-10 relevant metrics each for raw materials, packaging, logistics and OPEX spend categories. It concludes that many commonalities in terms of relevant sustainability metrics exist on a category level with little variation across the studied industries.
Despite advocating for additional research, it points out that many relevant metrics are already available today from EcoVadis, a provider of business sustainability ratings, intelligence and collaborative performance improvement tools for global supply chains. EcoVadis and Archlet partner to make the existing sustainability metrics available where it matters most, the award decision in strategic sourcing processes.
This was echoed by Thomas Udesen, CPO of Bayer and co-founder of the SustainableProcurement Pledge, who pointed out how the decisions of Procurement professional everyday decide whether we will reach the UN Sustainable DevelopmentGoals or not. He called on CPOs and individuals to collaborate on an industry level and use the community of practitioners to get informed and overcome the paralysis. With his statement on “perfection is the enemy of progress” he framed the issue of inactiveness described by Clara previously and urged listeners to get started somewhere at all rather than waiting for the perfect solution or external pressure.
Lukas Wawrla, co-founder of Archlet, explained how technology enables companies to make use of their sustainability data and deliver more holistic sourcing decisions, especially in complex sourcing events. He explained how bringing transparency to the opportunity costs and trade-offs of sustainable sourcing decisions allowsProcurement to have more meaningful conversations with their suppliers and stakeholders, improving the relationship with both. He therefore championed the collection of more information and metrics from suppliers on their sustainability efforts during tenders, so these can lead to truly sustainable sourcing decisions.
The discussion concluded with the panelist sharing some personal advice on how to get started on the sustainable sourcing journey. In summary, every individual Procurement professional needs to be the driving force for sustainability. Nobody passionate about the topic should wait for their organization to make sustainable behaviors mandatory, but rather request their leadership team to act.
And rather than aiming for perfect, people should just get started somewhere and identify the areas where they can create the biggest impact. By starting small, learning quickly and knowing there is a community of like-minded individuals that can be asked for help, they can overcome the lack of perfect solutions.
During the following Q&A, the changing role of Procurement and CPOs over the last decades was addressed. The expectation to manage sustainability, risk, diversity and innovation next to costs is a clear primer towards holistic sourcing decisions. Besides that, the importance of sustainability and Procurement teams to work as one with clear alignment of goals and information streams was stressed. As there was not enough time to answer all questions raised by the audience, a selection was answered by the panelists to provide additional food for thought.
Why do you think is it that people tend to think “only” of the environment regarding sustainability? How can we broaden the general awareness to include social sustainability more?
Clara Row: One could undoubtedly write a dissertation on this topic, but most basically I think this comes from a western worldview that largely sees people and nature as separate. In reality, nature and people are inextricably linked. My perspective is that it is both unethical and futile to try to achieve "environmental sustainability" without thinking about people, and this view has become quite mainstream. At least in the CPG world, many companies with sustainability commitments include social pillars such as human rights protection, inclusion of smallholder farmers in their supply chains, respect for local communities, etc.
Any recommendations on how to monetarize the sustainability advantage? Which cost do you give to the sustainability advantage, to be able to compare suppliers?
Lukas Wawrla: This is indeed a tricky one. I think in general, putting a dollar value behind a qualitative parameter is definitely a science for it’s own. From a mindset perspective, I think it’s better to make non-sustainable suppliers more expensive (Malus) than very sustainable suppliers cheaper (Bonus). With this artificial Malus approach, you penalize suppliers who are not complying with your highest possible sustainability standards. To be quite honest: I can’t give you the answer yet because none of our clients ever added a Malus / Bonus on a supplier quote based on their sustainability assessment.
However, what we’ve seen in a food ingredient tender one of our clients performed is the following example. One specific supplier was quite substantially more expensive than the others. The reason for the higher price was because the supplier invested into a more sustainable process of converting this specific raw material. The company knew that in the future their clients will demand proof for sustainability. Thus, they’ve decided to go with this vendor and in this case they valued the sustainability advantage as the additional investment costs by the supplier.
Can you share some of the best and most credible proxies for different ESG risk assessments on country and material category level? Or point at any reviews that look at this.
Prof. Dr. Stephan Wagner: Good and numerous proxies are shown in our article Reinerth, Busse and Wagner (2019), which are made available.
Reinerth, Dagmar/Busse, Christian/Wagner, Stephan M. (2019): Using Country Risk to Inform Sustainable Supply Chain Management: A Design Science Study, in: Journal of Business Logistics, Vol. 40, No. 3, September, pp. 241-264
To what extent would a price for CO2 (incl. scope 3) be a game changer?
Prof. Dr. Stephan Wagner: If suppliers incur costs, and if these costs are transferred to their customers (buying firms), CO2 price can certainly have an influence. Not sure about the “game changer”, the prices would have to be substantial. But politics is reluctant.
How do you convince your colleagues to take this more seriously and take care of the issue without falling in the actual emptiness of the word "sustainability"?
Thomas Udesen: My experience is that most people understand the challenge when you take the time to explain. Our primary role is therefore to actually understand the topic ourselves, and build the necessary vocabulary to explain what’s in the scope of Sustainability and Responsible Supply Chains. Being able to explain the environmental, social but also the economical dimensions is certainly critical if you are to bring colleagues along. I think it is also important to recognize that change will not be immediate and that corrective actions need to be implemented gradually – but with urgency.
Can you provide examples of specific metrics/KPIs that a CPO should track internally if they're really serious about embedding sustainability in their organisations?
Thomas Udesen: I think a mix of activity and impact (or leading and lagging) metrics are necessary. Some practical metrics are the coverage of spend/suppliers who have “green” scores after assessments/audits. This will highlight the areas that need focus and this allows you to track how quickly you are able to close such gaps. Many assessment methodologies also allow you to capture the relative performance of your supply base (like EcoVadis). This allows you to monitor the average performance and also the progress you are driving (or not). With more companies signing up for the Science Based Target Initiative monitoring your Co2 emissions for Scope 1, 2 and 3 will also be necessary. You can naturally add lots of metrics around other important areas like recycled content, water usage, land-fill avoidance, human right audits etc. Some of these are more industry/company specifics though.
For additional information on sustainability metrics, please download our white paper here or visit www.ecovadis.com. All practitioners are invited to join the Sustainable Procurement Pledge here.