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A practical approach to developing sustainable procurement

By 26th August 2022 No Comments

There are many factors driving the strong focus on sustainability. The Conference of the Parties (COP) to the United Nations Climate Change Treaties (e.g. Paris, Rio, Kyoto etc) drives it at an intergovernmental level. A second key influence is public procurement policies and practices, the VonderLeyen Commission has placed a green agenda at the heart of the current European Commission’s (semester) focus. The Commission controls public procurement rules across the single market and has a direct influence on sustainable procurement policy and principles which then cascade down into individual member states. Publicly traded companies are a third source of influence. The Boards of these companies are responding to investor demands that ESG (Environmental and Social Governance) criteria are a condition of investment.

There are many strands to sustainability, but the current focus is on moving towards net zero emissions. Net zero emissions means a country, industry or company ceases to emit additional carbon into the atmosphere. Carbon production must reduce by 50% by 2030 and be eliminated by 2050 (with some exceptions).

These changes are already starting to have a big impact on how societies live. This will become even more noticeable in the medium to long term. From a procurement point of view, it can be unclear what this means for businesses as they:

  • Buy and sell from each other,
  • Meet new standards under trade rules, and/or
  • Sell to governments around the world.

Below, we describe what green procurement means and what buyers can do manage this agenda. Suppliers can use this article to get ahead of their competitors by understanding how potential buyers are likely to apply green procurement principles.

Step 1: Develop a sustainable procurement strategy

The first step for any buyer is to develop a procurement strategy for your organisation that has sustainable goals at its centre. This means checking that suppliers are aligned with sustainable buying principles. Your aim is to choose suppliers that reduce carbon intensity and maximise resource efficiency.

Buyers should ask their stakeholders about their needs and rate current suppliers against green criteria. Any new green requirements should be captured during this process.

Next, buyers should think about upcoming procurements for the next 2-3 years and layer those requirements on top of the current supply requirements. Analyse all of these requirements from a resource intensity perspective. The sourcing strategy should be designed to reduce carbon impacts.

Step 2: Improving sustainable procurement processes and
capabilities

It’s important to ensure that buyers in a company or organisation can manage a procurement process. Staff need to be supported whether an organisation uses a centralised procurement team or is one that allows budget holders to manage procurement. This kind of support should include:

  • Policies and protocols relevant to procurement activity,
  • Useful templates to structure Requests for Tender (RFTs),
  • Supporting software like that provided by Keystone Procurement’s sister business www.sluamor.com that provides a workflow and governance structure for procurement,
  • Training that is accessible when it is needed, and
  • Sourcing databases that make supplier identification more efficient than relying on internet searches.

Green procurement works best from strong governing structures. To be good at green procurement, you must be good at procurement.

Step 3: Defining what you need from suppliers

The definition of existing requirements must remain fit for purpose.

Organisations must assess new requirements for their compatibility with the organisation’s green objectives. Depending on how deep the organisation goes within its strategy, this can include going very deep into supply chains to identify where the carbon load is coming from. The objective of sustainable procurement is to minimise carbon in its totality, not merely from the point of purchase to the point of use / processing / dispatch.

Buyers should clearly define what they are seeking from suppliers and ensure it is available before going to market.

Step 4: Selecting sustainable suppliers

Offers received in response to a well developed RFT are easily evaluated against tender criteria. For green procurement, this will mean that goods will need to have certain performance characteristics that either meet or fail performance requirements.

Company-wide accreditation with ISO14001 is often a mandatory requirement for suppliers to larger organisations. The European Commission developed a higher level standard, EMAS 14001 which can give suppliers an edge – relatively few organisations have this accreditation. Suppliers that have no accreditation or present buyers with poorly recognised (national or local) standards below the ISO 14001 level are not as competitive in evaluations as those with the internationally recognised standard.

It’s important that Buyers understand how sub-contracting works and the origin of goods / services to get a good grasp of how carbon intensive a supplier may be and what that could mean for an organisation’s green procurement plan.

Naturally, for goods in particular, product testing is very important and should form part of any selection process. Simply relying on certificates of compliance is unlikely to be enough to buy with comfort.

Finally, it is also a good idea to have statements of bone fides to ensure that you have assurances of minimum standards throughout a supply chain.

Step 5: Evaluating tenders

Many organisations develop award criteria in addition to the pass/fail criteria that they use to select potential suppliers. Award criteria can vary considerably especially for sustainable procurement but they can include:

  • The production process in use
  • The product development roadmap and its implication for carbon load
  • Life cycle costing
  • Anticipated product duration
  • Service requirements
  • Biodegradability / recyclability

Suppliers may have to meet eco-label standards n the EU. Even where there are eco-labels it is advisable to test products for compliance with standards.

Life cycle costing is traditional approaches to assessing price and cost in procurement. Life cycle costing refers to:

  • The purchase price and all associated costs (delivery, installation, insurance etc)
  • Operating costs, energy, fuel and water use, spares & maintenance
  • End of life costs where applicable including decommissioning / disposal

In the future, life cycle costs will also increasingly include greenhouse gas emissions are part of the costing. Using full cycle costing can change sourcing dramatically as the cost takes account of savings in resource usage while rewarding durability and high recyclability.

The greenest form of procurement is based on reduced / efficient consumption. It is rarely compatible with abnormally low pricing. Where pricing from some suppliers remains very low, it is worth considering an open book pricing exercise.

It is also possible to allow suppliers time to attain improved performance. For instance, during contract negotiations you could stipulate that you want a supplier to obtain an environmental management system within 12 months of a contract award.

Step 6: Managing supplier performance

Supplier performance reviews are an important part on any sustainable procurement strategy. In areas that produce a lot of carbon, measurement is essential. A key part to this is to ensure an organisation is aware of:

  • The baseline entering any agreement
  • The process for future measurement
  • The difference in output / impact expected during the contract cycle
  • The performance level against the impact expected.

Good preparatory work at the pre-contract makes contracts easier to manage during their duration. For goods in particular, the product testing and performance post contract and directly linked so quality of analysis.

Suppliers could miss targets so Buyers should always have recourse to the terms of a well drafted contract. It is far easier for companies spending their own funds to do this than it is for public bodies. As a general principle, companies should always, where possible, impose their own terms on suppliers.

Step 7: Selected priority sectors for sustainable procurement

In terms of prioritising a company’s areas of focus for sustainable procurement, the following areas would typically be initial areas for focus.

  • Buildings and building management systems including:
    • Green procurement focused on sustainable design for new buildings – this can include LEED design for building,
    • Minimum energy performance standards (EPBD or above),
    • Building green procurement into award criteria for construction contracts to reward sustainability (e.g. using recycled materials / low carbon materials),
    • Focusing on high efficiency and/or renewable energy systems
    • Focusing on air quality (key with COVID), natural light, sensors to manage working temperatures and high air quality,
    • Water saving fittings in bathrooms, kitchens etc
    • Physical and electronic systems to manage energy use, water use and waste
    • Using contract clauses related to the building management systems and their fitness for purposes to deliver green goals
    • Getting the contractors to train the company on the use of sustainable building management processes and systems.
  • Road transport vehicles (contribute 25% of carbon emissions)
    • Reviewing fleet size (number and/or physical size) and replacing the least efficient vehicles would typically be step number one
    • Sourcing vehicles with the lowest carbon impact is typically step number two
    • Training staff in eco-driving, monitoring tyre pressure and using sustainable motor consumables (lubricants, adhesives etc) is important for lean, green operations
    • Using vehicles that have air conditioning systems with low GWP coolants (global warming potential) is also important
    • Choose environmentally friendly tyres (with life cycle visibility)
    • Use life cycle costings that incorporate externalities beyond the actual purchase as part of the cost model.
  • Energy using products
    • IT and imaging equipment: use high efficiency, long lasting products, designed to be resource efficient (highly recyclable)
    • For lighting ensure in new buildings that all installations have low power density while providing the illumination needed, buy lamps with high efficacy, use lighting controls to reduce consumption and use dimmable ballasts where circumstances allow
    • Ensure system works as intended in an energy efficient way
    • Mercury content is low and waste is reusable and/or recyclable.
  • Food and catering services including
    • Specifying a minimum percentage of food that is organically and/or locally produced
    • Menus that focus on seasonality and reward seasonality
    • Contract clauses that minimise food waste and packaging waste
    • Clauses that reward staff with training in environmental systems and companies that operate environmental systems

If your organisation requires training or support in this area, details can be accessed at the link below on how Keystone Procurement can assist your organisation. Keystone Procurement also supports companies through Enterprise Ireland’s green service provider’s panel. This is accessible here.