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Translation Errors: The misalignment of a top-down sustainability strategy and bottom-up target setting for procurement

09/08/2021 By

Spend Matters welcomes this guest post from Katharina Erfort, Senior Project Manager at INVERTO UK.

The UN’s Intergovernmental Panel on Climate Change (IPCC) recently published a new report seen as a “code red for humanity.” The report estimates that the world is close to crossing the threshold of 1.5°C warming and that actions to prevent exceeding this threshold are urgently needed.

In light of this, sustainability continues to be on the top of businesses’ agenda and many organizations have committed to net-zero targets. For example, Sainsbury’s has set a net-zero target for its Scope 1 and 2 emissions by 2040. Further, the supermarket chain is committed to reduce its Scope 3 emissions by 30% by 2030.

Read Spend Matters’ series on ESG technology and the issues shaping companies’ sustainability strategies.

While Scope 1 (direct greenhouse gas emissions such as company facilities) and Scope 2 (indirect greenhouse gas emissions such as electricity) can be influenced directly by the company itself as part of how it operates, Scope 3 (indirect greenhouse gas emissions in the value chain such as purchased goods & services) are influenced by procurement in selecting suppliers who apply sustainable practices. This is a great example demonstrating procurement’s impact on achieving sustainability targets.

With many organizations outsourcing processes and procuring goods with a spend of 50% or more of their revenue, they have a large exposure to Scope 3 emissions. As a result, it is key for procurement to be at the forefront of sustainability.

The solution lies in a sustainable procurement operating model

To enable procurement to take up its role in sustainability, the procurement operating model and KPI set must be reworked. Where traditionally procurement departments were focused on cost while meeting quality requirements, a new criterion measuring procurement’s impact on ESG targets must be introduced. Procurement leadership must be made accountable to achieve sustainability targets. Without this fundamental change, procurement cannot transform to tackle this new challenge.

Further changes in how procurement operates are needed:

  • People’s mindsets — Procurement teams must be empowered and up-skilled to be able to address sustainability issues. Reputable team members should be selected and invited to act as change agents. Their role will be to drive sustainability forward in the work with suppliers and internal business stakeholders.
  • Digital tools — Procurement leaders must make investments in adequate digital tools to enable both cost and sustainability visibility across the supply chain. Creating visibility is a big challenge procurement departments are facing as many are lacking appropriate data from suppliers. External databases can help estimate sustainability metrics while company-specific solutions are being built.
  • Process update — Procurement processes need to be adapted to put sustainability at the heart of procurement, and respective tools & templates need to be updated.

The following showcases how sustainability must be integrated into sourcing and supplier management.

  • Sustainable sourcing A sustainable procurement department should not focus on sustainable sourcing as such, but sustainability should be an integral part of the entire sourcing process. Each element of the conventional sourcing process needs to be enhanced with sustainability-relevant activities. For example, sustainability targets should be defined within the category strategies. Suppliers must be assessed according to sustainability questions in the tender process. Sustainability KPIs need to be anchored in the contract and sustainability performance reviewed in regular audits.
  • Sustainable supplier management The first step to successful supplier management is supply chain transparency. This is where digital tools and external databases with relevant ESG criteria are needed. Additionally, technological tools are useful to improve collaboration with suppliers and focus efforts on the right areas.

Procurement must work with strategic suppliers to develop quantified, science-based sustainability targets and support them in achieving them. One way of doing so could be to put in place Supplier Forums where suppliers can share best practices and jointly identify further measures to push the sustainability agenda. Regular site audits are needed to monitor the progress of implementing sustainability initiatives. Where suppliers are found unable or unwilling to achieve sustainability goals, procurement must have the authority to cease supplier relationships.

Procurement leaders must get involved now to set the course on sustainability

Procurement will play a critical role in achieving sustainability goals for the entire organization due to the importance of addressing Scope 3 emissions in the supply chain. In order to enable procurement to truly address sustainability, changes to the operating model are needed.

As a first step, procurement must be given the mandate to address sustainability from the top to avoid challenges at an operational level.

Sustainability has to become a key part of procurement’s operating model, and it should be made mandatory to transfer that into the sourcing and supplier management processes.

How does your company find the right procurement technology and vendor? Spend Matters’ new 5-step “Procurement Technology Buyer’s Guide” can help — with how-to documents, checklist templates and other tips.

ESG (Environmental, Social and Governance)