Public spending is big business. Direct purchasing by governments and state-owned enterprises accounts for 12 percent of GDP in OECD countries, and in the U.K. averages GBP 280 bn annually. Directing this spending toward more sustainable goods and services can have a huge impact on sustainability performance across the world, helping drive innovation and transition toward a green economy. Sustainable public procurement can also be beneficial from the economic perspective: It can generate income, reduce costs and promote innovation among domestic producers. It’s no surprise, then, that public buyers are increasingly pondering supply chain transparency and looking for ways to guide them through sustainable purchasing such as sustainability ratings by third-party appraisers.
National Procurement Standards
Although public procurement policies vary widely from country to country, most national governments issue purchasing guidelines for state-owned enterprises. The UN Sustainable Public Procurement Programme has established a network of governments and stakeholders, with the UN Global Review of Sustainable Public Procurement, the latest edition published in 2017, reporting on the progress.
In the U.K. all public sector enterprises must follow the government policy that promotes and facilitates sustainable and energy efficient practices. They need to, for instance, ensure they apply the Government Buying Standards (GBS) – a set of product specifications that are mandatory for central government departments and related organizations. All government departments must ensure they meet GBS when purchasing goods and services for the product groups covered, while the wider public sector is encouraged to specify the “mandatory” standards in tenders.
Looking Beyond Product
The commitment to sustainable procurement extends to ensuring suppliers follow sustainable practices. Enterprises must make sure that when they set to purchase more sustainable and efficient products they engage with their suppliers to understand and reduce the impacts of their supply chains. In other words, a product-based approach is too narrow, for example, batteries that are eco-friendly may contain materials purchased from conflict areas without the necessary due diligence or be assembled by children. Buyers need to recognize the impact of the entire production cycle, not just product functionality, and look deeper into the supply chain, considering environmental, ethical and fair business practice issues.
A European Example
Sustainable public procurement practices that go beyond the product-based approach are being implemented, for instance, by the Cornwall County Council. The West Country authority sees sustainable procurement as socially, environmentally and economically responsible. It has committed to ethical sourcing and works closely with partners across the county and South West to minimize risks associated with modern slavery and uses a risk-based approach, based on country, reputational risk and proportionality to identify relevant products and specific contracts in line with ethical sourcing considerations.
A Groundbreaking Act
Looking further afield, the U.S. state of California has recently passed the Buy Clean California Act. The law, which will take effect in 2019 and currently only targets the construction sector, tackles what environmentalists refer to as “the carbon loophole”. It will require state-owned enterprises to consider the carbon footprint of building and insulation materials used in infrastructure, even if they were produced in a different state. Given that currently over 20 per cent of the world’s greenhouse gas emissions are caused by the manufacture of products in one state, but consumed in another, manufacturers can move away from states that have stricter regulations and continue polluting. California has already received enquiries about replicating the law in other states and in Europe.
Lessons From the Private Sector
In the private sector, suppliers are already making significant efforts to comply with constantly growing demands for greater supply chain transparency and are in many ways looking up to state-owned sector in hope that public buyers will appreciate that. It is time for public buyers to tap into this potential, especially that both sectors face many of the same sustainable procurement challenges, including:
The Sustainable Procurement Barometer report, based on a survey of procurement managers of large multinational corporates showed they:
- Have executive support, but still lack resources to implement and scale programs;
- Are still struggling to look beyond tier one.
Other evidence, meanwhile, demonstrated:
- Lack of supply-chain monitoring culture (no captive supplier base);
- CSR risk is perceived as low (failure to see beyond tier one, while that risk is usually further down the supply chain);
- Difficulty adopting beyond-product approach;
- Perception that sustainable products are more expensive and the lack of expertise on sustainable purchasing;
- Budget limitations and conflicting goals in public procurement policies.
Private sector buyers seek to mitigate these challenges by gaining clear visibility deep into the supply chain and are increasingly looking toward third-party appraisers to run professional assessments by sustainability ratings companies such as EcoVadis.
Comprehensive Sustainability Ratings
Launched over a decade ago in France, with offices in eight countries across Europe, Asia, Africa and North America, we offer the first collaborative platform that delivers a comprehensive digital assessment for global supply chains. EcoVadis’ methodology maps to detailed industry standards and regulations, and the easy-to-use scorecards help procurement teams monitor supplier environmental, social and ethical practices across 150 purchasing categories and 110 countries. Sustainability analysts employed by the company around the world evaluate and verify news, reports and data submitted directly by suppliers.
Regardless of the industry, buyers agree that EcoVadis offers five key advantages that can also prove extremely sought after in the public sector:
- Provides the single indicator you need to reduce complexity and minimise risk, while identifying your best CSR practices;
- Gives you a clear overview and scalable insights into suppliers’ sustainability performance;
- Equips suppliers with knowledge and tools to facilitate improvement;
- Allows you to tap into the potential and innovation across the supply chain;
- Generates new cost savings.
This article originally appeared in U.K.’s In-procurement Magazine.
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