Hurricanes in the Philippines, cyclones in North and Central America, flash flooding in Afghanistan and, of course, bushfires in Australia. There’s no place in the world that isn’t immune to the devastating effects of global warming. As we draw inevitably closer to the 1.5°C increase in average global temperatures, things will only get worse. The latest IPCC report was labelled a ‘code red for humanity’.
The time to act is now. Businesses must step up and take responsibility for their hand in climate change and procurement can play the leading role.
Be a part of the solution or fall behind
Currently, Australian carbon emission targets are set at 26 to 28 per cent of 2005 levels. Compared globally, the kindest interpretation of these figures is conservative. The world is moving ahead with far more ambitious targets and timeframes, and putting pressure on those they trade with to do the same.
The reality is that if businesses are seen as laggards when it comes to decarbonisation, they will quickly find themselves economically isolated from trading partners and other corporations. Already, we are seeing changes in how businesses view sustainability. Once the purview of a single department, decarbonisation is now embedded in many organisations’ success criteria.
So how can procurement help these organisations decarbonise?
Procurement is best-placed to focus on Scope 3 emissions
Let’s define the various sources of emissions a business can be responsible for. Emissions that fall under Scope 1 and 2 refer to that produced directly by the business through production or indirectly through the purchase of energy. Scope 3 encompasses emissions generated upstream and downstream in the value chain.
Scope 3 emissions are the focus of many companies right now, and for good reason; for a lot of businesses, they account for 80 per cent of their overall impact on global warming. For procurement, this is also the area in which the most change can be driven.
How can procurement influence decarbonisation?
Procurement can drive change through suppliers
Nobody is more familiar with a company’s supply chain than procurement. Their main task is to engage with suppliers and determine which are best suited to the organisation based on a variety of factors. Performance, location, stock control and – of course – price are all examples of traditional factors when choosing a supplier.
Sustainability must become a part of these selection criteria. Choosing to work with suppliers of lower-carbon materials can lead to 30 per cent lower emissions per unit. Of course, many suppliers will not be ready at this moment to react to such requirements, but if enough organisations make sustainability a non-negotiable then suppliers will get the message and enact change within their own business.
The sticking point with this strategy, however, is getting visibility of the supply chain. Procurement traditionally has deep knowledge of first tier suppliers but, in a lot of cases, things become murky after that. Companies need to avail themselves of powerful and sophisticated AI and machine learning that can analyse spend data and present it in a manner which leads to actionable insights.
In the meantime, organisations should focus on their highest-emitting suppliers and work with them to find ways of decarbonising their processes and their goods or services. For example, an organisation might stipulate in their ATM documentation that a certain percentage of the packaging is made from recycled material and is itself fully recyclable, as well as – if possible – the product in question.
Public procurement has immense (and often untapped) influence
Public procurement has a massive role to play in encouraging the development of a circular economy – perhaps the biggest role. Infrastructure Australia believes that including sustainability goals in all infrastructure procurement could lead to a 55 per cent drop in carbon emissions.
Some action in this area is already being taken, with many jurisdictions throughout Australia stipulating that a certain percentage of recycled materials be used in particular infrastructure projects. It’s a promising platform that must be built upon.
Councils should also consider consolidating their combined procurement power to drive demand for products and materials that contain more recycled content, as has been happening in South Australia with the Circular Procurement Pilot Project. Too often, procurement teams from neighbouring councils don’t work together when purchasing the same goods or services, creating waste and missing the huge opportunity to influence markets through significant buying power.
Public procurement can also be used to support and sustain industries in their nascent periods. Requiring government fleet cars to be electric would be an effective way of encouraging a home-grown EV market, as would the inclusion of charging stations in new building projects.
Taking the first step
We may have been talking about global warming for years, but decarbonising our procurement practices is still in its early stages. It can be daunting taking that first step on this vital (and unavoidable) journey, but it’s worth remembering that we’re all at the early stage and we’re all in this together. Procurement officers around the world are still figuring out how to include sustainability goals in their tenders and suppliers are working out how to respond to these new stipulations.
We can’t wait for the perfect strategy to come along. We have to get started and work through the bumps as we get wiser and technology improves. To begin with, here are some practical measures that you can take to begin the decarbonising process of your procurement function:
- Educate your procurement officers. In order to decarbonise your procurement practices as far as possible, your procurement team needs to be literate in sustainable procurement. Right now, Academy of Procurement is offering a specific and in-depth training course on how sustainable procurement works. Procurement officers will learn core skills that enable them to spot the opportunities for introducing sustainability and take advantage of the benefits.
- As we’ve mentioned, supply chain visibility is vital if procurement is going to tackle decarbonisation. Second, third tier suppliers and beyond are typically not well seen, though. Modern AI and machine learning, such as Purchasing Index’s Spend Analysis, are the keys to organising your spend data and collating it so that the biggest opportunities for decarbonisation are revealed.
- Perhaps the most important step is simply committing to decarbonisation. Procurement can play the leading role, but the entire organisation has to be on board. The CPO and top management must work together to develop targets within all three Scopes and ensure all employees have KPIs related to decarbonisation. Comprara provides consultancy services in this area, which are invaluable for procurement officers venturing into new territory.
It will be a long road, and motivation can only be maintained if everyone is committed. Get in touch today to begin your decarbonisation journey.