For those organisations seeking to secure business through the UK central or local government, one thing cannot be avoided; public procurement managers are increasingly requesting evidence from bidders that their organisations have set CSR and sustainability goals and that they are working proactively towards achieving these goals. Hence the 10% minimum bid score weighting relating to sustainability and social value.
I have a strong belief that procurement has a critical part to play in greening up the organisation. This is because any company will struggle to reach its sustainability targets in isolation. Most carbon emissions are generated not by the organisation itself but rather by its suppliers – perhaps as much as 80%. Ignoring the supply chains in which an organisation operates means that they are only directly influencing 20% of the problem. So procurement must take the lead and develop policies and procedures to tackle the 80% which they have a varying degree of control over.
How should procurement start the process of developing an approach? Without a structured approach there is a high chance of inefficient use of resources and sub-optimal results. That’s where ISO 20400 is extremely helpful as it provides a consistent approach and means Procurement Leaders aren’t required to reinvent the wheel.
What is ISO 20400 Sustainable Procurement?
This April is the fourth anniversary of the publication of ISO 20400 Sustainable Procurement. This international standard builds upon the British Standard BS 8903 and provides an understanding of what sustainable procurement is, what the sustainability impacts and considerations are across different aspects of procurement activity and how to implement sustainable procurement. This standard is for guidance only, so cannot be officially audited and certified.
If you company has a CSR goal to become more sustainable, ISO 20400 is an extremely valuable framework by which your purchasing people can align their activities with your overarching company-wide sustainable objectives. Without a structure in place plus base line audit and regular milestones for performance improvement, it is very difficult to ensure that your company is moving in the right direction.
So what does ISO 20400 cover? It is not possible to do this justice in a short blog post so I’ll focus instead on how it builds on previous Sustainable Procurement standards (e.g. BS8903). There is a greater emphasis on social responsibility and on the identification and prioritisation of sustainability issues.
It makes sense to prioritise given scarcity of resources and time – both at a company level, a cost category and supplier level. If you can achieve some victories early on where the resulting reduction of carbon or waste is significant, this will help maintain the motivation to continue.
In terms of risk and opportunity, ISO 20400 recommends a robust due diligence process to prevent, treat, reduce or control potential positive and negative sustainability impacts. It also recommends that procurement seeks to influence the behaviour of the suppliers and to avoid being involved in any wrongful acts. An organisation can be considered complicit where it stays silent about, or benefits from irresponsible practices of its suppliers.
The standard makes it clear that company leaders must work hard to drive commitment and responsibility across all levels of the organisation including the procurement function. It argues that the organisation will not achieve its sustainability goals unless individuals and teams are accountable.
The standard emphasises the need to measure and monitor the results of sustainable procurement. Four indicators can be used to manage performance:
- Process indicators – how many contracts are compliant with sustainability; how many staff have been trained; how many suppliers have been engaged.
- Output indicators – suppliers’ performance, carbon emissions, waste volumes, number of local employees.
- Outcome indicators – help to understand the impact and contribution of the supply chain to overall company objectives, e.g. carbon footprint, workforce diversity.
- Impact indicators – economic, environmental and social impacts that are positive/negative, direct/indirect, short/long term, intended/unintended.
The standard recognises the need for procurement decisions to take account of the wider cost data rather than simply initial purchase price. It recommends where possible extensive analysis to include impacts on society that can be monetised such as carbon emissions, job creation or losses and other impacts which can’t be easily monetised. Total Cost of Ownership (TCO) excludes external cost benefit analysis and so is an incomplete picture.
ISO20400 also challenges the organisation to consider its ability to influence its suppliers in relation to the sustainability agenda. It suggests that companies build a matrix with two parameters – Supply Chain Influence (ranging from ‘not significant’ through to ‘significant’) and Ambition (ranging from ‘low’ through to ‘high’). Where influence in a supply chain is high, the buying organisation should be leveraging this influence to encourage its suppliers to improve their sustainability practices.
Another important aspect of ISO 20400 is the strengthening of message around the verification of sustainability requirements. Procurement and those specifying requirements need to understand and decide on which certifications, marks or labels could or should be used to ensure compliance with sustainability. And whether such certification should be a requirement of anyone bidding for business.
This needs careful consideration as not every supplier, particularly the smaller suppliers, will be familiar with such certifications and may lack the internal resource or cash reserves to put that issue right. In which case, rather than penalising them through dismissing their bid offer, it may be better for procurement to share best practice and offer to work with the supplier to help them to gain certification over time.
Procurement should provide clarity on what suppliers need to do to comply with sustainability requirements. If additional costs are involved, procurement need to consider who bears this extra cost and how necessary it is to spend such money. There is ultimately a balance between 100% compliancy at a very high cost, versus 75% compliancy at a much lower cost. But whatever certification is insisted upon or recommended within an Invitation to Tender, procurement should be explaining why such certification is sought.
My final point in relation to ISO 20400 is that it stresses the need for continuous improvement relating to sustainable procurement contracts via the “Plan, Do, Check, Act” approach. A debrief document is recommended which feeds into the next procurement and sourcing strategy. Publicising any lessons learned will also help other organisations learn lessons too.