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How procurement is driving a sustainable future

There is a wide acceptance that we all have a responsibility to protect the planet for future generations, which extends to the impact that organisations have on the world around them.  

Walk into any boardroom, office or coffee shop and it won’t be long before the conversation touches upon the topic of sustainability. 

Procurement hasn’t always been considered the driving force in organisations, but as a testament to the agility and demonstrable value of the function in recent years, it is now commonplace to see responsibility for sustainability and ethical sourcing sit with procurement leaders.  But what does this mean and why is it important?

Why is sustainability important?

Businesses are realising that their purpose is more than simply to deliver growth and profitability, as the impact of regulations forces change and consumers and employees increasingly making their choices based on the environmental and social impact of the business.

With increasing requirements to report on carbon emissions and the introduction of Australia’s Modern Slavery Act which came into force in 2019, requiring businesses with revenue over $100 million to report on their modern slavery risks, businesses are being held accountable for the impact their supply chains have with the risk of financial and reputational implications for those who choose not to act.

Consumers are increasingly making informed purchasing decisions based on their understanding of a company’s impact on the environment and the communities in which they operate. According to a 2021 study, 90 per cent of Gen X consumers said they would consider spending more than 10 per cent to switch to sustainable options over cheaper non-sustainable options.  

Employees are also placing increasing importance on the values of their employers. As we continue to wrestle with how to attract and retain talent in procurement in Australia and New Zealand, it should be highlighted that 74 per cent of Gen Z and millennials consider the impact on the environment a top priority when looking for a new role and that impacting societal and environmental benefits is the most rewarding element of a job while two in five millennials have rejected a role because the organisation did not align to their values.  

Therefore, taking action through having a clear sustainability strategy that meets the regulatory requirements with full transparency both inside and outside the organisation is key to reaching and engaging current and future generations of consumers and talent.

The role of procurement

According to a United Nations report, 93 per cent of the world’s 250 largest companies now report on sustainability, however, to have a truly significant impact on environmental and social activities, businesses are being forced to look beyond their own four walls and consider the implications of their suppliers’ actions.

With roughly 70 per cent of an organisation’s revenue being generated through the supply chain, procurement professionals hold a unique position of leverage with suppliers. The topic of sustainability is one that we are all invested in, normalising it into the procurement process provides an opportunity to engage and collaborate with suppliers to redefine their thinking and to encourage collaborative action in meeting aligned ESG goals.

Understanding your organisation’s ESG impact can not be achieved without first having a clear view of the practices of suppliers. Between 50 and 90 per cent of ESG impacts are found in extended supply chains, and – according to a 2020 CPO Survey – only 50 per cent of businesses had high visibility of their tier-one suppliers and 90 per cent reported low or no visibility below tier one.  

Increasingly, organisations will be required to report Scope 3 emissions that occur in the value chain of the reporting company, including both upstream and downstream emissions. While 78 per cent of procurement leaders recognised the importance of Scope 3 reporting in a recent poll, 39 per cent felt underprepared to meet the requirements with 38 per cent citing a lack of data visibility creating a barrier to achieving Scope 3 reduction targets. Selecting the right suppliers through the implementation of ecological and social screening parameters with ongoing measurement and reporting, supported by investment in technology solutions, elevates procurement from stakeholders to leaders in driving the ESG target delivery for any organisation.

Creating a baseline from data drawn from internal and external sources contributes to overall sustainability performance. Importantly, a comprehensive view of your organisation’s performance will enable engagement with suppliers on the role they play. Where suppliers are falling short in measurement or delivery, swift action is required with ongoing support. Over time, this review process will enable companies, and their suppliers, through sharing best practices and ideas and driving innovation, to meet their current sustainability needs whilst defining and aligning with suppliers to meet future strategies.

Once a clear baseline has been established, sustainability metrics should form an ongoing part of any organisation’s process for supplier selection and performance review process. As procurement functions create clear requirements for suppliers to meet ESG targets, it is likely that suppliers will make changes to their own business to maintain competitive advantage, thus changing the narrative from sustainability being a necessary inconvenience to an imperative differentiator.

We’ve established that acting now is our responsibility, nonetheless, the ongoing challenge for procurement in delivering value is to dispel the myth that many perceive sustainability as an additional requirement and therefore an additional cost.  

Sustainability is an enabler for organisations to collaborate with their suppliers. Procurement can leverage the direct relationships and through assessment and optimisation of the supply chain can identify opportunities to reduce overheads, remove waste and create more efficient and effective processes. This in turn will drive improved profitability and position procurement perfectly to lead on delivering targets in sustainability and ethical sourcing whilst creating value for the organisation. 

  • About the author: Chris Gardner is the managing principal and procurement lead at Argon & Co, Australia.