Sustainable procurement

Sustainable procurement describes the business practice of choosing products and services that have the least impact on the environment and the greatest social benefits. The practice involves many factors, including investigating suppliers to ensure that they do not pollute or exploit workers, selecting or designing minimal packaging that is recyclable, and reducing the carbon footprint as much as possible by carefully planning logistics such as the delivery of raw materials and products.

While the primary focus may be on minimizing their impact on societies and the environment, many companies are aware of the role that perception plays in consumers’ spending practices. They often market their products, such as cosmetics, on these green attributes. This practice is known as “green marketing.” The fashion industry was among the first to address sustainable procurement, also called sustainable sourcing. Fashion companies instituted these policies after brands were found to be contracting with manufacturers that were using child labor and exploiting workers in other ways.

The impacts of sustainable procurement are both immediate and long-term. The practice ideally limits the effects of operating in the present to ensure that opportunities are available in the future. Furthermore, many companies find the return on investment (ROI) of sustainable procurement a lucrative incentive.

Background

Sustainability is a modern concept. In centuries past, many businesses viewed resources as virtually limitless. Virgin forests were cleared by lumber operations to plant crops. Almost one billion acres of the United States was covered by forests before the arrival of Europeans. An estimated 300 million acres are estimated to have been deforested. Landscapes were polluted and torn apart by gem and mineral mine operators. Mountaintop removal mining continues to destroy areas of West Virginia. Wildlife, such as elephants and whales, was overhunted for ivory, pelts, feathers, and other saleable products. Despite increased awareness, in the 2020s, overfishing remains a concern. Such operations were devastating to the environment and ecosystems and often exploited workers. Negative consequences included the rise of piracy in countries such as Somalia. Depleted fish populations forced many inhabitants to turn to crime as a source of income.

Social change and regulation of industries are frequently prompted by disasters that reveal exploitive practices. For example, the 1911 Triangle Shirtwaist Factory fire in New York City took 146 lives and revealed the exploitation of children as young as fifteen and women, mostly immigrants. Within months, the state enacted workplace safety laws and rules for employing women and children.

Similar events of labor exploitation occur in contemporary times. In Bangladesh, one of the primary countries where garments are produced cheaply, more than five hundred garment factory workers died in fires from 2006 to 2012. In 2013, an eight-story building in Dhaka that housed multiple garment factories collapsed, killing more than 1,100 and injuring 2,500. The government implemented some reforms to protect workers and closed nine hundred factories deemed unsafe, but sweatshops continued to operate in the country. However, as the years progressed, this work environment remained deadly. Reforms have been slow to arrive, are rarely enforced, and worker advocates have been met with violence.

The world’s deadliest industrial disaster in Bhopal, India, in 1984 exposed the inaction of a multinational company. Forty tons of toxic gas were released from the Union Carbide factory, killing at least five thousand immediately and tens of thousands more over the years. More than thirty years later, the soil and water were still contaminated, and nearly every family living nearby reported birth defects, cancers, sores, and other ailments.

Around the world, children continue to be exploited for their labor. In 2020, major chocolate manufacturers were found to source their cocoa from plantations where children as young as five years old harvest the pods using machetes. Despite chocolate companies and cocoa traders signing an agreement to wipe out most of the worst examples of exploitation, in 2020, researchers found that child labor on cocoa farms had increased. Available figures by the US Bureau of International Labor Affairs, estimated 1.56 million children in the West African countries of Ghana and the Ivory Coast were laborers in this industry. Nonetheless, in 2021 the US Supreme Court ruled that U.S. firms such as Nestle USA and Cargil could not be held accountable for child slavery in its procurement processes.

Overview

Three significant areas of sustainable procurement are social, environmental, and economic. These are sometimes referred to as people, planet, and profit.

The focus on social costs can be wide-ranging and varied. It may address both local and global concerns. A company may work to be a good neighbor where it operates, such as in a foreign country where a product is produced. Many companies tout their treatment of workers, such as by providing safe working conditions and fair wages. However, they must also be cognizant of how raw materials are sourced and vet suppliers. This is to ensure children are not involved, workers are paid fairly, conditions are safe, and the environment is protected. This investment in society and people should extend to workers in foreign locations and even shareholders as part of the corporate culture. For example, benefits such as paid maternity leave can help a company attract and retain qualified employees. The global pandemic caused by the COVID-19 virus in 2020 left many workers determined to continue remote working and flexible schedules and showed employers that such perks were possible. Investing in communities where the company operates may include spending money on local projects, scholarships, and sponsorships.

Most companies focus on and promote their environmental efforts and gains. This is typically done because of government regulations, changing consumer preferences, and other external factors. These organizations aim to reduce their carbon footprint, wasteful packaging, and use of resources such as water to limit their impact on the environment.

Decisions in many areas of business can have a significant economic impact. Companies that implement sustainable practices in general have become attractive to investors. Sustainable, responsible, and impact (SRI) investing in the United States is a growing trend. In 2022, the market size for the US sustainable finance was estimated at $520 billion. Assets Under Management (AUM) of American funds devoted to sustainable finance was $37.80 trillion. These types of investments can also be profitable. From 2023 to 2030, the compound annual growth rate (CAGR) of these investments was expected to be 22.6 percent.

The benefits of sustainable procurement can be considerable in other ways. Companies generate goodwill with their customers by adopting and practicing “green business” and non-exploitive plans. They may also realize financial benefits. For example, reducing the material used in packaging cuts the cost of purchasing those materials. Increasing the use of recycled materials can reduce the impact on the environment. Using suppliers from economically or socially disadvantaged groups has been found to reduce purchasing costs. Diversifying sources of supplies can also benefit companies if supply chains are disrupted by natural disasters, local regulations, political conflicts, and other concerns.

Many major companies and corporations have developed sustainable procurement plans. IKEA boosted its bottom line by transforming some of its waste into the products it sold in its stores. The Swedish furniture company previously had spent more than $1 million annually on waste. PVH, which owns clothing lines including Calvin Klein and Tommy Hilfiger, set a goal of sourcing all its cotton footprint sustainably by 2025. The company achieved 50 percent in 2019.

The world’s largest retailer, Walmart, developed a zero-waste initiative and, in 2016, set targets to reduce the volume it was sending to landfills in several countries. In 2018, the company reported that it had diverted 81 percent of waste from its operations in the United States and 78 percent globally from landfills. Among its changes, Walmart donated unsold food to local food banks in the United States, while in Japan, stores worked with vendors to divert fish waste to pet food production and other uses. Walmart is working to achieve "Net Zero Waste."

Sustainable procurement offers many benefits for companies, workers, and communities. Companies that act on this practice encourage the market to do so as well.

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