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The Long Journey to Sustainable Procurement

Bad news: Survey fatigue—already at significant levels—doesn’t seem to be improving. In fact, it could get much worse before it gets better. Good news: It could make our businesses more sustainable.

Anyone and everyone who examines his own sustainability performance, or footprint, quickly realizes that suppliers make up a big part of that footprint. This, in turn, leads the organization to realize that some sort of action on the supply chain is needed. This generally takes the shape of supplier codes of conduct, questionnaires, scorecards, surveys and/or supplier audit programs. Because everyone is in someone’s supply chain, we create a “circular loop” for ourselves. While complaining about survey fatigue, many companies turn around and subject suppliers to the very thing they complain about.

Tip of the transparent iceberg

It’s one thing for large-multinational corporations to do this, but when large public institutions start to explore sustainable procurement, we get a glimpse of the ripple effect. Federal, state and local governments, state universities and non-profit healthcare providers are assessing their own sustainability performance, which will lead them to assess their suppliers.

Whether you’re large, small, public or private, you are in someone’s supply chain and you inevitably will get that sustainability question. Are you ready to answer it?

At every level, reporting leads to procurement

National governments are the largest institutional buyers by category and are increasingly weaving sustainability into their own procurement plans. The U.S. White House Council on Environmental Quality issued Executive Order 13514 several years ago requiring all federal agencies to measure, manage and report on sustainability performance. The Order goes so far as to indicate that federal agencies should assess their supply chains, too. To understand the dynamics, look at two of the longest reporting federal agencies, the U.S. Army and the U.S. Postal Service. Both organizations were reporting on sustainability before the Executive Order by using the Global Reporting Initiative.

The U.S. General Services Administration, the procurement arm of the U.S. government, reports on its own sustainability performance. The GSA is also charged with helping all agencies figure out the sustainable supply chain question, and they are becoming much more familiar with GRI.

At the state level, the Washington State Department of Ecology is the first state agency in the U.S. to apply the GRI reporting framework. As such, it is also beginning to understand its supply chain and is working on its next GRI report, in which the state will dive deeper into that chain’s sustainability. The 49 other states are at various stages of sustainability adoption, and many already have sustainability woven into procurement programs.

One of the leading city examples is that of Cleveland, Ohio. It is the first city in the U.S. to give incentives to suppliers that are reporting on sustainability performance, and who do so according to CDP and GRI. This is part of its broader city sustainability plan. If you look around, you’ll see numerous other cities weaving sustainability into their operations and their procurement policies, but nothing like Cleveland.

Preparing for the inevitable questions

How do you keep abreast of the situation, prepare your information and systematically, consistently and credibly prepare to successfully surf this wave? The answer begins by understanding the complete “value chain.” Value Chain Mapping is a process that identifies the main activities associated with a company’s service or product line and is often used in corporate strategy development to identify performance improvement opportunities.

The next step is to conduct some basic due diligence on your largest customers so you understand their material issues and how they are reporting on sustainability performance and their own procurement. The Corporate Register and the Global Reporting Initiative have the most extensive lists of reporting organizations.

Finally, use this inevitable supply chain ripple to your own advantage. Build your internal business case around the fact that the demand for sustainability information is only going to increase, and use your customers’ requests as leverage for developing a more robust plan and strategy. Rather than react to independent and separate requests for sustainability information, develop a strategy for how your organization actively can measure, manage and strategically and efficiently disclose your sustainability information.

Sustainability performance is an integral part of any organization’s overall operational performance. Tying this directly into the sales cycle by understanding the sustainability demands of your largest customers creates the strongest business case for any CR professional.

The road less travelled: A glimpse of the future

Imagine two possible roads here. Each and every organization (corporations and government agencies) develops its own approach to supply chain management and sustainable procurement, or organizations apply a Cleveland approach and reward suppliers that are already reporting publicly. Better yet, what if more organizations created a transparency push, and asked suppliers to report publicly on sustainability performance, letting the market play its part in monitoring the validity of such sustainability reporting? Or what if organizations trained suppliers to apply sustainability standards and identify material issues and then asked suppliers to publish sustainability reports?

The most advanced examples of sustainable procurement are found in the IT sector. This is partly credited to their historical involvement in the quality movement, but also due to sustainability issues related to their products and the related supply chains. Companies such as Microsoft now ask suppliers to report publicly, and they are seeing the positive results. Dell and EMC Corporation both plan to train suppliers on sustainability and reporting, and Intel has taken it the farthest by actually training suppliers on GRI Reporting and setting a deadline by which it expects a public report.

Imagine this: You gather your suppliers at a single meeting to discuss why sustainability is important to you. You explain how and why you measure, manage and report. You explain how you identify material issues, including the most significant in your own supply chain. You explain —while your most important suppliers sit before you and among their competitors—why you see these issues as a differentiator, and you explain the importance of credible and balanced transparency.

You do all this while referencing the very same standards you apply—UN Global Compact, IIRC, GRI, CDP, SASB, etc.—and you explicitly outline how and what they should report and then set a date by which you expect to see their reports published in the public domain. How will those suppliers respond? How will your industry respond, or other industries? How will the market respond? You can get a sense of how this plays out by reading Intel’s blog article “The Farther Backward You Can Look, the Farther Forward You Can See.”

Better yet, go to your industry association and get it engaged in the idea. Because most of the primary members already report publicly on their own sustainability performance and as most of the secondary members are suppliers to the primary members and each other, it’s in the best interest of the association to not only provide robust sustainability education and programming, but also to organize industry-wide and standardized sustainability trainings. The Automotive Industry Action Group is a perfect example of how this sort of supply chain challenge can be addressed through thoughtful and standardized approaches aimed at adding value to all its members, especially as all its members are facing the sustainability question.

The sustainable play: It’s a long game

When you step back and look at this evolution over time, it’s not hard to see the patterns and catch a glimpse of the solutions. First, any organization assessing its sustainability needs to understand materiality and its value chain. Second, reporting on sustainability performance is now a de facto standard—the supply chain ripple is making that so. Reporting, however, should be viewed as a process—one that can add tremendous strategic value to your efforts and your organization.

If the word “reporting” makes your colleagues cringe, use the concept of “transparency” as your driving force. Being transparent on your organization’s most material sustainability issues should be your primary focus, but don’t forget about the material issues of your largest customers. Their reports will enlighten you as to what issues they are facing and what might come to you in the way of supplier expectations.

Finally, leverage those association membership dues your organization is paying. Industry and professional associations are meant to keep their members informed, as well as help engage with the market. Your associations should be working for you to not only bring the latest resources and information to you, but to help the industry or profession understand the trends, standards and solutions that are in the market place. Industry groups should be helping to train all their members and suppliers. Professional associations should be explaining why and how certain professions need to adapt to the sustainability question.

Chambers of Commerce and other regionally based business groups need to realize that the entire economy around them is facing the sustainability challenge and these groups’ members deserve value added sustainability support. If we push the Cleveland, Intel and AIAG models together, here is a glimmer of a much more efficient way to build sustainability capacity, promote transparency and drive information into a very thirsty sustainability market that will help monitor this information.

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