Procurement and sustainability: the perfect pairing
In recent years, sustainability has found itself firmly on the procurement agenda. When you consider that an organization’s Scope 3 carbon emissions—those that sit within its value chain—can account for up to 90% of its total carbon emissions, it makes sense, particularly as the majority sit within the supply base.
Procurement, on the whole, is the gateway between suppliers and the organization. It is the function that engages, evaluates, and manages suppliers. Cost and commercial factors have driven this relationship for many years, but increasingly, we know procurement has a broader value proposition.
This article explores the challenges organizations face in progressing their decarbonization journey and poses procurement as the vehicle to deliver. It suggests replacing the notion of separate procurement and sustainability strategies and business cases with embedding sustainability in what Procurement does today, collaborating with often resource-constrained sustainability teams, and realizing value beyond cost savings and achieving your net-zero targets.
Compliance is a significant motivator of decarbonization efforts, yet there is much greater value on offer in the pursuit of net zero. The same can be said for other business imperatives. While budgets are increasingly squeezed, procurement teams must strive to deliver more with less. However, whether it’s decarbonization, risk mitigation, performance improvement, or another business imperative, procurement’s role is to align the cost base and suppliers to achieve it.
Sustainability over the years
Every five years or so, something happens at a macro level that ignites a surge in sustainability activity. Let’s look at 2010; there’s a movement starting, building on CSR to a broader sustainability focus. Retail giants Unilever and Walmart launched sustainability plans, the first of their kind, and were dubbed as influential in promoting sustainability in the corporate sector. California passed historic Human Trafficking legislation, and the first mass-produced electric car was launched in Japan and the US.
Fast-forward to 2015, the year of the Paris Climate Agreement, the launch of the United Nations Sustainability Development Goals, and the launch of the UK’s Modern Slavery Act. This was a significant year for recognizing the need to limit global warming. Sustainability efforts increased, and the science-based target initiative was established. Countries and businesses started to set net-zero targets.
2020 found us in a pandemic. With the focus it placed on supply chains for businesses, highlighting vulnerabilities and a need for greater resilience, the significance of Scope 3 carbon emissions gained momentum, too. Organizations reassessed their purchasing patterns, often opting for more local supply to reduce dependency on international shipping, which impacted their carbon footprint, too. Subsequently, there was a surge in net zero target ambitions, with 47% of all targets set in 2020 alone.
Where are we in 2025?
That brings us to today. Observations of the last five years, particularly with the insights from Proxima’s own research exploring business readiness for reducing Scope 3, is that many are setting the ambition, some are setting the strategy, but most are still failing to make progress. In fact, reports state that up to 85% of businesses are falling behind on Scope 3 targets, highlighted by the SBTi delisting 200 high-profile companies due to lack of progress.
Various barriers and challenges are cited across the research, with some of the most prevalent including insufficient and low-quality data, an inability to influence suppliers, cost and resource constraints, immature abatement technology, a lack of leadership support, and misaligned business priorities.
A list of very real, very valid challenges. Yet, there’s also agreement and alignment in the benefits of achieving Scope 3 targets. Reputational value, lower costs, higher valuations, higher revenues, and the ability to attract the best talent are all recognized business benefits of decarbonization. Furthermore, in a recent Bain report, the research explored the value of addressing Scope 3 in more detail. Driving energy efficiency, optimizing processes, and reducing waste can all reduce costs. Understanding how you comply with regulatory pressures and your exposure to carbon tax can mitigate risks and inform resilience strategies within your supply chains. Decarbonization also improves market competitiveness by making you more attractive to customers and investors alike, and ultimately, it contributes to futureproofing your business strategy.
Sustainability in Private Equity
In a private equity context, companies that integrate sustainable practices and strategies into their operations can enhance their attractiveness to investors and improve valuation multiples (versus those that don’t). Companies with sustainability strategies underway are seen as a lower risk due to their prepared position to handle regulator changes and environmental and social challenges (particularly pertinent to the incoming EU directives). Sustainable practices also better position companies for long-term growth, being more likely to adapt to changing market conditions and customer preferences.
So, how do you close the gap between the challenges and the benefits?
The answer, in part, is through Procurement. Scope 3 emissions are embedded in the value chain. This means your suppliers represent your Scope 3 emissions, and Procurement is well-positioned to “do the doing” required.
The challenge is that the connection between sustainability and procurement is still relatively in its infancy, causing the growth of sustainability-related roles in isolation from the function that already has many existing infrastructure and relationships in place to drive decarbonization activity. This results in doubled efforts and suppliers providing financial information to one party and sustainability information to another, rarely converging, causing inefficiencies and halting progress on multiple fronts.
Consider some of those key barriers to progressing decarbonization. Now consider the change in the positioning of the business case for sustainability if it is positioned as a business-wide, collaborative procurement initiative rather than a stand-alone set of activities.
2030 is the year many have set to reach their short-term targets, which leaves as little as 1-2 sourcing cycles left to make a change with suppliers. At its core, Scope 3 is an engagement and influencing issue: “How do I work with my suppliers and stakeholders to act and decarbonize themselves?”In this sense, reducing your Scope 3 is just like any other supplier transformation program, whether it’s seeking to improve performance, reduce costs, improve risk management, or integrate new technology. It’s a change program and, as such, should be embedded into your overarching procurement strategy.
Translating sustainability goals into procurement action
Success stems from a robust procurement strategy, but it does not self-deliver. Proxima’s Scope 3 Maturity Benchmark data highlights the gap between organizations developing a strategy and actually working through the steps required to achieve it. Translating your ambitions into action can be considered across the following stages
1. Assess
The first stage is to align your procurement strategy with the overarching business imperatives. This means understanding your decarbonization target at an organizational strategy level (alongside other imperatives such as cost or performance improvement) and aligning your procurement activities and initiatives.
Yes, you also need data, and helpfully, Procurement already manages supplier spend. Using this data to help you calculate scope 3 emissions can kick-start your journey. Similar to identifying and targeting cost-saving opportunities, mapping your carbon emissions across spend highlights your carbon hotspots, providing the visibility needed to segment your emissions by spend category (e.g. logistics, facilities management, direct materials, etc.) or by the supplier (e.g. top 20%, mid-tier, tail) as appropriate to your profile. This enables you to prioritize, apply the right level of resources, and plan the appropriate supplier engagement to achieve the maximum outcome.
2. Plan
Good planning paves the way for successful supplier engagement. Segmenting your supply base allows you to apply effective cost-saving, decarbonization, and value-engineering levers relevant to your business goals. For Scope 3, this might include redesigning products with alternate greener materials, removing waste or inefficiency from production processes, or switching to renewable energy sources.
However, procurement teams will struggle to drive impact and desired outcomes without appropriate business engagement, good collaboration with sustainability teams, and an operating model focused on delivery. Therefore, you must ensure that the wider business is bought into your procurement strategy (that includes Sustainability) and that the strategy is aligned with corporate objectives and focused on delivering strategic initiatives. If, as a procurement function, you are on a decarbonization journey, this will include building Scope 3 expertise into your teams, their roles and responsibilities, procurement processes and policies, and talent development programs.
These various elements, including business alignment, data visibility, value levers, and operating model, come together to inform a prioritized plan of procurement initiatives that directly support the achievement of the business imperatives.
3. Transform
This stage focuses on the execution. Clear and consistent communication with suppliers and stakeholders to inform, educate, and, importantly, secure buy-in. Using existing governance structures, it’s about measuring progress and identifying risks and issues as they arise, whether that is a smaller supplier requiring greater collaboration to drive change or suppliers failing to report on their progress.
The goal in the context of Scope 3 is collective: to accelerate your journey to net zero through effective procurement practices. Organizations are at different points in their decarbonization journey. Some may need support setting their science-based target, others struggle to get adequate visibility of their emissions, and others cannot see the path to success. This is just a part of good procurement.
Find out more
As a specialist in procurement, Proxima understands the onus on organizations to deliver cost savings and the perception that this contradicts Scope 3 efforts. Yet, consider those cost savings being an enabler of growth, innovation, and business change. If reducing your Scope 3 emissions is an ambition for your organization, it’s time to reposition the value that good procurement can deliver.
