Sustainable procurement: investing in a more sustainable construction value chain
How we buy matters as much as what we buy. Trillions of dollars are spent around the world each year, so how can we ensure the money is being spent on products and services that don’t harm people or the planet?
About two-thirds of the environmental, social and governance (ESG) footprint of an average company is the responsibility of its suppliers. This means that the purchasing function must play a central role in the sustainable development strategy of each organization.
But most companies struggle to translate their real sustainability commitments into clear sourcing strategies. Why is it? And what can we do about it? Answering these questions is at the heart of the Responsible Purchasing project led by the National Research Center on the Sustainable Built Environment (SBEnrc).
Purchasing and sourcing managers are increasingly reviewing their supply chains to ensure they meet ESG objectives.
But as they watch closely with an ESG lens, they face a challenge so huge they don’t know where to start. There are so many things to consider: supporting ethical manufacturing and fair labor practices, minimizing the risks of modern slavery, promoting education and training opportunities for locals and disadvantaged groups, increasing the use of recycled content, reduce waste, eliminate products that destroy biodiversity or are made with toxic substances. chemicals, choice of low-emission logistics options… the list seems endless.
How can we source value-for-money products and services that truly support these goals? SBEnrc’s Sustainable Procurement Project (P2.76) examines key issues throughout the procurement lifecycle to find practical ways to improve ESG outcomes in the housing, construction and infrastructure in Australia.
Panel discussions with participants from Australian government, state governments, private companies and industry associations explored the drivers, barriers and enablers of sustainable sourcing. Here’s what we found…
What drives sustainable purchasing?
Both internal and external drivers are at play. Government requirements and policies are an obvious driver that can influence the decision-making of organizations. Governments can impose mandatory environmental and social requirements or offer incentives.
Customer requirements can also drive sustainable sourcing. Customer needs, investor confidence, stakeholder expectations and value creation are underlying factors that encourage responsible purchasing. A participant in a private client’s focus group said that “customer market research is a means of assessing the value of sustainability for private companies; and customer needs and share price are considered to balance the cost of sustainability and future benefits”.
Internal organizational pressure – whether it’s mitigating risk, gaining competitive advantage, reporting to investors, reducing incremental costs for sustainability, engaging with long-term suppliers, fostering innovation and technological progress or improving efficiency – is also a driving force. A public client participant stated that “In the context of the government client, people are unwilling to pay a premium for sustainability. However, if sustainability is framed as better risk management, people would be more willing to pay.”
What hinders the successful implementation of sustainable procurement?
The focus group discussions revealed several barriers that impede the implementation of sustainable procurement practices. These barriers are classified into three groups:
- Organizational constraints: The internal work environment can hinder the integration of sustainability into procurement. Focus group participants cited several constraints, including lack of dedicated staff, resources, training or communication, a mismatch between sustainability goals and performance indicators, financial pressures and tight budgets.
- Contextual constraints: These external barriers include traceability, transparency and visibility of supply chains, lack of understanding of broader social or environmental co-benefits, and shortened product life due to rapid technology development.
- Process constraints: This concerns procurement processes. Key barriers in this category include the lack of tools and data to objectively assess the value and impact of sustainability, the lack of clear and simplified guidelines on sustainable sourcing, and the lack of post-completion reviews that hinder understanding of the benefits of sustainable sourcing and competing goals.
How can organizations enable sustainable sourcing?
Feedback from our focus group was crystal clear. Organization-wide sustainability goals can only be achieved with the help of sustainable sourcing strategies, policies and action plans. Here are a few ways to get the ball rolling:
Invest in the right tools: Measurement leads to better management. To demonstrate the value of sustainable procurement, we must start with tools that can effectively assess the social, financial and environmental outcomes we are trying to achieve.
Don’t underestimate contract management: Contract documents must clearly describe the sustainability criteria that suppliers must meet. A good post-contract evaluation will provide valuable data to verify sustainability results and support future decisions.
Engage vendors early: Working together from the planning stage can improve environmental and social outcomes while saving money and time.
Align business and sustainability goals: Making organizational changes to internal governance structures, aligning individual performance goals with sustainability goals, and ensuring that sustainability engagement starts at the top can build internal organizational capacity and optimize resources.
Collaborate to catalyze innovations: The Australian property and construction industry is world renowned for its collaborative approach. A focus group participant from a listed entity spoke of the Property Council of Australia working with its core members to develop the online supplier platform to minimize the risks of modern slavery in the building and construction supply chain, for example.
The biggest takeaway from the focus group sessions? Elevating the role of sustainable sourcing requires leadership from government and customer organizations and collaborations among all stakeholders along the value chain.
Thanks: This research has been developed with funding and support from the Australian National Center for Sustainable Built Environment Research (SBEnrc) and its partners. Core members of SBEnrc include BGC Australia, Government of Western Australia, Government of Queensland, Curtin University, Griffith University, University of Western Sydney and RMIT University.