Sustainable Procurement Increases Revenue Growth, Study Says

Fifty percent of sustainable procurement leaders increased their revenue from sustainability initiatives, a 33 percent increase over non-leaders, according to the results of the latest EcoVadis/HEC Sustainable Procurement Barometer.

The research, which was compiled through a survey of 120 supply chain professionals globally, found that almost all organizations (97 percent) place a high level of importance on sustainable procurement. This continues the upward trajectory of previous years, illustrating how established the field has become in less than 10 years’ time, EcoVadis says.

“Sustainable procurement is no longer a nice-to-have – it’s an integral business function responsible for protecting and improving brand reputation, driving revenue and mitigating business risk,” said Pierre-François Thaler, co-CEO of EcoVadis, in a statement. “In order to scale up, the mature programs are investing in embedding sustainability into processes across their procurement organizations.  One key outcome of this benchmark study is to help inform and inspire all organizations to accelerate their progress toward leadership, and realize the rewards and ROI.”

The study follows a CDP report, published last month, that found companies can leverage their purchasing power to reduce emissions and help their suppliers save money — a combined $12.4 billion in savings in 2016. Hewlett-Packard, for example, helped its suppliers avoid 800,000 metric tons of CO2e emissions and save more than $65 million.

Nearly half (45 percent) of organizations surveyed in the EcoVadis/HEC study say their sustainable procurement program covers most (75 percent or more) of their spend volume today. By comparison, 27 percent reported the same in 2013.

Yet while supplier coverage has increased, depth of supply chain CSR visibility remains elusive. Only 15 percent of organizations said they have complete supply chain visibility into the CSR and sustainability performance of both tier one and two suppliers, and only 6 percent reported full visibility into tier three suppliers and beyond.

In the earlier 2013 survey, the no. 1 cited obstacle to more effective engagement and commitment to supply chain and procurement sustainability was a lack of executive and board support. In 2017, that challenge doesn’t crack the top three.

“The C-suite appears to be finally on board with sustainable procurement initiatives,” Thaler said. “However, when you dive deeper into the data, an interesting picture starts to appear. While executives are finally on board, procurement teams still report that a lack of internal resources holds them back.”

In 2017, the two largest obstacles for sustainable procurement programs were a lack of internal resources and difficulty tracking supplier sustainability performance. Supplier commitment, on the other hand, was not found to be a primary challenge. Only 14 percent of suppliers reported that they were not incentivized by buyers to be sustainable and socially responsible.

The EcoVadis/HEC report comes as Ikea has acquired a minority stake in Morssinkhof Rymoplast, a Dutch plastic recycling company, as part of its $1 billion sustainable supply chain investment.

In an earlier interview, Thaler said Ikea’s sustainable procurement pledge is a smart business move that will have a positive impact on the retail giant’s bottom line for three main reasons.

“The first is around risk management,” Thaler said. Companies need a long-term supply of materials to produce their products. Disruptions in the supply chain directly affect profits — if a company can’t produce a product because it doesn’t have the necessary materials it will lose revenue — and can cause long-term harm to a brand’s reputation.

The second driver, Thaler said, is cost prediction. Ensuring sustainable materials helps prevent massive cost spikes, often due to demand outpacing supplies.

“The last driver, and that’s what Ikea is after, is differentiation — improving the value of the brand for end consumers by being positioned as the leader in this space,” Thaler said. Another example, he added, is Unilever. About half of Unilever’s growth in 2015 came from its sustainable living brands, which grew 30 percent faster than the rest of the company’s business.