How (and Why) Sustainability Became an Essential Part of Procurement Processes

In today’s rapidly evolving procurement landscape, sustainability is no longer just a buzzword — it’s a business necessity. Organizations across the globe are rethinking their procurement practices and policies, recognizing that ethical procurement isn’t just about following trends; it’s about building a more inclusive, efficient, and equitable supply chain.

In response to growing demands for more ethical procurement practices from eco-savvy customers, Environmental, Social, and Governance (ESG) advocates, and stakeholders, more companies are recognizing their responsibility to the environment and society as a whole. In doing so, companies are not only meeting societal expectations but also leading the way toward greener, more ethical supply chains.

So what exactly is sustainable procurement, and why is it considered one of the five top procurement trends? In this blog, we’ll dive deep into sustainable procurement, from its rapid growth to the benefits it brings to businesses, consumers, and the planet. We’ll also offer actionable steps organizations can take to develop their own sustainable procurement strategies as well as challenges to successful sustainability adoption.

Green Procurement: Where Profitability and Sustainability Meet

Sustainable procurement, or “green procurement,” integrates environmental, social, and economic responsibility into every aspect of procurement, from decisions to processes to policies. By embracing the “triple bottom line” of people, profit, and planet, it minimizes negative impacts while aligning with stakeholder expectations and business goals.

This approach ensures profitability and sustainability coexist, fostering thoughtful practices that benefit both organizations and the planet. Additionally, businesses are recognizing the potential for cost savings and revenue growth through efficient resource use and the opportunity to strengthen their brand reputation by demonstrating a commitment to ethical sourcing and environmental stewardship.

AI Technology is Fueling the Next Wave of Sustainable Procurement

• Sustainable procurement gained global recognition with the 2017 release of ISO 20400 by the International Organization for Standardization (ISO). It has grown significantly since then, and future growth is expected to accelerate thanks to rapid advancements in cutting-edge technology, such as artificial intelligence (AI), predictive data analysis, automation, and machine learning.
• A recent Gartner report reveals that 72% of procurement leaders are prioritizing the integration of generative AI into their strategies. The procurement industry is also currently seeing a surge in AI-powered software. As a result, investment in AI-powered tools is on the rise, with companies dedicating an average of 3.32% of their annual budgets to these technologies, according to SDC.
• While this represents a substantial investment, the benefits are undeniable. Advanced technologies drive efficiency, empower smarter decision-making, improve transparency, and create agile and resilient supply chains that are also more environmentally sustainable — a win-win for both businesses and the planet.

The Importance of Sustainable Procurement in Building a Competitive and Ethical Business

Beyond the environmental and societal considerations, sustainable procurement future-proofs organizations against supply chain disruptions while enhancing their ability to navigate changing market conditions, fluctuations in demand, and evolving regulations. By effectively identifying and mitigating supply chain risks like geopolitical instability, climate change, and economic uncertainty, organizations remain flexible in the face of unforeseen challenges.

In addition to mitigating risks, sustainable procurement can lead to cost reductions, increased savings, and enhanced customer trust. Organizations will also gain a competitive advantage by appealing to customers and partners seeking to engage with businesses that demonstrate a strong commitment to addressing environmental and social challenges.

How Organizations Can Benefit From Adopting Sustainable Procurement Policies

Adopting sustainability in supply chain management isn’t just good for the environment and society — it’s a smart business strategy with benefits that touch every part of an organization. Here’s how sustainable sourcing can make a meaningful difference:

• Reduces environmental impact: By adopting sustainable practices throughout the supply chain, companies can significantly cut carbon emissions, reduce waste, and minimize their overall environmental footprint, contributing to a healthier planet.
• Boosts brand reputation: Sustainability resonates deeply with today’s eco-conscious consumers. By demonstrating a commitment to ethical and responsible practices, businesses can strengthen their image and build trust with their audience.
• Ensures regulatory compliance: Adhering to sustainability standards and environmental laws demonstrates to stakeholders that a company is credible, responsible, and prepared for the future.
• Enhances market competitiveness: Companies with sustainable supply chains are more attractive to consumers, partners, and investors who prioritize environmental responsibility, gaining a clear competitive edge.
• Optimizes operations: Sustainability can drive efficiency, streamline processes, reduce costs, and improve overall supply chain performance, making operations smarter and more effective and improving overall supply chain performance.

So, what do organizations need to do to design and implement strong and comprehensive sustainable procurement policies of their own?

10 Steps for Building a Strong Sustainable Procurement Policy

A well-developed sustainable procurement strategy integrates environmental, social, and ethical considerations into every aspect of supply chain management. That may seem like a daunting task, but with a structured approach, organizations can integrate sustainability into their procurement processes effectively. Here’s a step-by-step guide to getting started.

1. Define a Strategy

Create a clear, actionable procurement policy outlining the company’s commitment to sustainability. Include guidelines for decisions, supplier selection, and performance metrics.

2. Engage Suppliers

Collaborate with suppliers to communicate sustainability goals. Share best practices, encourage sustainable operations, and foster open dialogue to align efforts.

3. Assess Supply Chains

Conduct thorough evaluations of suppliers’ sustainability practices, including environmental and social impact assessments. Use this insight to identify alignment and opportunities for improvement.

4. Measure Performance

Establish key performance indicators (KPIs) to track supplier sustainability. Regularly review metrics to ensure accountability and continuous improvement.

5. Supplier Training

Support suppliers with training and resources in areas like responsible sourcing, ethical practices, and environmental management systems.

6. Wide Collaboration

Partner with industry groups, non-governmental agencies (NGOs), and other stakeholders to drive innovation and share knowledge. Joint efforts can amplify impact across the supply chain.

7. Adapt and Improve

Continuously update procurement strategies to reflect changing industry standards, technology, and stakeholder expectations.

8. Engage Stakeholders

Involve employees, customers, and investors to build awareness and support. Openly sharing progress and challenges can foster trust.

9. Source Sustainably

Prioritize materials with lower environmental impact, like recycled materials or locally sourced goods.

10. Enhance Transparency

Implement traceability systems to monitor the origin and sustainability of materials, ensuring visibility throughout the supply chain.

Top Barriers to Sustainable Procurement

Building a successful sustainable procurement strategy isn’t without challenges. Supply chain leaders face hurdles like limited knowledge of sustainable practices, lack of support or pushback from suppliers, potentially higher costs, difficulty accessing the right technology, and the need to secure buy-in from senior management and stakeholders.

Even with these obstacles, tackling them head-on is essential. Overcoming these barriers helps create strong, sustainable procurement processes that drive meaningful environmental and social impact while aligning with the broader goals of responsible, ethical business. It’s a challenge worth taking on for the long-term rewards for businesses, people, and the planet.

Arkestro, the Predictive Procurement Platform, can help your businesses achieve sustainable procurement goals by providing tools that can help build a more inclusive and diverse supply chain. Want to learn more? Contact Arkestro today.