Procurement has faced "one of it's most challenging years" following war in Ukraine © SERGEI SUPINSKY/AFP via Getty Images
Procurement has faced "one of it's most challenging years" following war in Ukraine © SERGEI SUPINSKY/AFP via Getty Images

What are the four issues holding procurement teams back?

24 January 2023

Procurement is the “only function” that can tackle scope three supply chain emissions but four key issues are holding the function back, according to consultants.

Thibault Lecat, UK managing director of consultancy Inverto, said merely meeting regulatory targets was not enough and teams should be building sustainable and transparent supply chains to futureproof against incoming laws.

His comments followed research by Inverto that found 39% of businesses have not adopted a procurement sustainability strategy, and only half (50%) consider carbon footprint as a factor when selecting suppliers. 

Germany’s Supply Chain Due Diligence law recently came into effect which could see companies fined 2% of their global profits if they fail to identify risks of environmental destruction or human rights violations in their supply chains, and the EU is scheduled to introduce its Corporate Sustainability Due Diligence Directive in 2024.

Lecat told Supply Management: “Purely meeting the targets set by the regulators may not be enough. Customers expect increasingly high standards, so it is essential that this is reflected in a well-thought out sustainability strategy, with clear measures to be actioned. Businesses need to act quickly if the climate emergency is to be brought under control.

“Having a sustainability strategy in place gives companies a competitive advantage, as once regulations do eventually come in, all organisations will be fighting for the same, scarce sustainable resources. Therefore, those with the foresight to build that supplier base ahead of time will win in the long run.”

The research, involving 90 procurement professionals across Europe and the US, found seven in 10 companies (72%) did not work with the majority of tier two suppliers on sustainability issues, and 79% did not work with the majority of tier three suppliers.

Lecat continued: “Companies need to act now and procurement is the only function that can create transparency on scope three upstream emissions and has the ability to reduce them.

“However hard a company tries, without a clear procurement strategy, it simply won’t be able to significantly reduce its emissions. A clear strategy also provides procurement with incentives to pursue decarbonisation, and to move away from the focus on the cheapest price.

“Those that fail to acknowledge this and do not adopt a procurement sustainability strategy are taking a big risk. They may find themselves wrongfooted by regulation as well as under pressure from their more ESG-focused shareholders.” 

The four issues holding procurement teams back from meeting sustainability targets are:

1. A misunderstanding of the procurement function

Procurement’s evolving function has meant its role in driving sustainability has been underlooked. 

“The value that the procurement function can have on a company is still deeply misunderstood,” Lecat explained. “The era of purely purchasing goods and services from suppliers for the lowest price is over, and procurement should now be helping to create products that besides costing less are more innovative and sustainable.

“Despite procurement being one of the most important levers for ESG progress, investment in both financial and personnel terms to build and develop necessary capabilities remains far too low.”

2. Sustainability has become sidelined

“Procurement has been through some of its most challenging years ever faced,” he said, referring to successive supply disruptions from the pandemic, Russia’s war in Ukraine, and record level inflationary pressures, which have taken their toll on sustainability initiatives. 

“It is not surprising then that for many businesses, the focus has been on managing supply-related risks and controlling costs at the expense of their sustainability initiatives.”

3. Complexity of scope three emissions 

The complexity of decarbonisation and understanding scope three emissions can be a barrier for firms taking the necessary steps to tackle supply chain emissions.

The current lack of transparency around scope three emissions can make it a “daunting process” for procurement teams, Lecat explained. “Particularly with the many challenges posed by the need to collaborate with suppliers and partners who may place less value on environmentally-conscious working practices and might be subject to less scrutiny by investors and consumers.”

4. Lack of regulation

Firms should look at getting ahead of legislation to stay competitive, but clear regulation is needed to ensure accountability and that firms are supported – and have the financial backing – to meet targets. 

Lecat said: “The lack of transparency around scope three emissions allows companies to simply sweep under the carpet an issue that generally constitutes 80-90% of its emissions. The accountability that mandatory reporting on scope three emissions would deliver, could provide the trigger needed for action to be taken by the C-Suite. 

“Regulation would accelerate the investment in the tools and technology needed to create transparency and monitor the impact of initiatives. Mandatory reporting would also give companies a stronger position with suppliers that drag their feet around reporting and KPIs.”

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