Ethical and Sustainable Procurement in Public Sector Supply Chains
05/31/2023
Sustainable procurement is an emerging area of risk and opportunity for the public sector. The climate emergency, Social Value Act, and the need to squeeze maximum value from every pound will drive increased scrutiny on suppliers and procurement decisions.
Public procurement is under greater scrutiny to be sustainable
33 pence of every pound spent by the public sector goes towards the procurement of goods, works and services1. Every public organisation feels a strong responsibility to spend money wisely. There is great scrutiny on public spending and the reputational damage is enormous when the public or partners lose confidence. At the extreme end this can create conditions where the lowest cost supplier wins regardless of the wider value other suppliers might add to an organisation or communities. Tendering exercises can also be so narrow that they discourage innovation or added value in how services are delivered.
Legislation such as the Public Services (Social Value) Act or the Sustainable Procurement Bill expect public bodies to consider the wider environmental, social, and economic impact of procurement decisions. Procurement and supplier management can be an opportunity to reduce inequalities, address climate change, and improve health and wellbeing too.
In addition to being the right thing to do, embracing continuous progress to sustainable and ethical supply chains can enhance long-term relationships with suppliers, foster innovation, reduce the lifetime costs of contracts, and protect your reputation.
At the same time, sustainability activism and climate litigation are emerging risks for organisations. There is growing appetite to challenge the decisions organisations make to reduce their impact on the environment. Pressure to manage and report on sustainability across the supply chain, including scope 3 carbon emissions, will grow. Public bodies will increasingly be held accountable for the impact of their supply chains.
Sustainability requires transparent supply chains
Public bodies are familiar with ethical issues such as fraud, bribery, and corruption. A lot of time and effort goes into ensuring transparency in how contracts are developed, tendered, and awarded. However, as supply chains have increased in complexity, it has become increasingly difficult to have visibility and accountability across them from end-to-end. More effort is needed to understand the impact of activities beyond immediate suppliers.
This could include where there might be unethical or unsustainable activity in the supply chain, such as modern slavery, human rights violations, and employee exploitation. The difficulty is how to proactively identify and manage the range of sustainability and ethical risks across supply chains.
The continuous pressure on finance means procurement decisions are often skewed towards low up front cost suppliers. Lack of investment in the procurement function, and stretched contract managers, can also mean there is limited awareness, capacity or skills to engage proactively with the supplier base.
There can be a lack of data or access to get the transparency needed to make a proper sustainability assessment. Collaboration on sustainability and ethics requires ongoing engagement, and some suppliers may not be willing or able to engage in sustainable practices beyond whatever sales material they include in a tender response.
Public bodies can use their purchasing power to drive sustainability and ethical behaviour in the market. The Preston Model2 aims to do that, and many other authorities are at various stages of implementing sustainable or responsible procurement strategies.
Implementing sustainable and ethical practices in public procurement
- Translating strategy to execution is always difficult. To achieve this public procurement and contract management professionals should consider:
- Benchmarking current approaches against similar organisations to understand how effectively ethics and sustainability is embedded, and identify areas for improvement, such as adopting the Science Based Targets Initiative3.
- Develop capacity through training and development for your people.
- Work with senior leaders to adopt a clear policy on sustainability and ethics in the supply chain. This should help ensure senior leaders are supportive and understand the trade-offs between cost, risk, and the benefits for your organisation.
- Work with organisations that have expertise in managing sustainable and ethical supply chains to help guide your organisation’s journey.
- Communicate and engage with your critical suppliers about how to improve sustainability in existing processes e.g. ensure paper is made from sustainable sources championed by the Forest Stewardship Council (FSC).
- Challenge your critical suppliers and support them to map their own supply chains for greater transparency into potential risks.
- Create a joint action plan with critical suppliers to achieve sustainability goals and work with them to mitigate risks identified.
Sustainability is a journey
Achieving supply chain sustainability and embedding ethical practices is an ongoing journey rather than a destination. Embedding sustainable and ethical practices does not need to be expensive. Different organisations will have different strategies to achieve this, but a compliance-driven approach will not work.
New skills and disciplines are needed to manage a dynamic and changing risk environment, to ensure value for money, compliance, sustainability, and ethical practices are all considered when awarding decisions are made.
For more information about the services we offer and how they can help you with these issues, please visit https://www.zurich.co.uk/business/our-expertise/zurich-resilience-solutions.
2 https://www.preston.gov.uk/article/1339/What-is-Preston-Model-
3 https://sciencebasedtargets.org/
