Veröffentlicht am 18.10.2023

From Traditional to Sustainable Procurement

What we’re witnessing today is the dawn of a new mindset where sustainability plays a pivotal role. Just as digitalization revolutionized nearly every aspect of life, we now see a trend toward sustainable thinking and a heightened awareness of the ongoing climate crisis, which no organization is immune to.

The COVID-19 pandemic has sharpened global crisis awareness and highlighted the impacts of such crises on personal, societal, political, and economic levels. Moreover, this shift is happening much faster than previously anticipated. However, the global climate crisis, threatens our very existence. There’s an urgent need for a paradigm shift and the realization that revenue and profit are fleeting snapshots, and investing in sustainability is the only option for future viability. We’re witnessing demands for change and sustainable developments in markets, proving that even costly investments in innovative product development and brand expansion are worthwhile.

Three years ago, the traditional company Rügenwalder Mühle reported higher sales from its vegan and vegetarian products than from its classic range, which has been in the market since 1834. In 2023, the company completely discontinued its most popular and traditional product, a sausage cold cut, in order to further increase production capacity for vegan and vegetarian products. The company has also implemented other measures, such as using 100% renewable energy for production. „Our company uses several million kilowatt-hours of electricity per year. Since sustainability is more than just a buzzword for us, we switched completely to green electricity on August 1, 2016. Incidentally, if you look at the sectors causing the most greenhouse gas emissions worldwide, they are energy production and food production, far more than transport and traffic. For Rügenwalder Mühle, promoting renewable energy as an alternative to coal or nuclear power is as important for climate protection as producing plant-based foods instead of meat and sausage. That’s why we at Rügenwalder Mühle are doing both.“

The company attributes its 14.7 percent increase in sales over the previous year to its successful adaptation to changing consumer and market trends. According to Bain & Company, complying with potential future regulatory measures, ranging from full water price structuring to stricter carbon taxes, could cause a typical consumer goods company to lose 20% to 25% of its current margins.

„In the sustainability revolution, no company will remain unchanged, and those who act fastest will be the leaders in the end,“ quotes a Bain & Company study („Sustainability is the new Digital,“ a study by Bain & Company).

The focus is clearly on sustainability, but despite the urgency, this change can be challenging for procurement. The pandemic has also shown that sustainable procurement programs make supply chains more resilient and strengthen corporate value.

Market in Transition

The pandemic was not the cause, but the catalyst for many developments that are now accelerating. The increasing demands for sustainability from governments, customers, investors, and employees are evident, signaling what’s ahead for businesses and procurement. Companies that do not face this change and its impact on procurement will be left behind in the competition.

Regulatory requirements are rising, as seen in the German „Lieferkettengesetz“ (Supply Chain Act) for human rights due diligence in supply chains. Similar legislation is also being promoted at the European level. Another important issue for companies is measures for greenhouse gas emissions. The recent proposal by the European Commission to reduce climate gases not just by 40% but by 55% below 1990 levels by 2030 is yet to be decided in the EU Parliament. However, the direction is clear, and companies must increasingly address their CO2 emissions. Many companies have already publicly announced their carbon-neutral plans for self-generation and energy procurement necessary for their production and administration (Scope 1 and 2). While this is a good start, the significant part of a company’s carbon footprint lies in the value chain (Scope 3), responsible for 70% – 95% of total emissions. To meet increasingly ambitious reduction targets, companies must therefore consider emissions in the upstream supply chain (Scope 3) and lay the foundation for successful emission calculation and reduction to achieve real climate neutrality.

Financial markets have already recognized and are driving the shift, not waiting for legal minimum standards, as the performance lead of green equity funds over traditional products grows. Demand for sustainable investments has soared during the crisis from investment firms, banks, and investors. The reduction of greenhouse gases also impacts investments, considering that investment in energy production and use must increase by 350 billion euros annually compared to previous years. While we may have to say goodbye to historic returns on one hand, billion-dollar markets are opening up on the other.

Sustainability has not only reached the market in terms of human rights and greenhouse gas emissions but represents a market shift with important implications for procurement, placing it in a central role.

The Central Role of Procurement Implementing a successful sustainability strategy is impossible without procurement or suppliers, as up to 90% of a company’s impact lies in the supply chain, as shown by the example of THG. Procurement plays a central role in a company’s future orientation and can be much more than a cost optimizer if strategically used and integrated into core businesses.

Unilever, one of the world’s largest consumer goods manufacturers, invested 500 million euros in support measures for its weakest medium-sized suppliers during the pandemic. They understood and utilized the important role of a robust supply chain and a sustainable procurement program for a company’s resilience during crises. Sustainability does not contradict established goals such as cost reduction, risk minimization, and increasing company value. Improved collaboration with suppliers can be an additional success criterion for some companies, especially in crises. Long-term business success is based on new ideas for products and processes, and often it’s the suppliers who undertake these developments, thus laying the foundation for success. Companies with a mature sustainable procurement program can achieve business advantages that enable them to face the changing market and gain benefits such as business acquisition and rising sales.

Sustainable Procurement as an Investment in the Future

An example is Henkel, a global chemical and consumer goods company, which was able to reorganize its credit lines by demonstrating its sustainability performance across the entire value chain. The green loan is an innovative financing whose interest rate is linked to Henkel’s performance in three independent sustainability ratings, including EcoVadis, demonstrating how it used its leading position in sustainability to reduce its capital costs.

In recent years, numerous companies have successfully initiated the transition, shared best practices, and shown that there is not only an ROI from sustainability, but it is also measurable. More than 50% of large companies have achieved cost savings through their carbon management activities, and according to a Harvard University study, total revenues can increase by up to 20%. Companies leading in sustainable procurement and considered Sustainable Procurement Leaders report positive impacts in areas such as employer attractiveness, resilience, and risk minimization. At the same time, return options are shifting from traditional to sustainable.

Not only are regulatory requirements increasing, but also the demands of stakeholders, employees, customers, and investors who expect responsible action from companies. The unstoppable trend toward sustainability and the resulting market transformation allows procurement to take a central role in business continuity and future viability. The pandemic has revealed that it’s no longer sufficient to follow familiar paths; the time has come to act and use sustainable procurement as a driver of the future for your company.

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