In a recent Sustainable Procurement Pledge webinar, several experts weighed in on sustainability trends in numerous sectors, how to think about and inform others on ESG goals, and how a new vision for good growth – as opposed to fast growth – strikes the right balance for social and environmental prosperity.
Read the highlights or watch the entire webinar here.
How Sustainable Investment, Compliance and Demand is Growing
Individuals as well as public and private sectors have made clear that between investment, regulation and consumer behavior, sustainable practices are not just a trend, but an integral part of how businesses must operate.
Sustainability Efforts by Sector
Private sector: Over $30 trillion are invested in global sustainability assets, and Bloomberg estimates it will hit over $50 trillion of assets under management by 2025. Forecasting data shows that many sustainable products and solutions are booming, and demand for electric vehicles, for example, are expected to increase 13 fold over the coming years. Conflicts of interest among leadership teams are also changing and in some cases, dissolving.
“The CFO is often on the same side now as sustainability professionals, because they see how much it affects their future share price,” said Ed Bradford, former economist and director and co-founder of The Good Growth Academy.
Consumer activism: According to Deloitte survey data, 28 to 45% of consumers have already taken action to buy things more ethically or sustainably, even if they are more expensive than less sustainable alternatives.
Government Intervention: There have been several international treaties and discussions around climate change, but the UN Framework Convention on Climate Change (UNFCCC), adopted in 1992, set in motion the agreement that countries and relevant parties should meet regularly to discuss the issue at the Conference of Parties, more commonly known as COP.
In 2000, the UN Global Compact was established with the goal of encouraging companies and governments to adopt sustainable and socially responsible policies, as well as track their progress This led to their creation of the 17 Sustainable Development Goals, or SDGs, which range from environmentally-focused to human-centered objectives. While participation has been largely voluntary, it has also ushered in more and more participation over the years – by private and public sectors, as well as firms of all sizes – which has subsequently led to legislation for their respective countries and business sectors.
The Paris Climate Agreement is an international treaty that has also set a robust foundation for global warming goals, from which many other country and company-level policies are created. The EU Green Deal, for example, was approved in 2020 which has the goal of making the EU climate neutral by 2050, and Canada and some US states such as California, have enacted cap-and-trade programs in the hopes of curbing carbon emissions. The German Supply Chain Act, which will take effect in 2023, is one of the first of its kind to ensure companies are tracking ESG scores throughout their entire value chain.
But these are a very small slice of the myriad of laws and requirements around a more sustainable society and business sector. And companies, including procurement professionals, are starting to realize that they cannot ignore the carbon footprint and social values that their suppliers and n-tier suppliers embody.
Why Achieving Sustainable Supply Chains is Urgent
Unfortunately, the window for action is rapidly closing. During the early turn of the 21st century, experts allotted 2900 GtCO2 – a gigaton, or one billion metric tons of carbon dioxide – to consume by 2050 in order to keep temperatures 2°C below pre industrial levels. But 65% of that carbon budget has already been used up.
“We are consuming it so fast that [at the current rate], we could consume the remaining carbon budget in the next five years, although it’s supposed to last us until 2050,” said Dr. Pooja Khosla, executive vice president of Client & Product development at the climate risk platform Entelligent.
On a more practical level, it’s not hard to notice the increase of natural disasters, such as hurricanes, as well record setting temperatures occurring at higher and higher frequencies.
Understanding the Overarching Sustainability Framework
One can find a seemingly infinite number of terms, initiatives, and best practices when developing sustainability goals and initiatives. But here are some of the basics to keep in mind.
Pyramid Model of Sustainability
You may be surprised to learn that many sustainability experts agree that just being sustainable isn’t the final destination – in fact, it’s a somewhat modest goal. Sustainability – defined as the balance where value extraction matches value creation – is just one tier within the pyramid model. These 5 tiers represent how our society uses resources, with Regeneration at the top.
Extractive: This bottom tier is not sustainable for the planet or even human populations. This mentality is solely focused on fast growth by any means necessary, despite the ecological consequences.
Renewable: On this level, there is an effort to consume resources that can be naturally replenished, such as the use of solar power to help generate electricity. However, at this stage, these renewables may not offset more extractive resources.
Sustainable: According to Bradford, sustainability in essence means that you are doing no harm to the world. There is a balance between what you take and what you create.
Restorative: This phase is even more ambitious than sustainability, as it prioritizes the restoration of social and ecological systems to a more healthy state. For example, there are some farming and agriculture movements and practices that aim to improve the quality of soil before the mass use of pesticides.
Regenerative: This is the most ambitious goal which very few businesses currently aim for, but it’s an important goal nonetheless. Within this tier, individuals and entities enable social and ecological systems to maintain a healthy state and continue indefinitely in their evolution, growth and scale.
While organizations should move as far as they can from extractive business models, it’s important to understand how your current ESG efforts currently fit within this pyramid and how far you want them to go.
UN Global Compact & the 17 Sustainable Development Goals
Understanding the UN Global Compact’s 17 Sustainable Development Goals and how most – if not all – of companies’ ESG goals tie into them is a fundamental part of understanding the myriad of initiatives, policies, and practices throughout the world. While many SDGs, such as Climate Action and Clean Water & Sanitation, are environmentally-focused, many others are centered around social causes, including gender equality and education.
“We are moving towards recognizing the importance of the [SDGs], but the problem is recognizing how we can measure and quantify these goals so when we make our decisions as a consumer, employer, or investor, we can make sure our lifestyles are aligned with those goals,” said Dr. Khosa.
“There are lots of data and research companies that are working on the quantification aspect. But you also need a GPS for the goals, so you can see how much you have achieved and how much further you have to go.”
That is where science-based goals come into play.
Science Based Goals
Depending on your company’s carbon footprint and the SDGs they align with, you may need to develop science-based goals in order to demonstrate real impact and progress.
Climate Action, which is the 13th SDG, states that “Global temperatures are on track to rise as much as 3.2°C by the end of the century. To meet the 1.5°C – or even the 2°C – maximum target called for in the Paris Agreement, greenhouse gas emissions must begin falling by 7.6 per cent each year starting in 2020.”
The Climate Action SDG benchmarks, heavily influenced by the 2015 Paris Agreement, also aim for net-zero carbon emissions by 2050 in service of the 1.5°C goal. This means that companies must determine how they will become net-zero and submit detailed plans and progress on the goal.
“Net zero is different from zero. We cannot live in a world where carbon emissions are zero. So net zero means that carbon production at the company level matches company reduction,” said Dr. Khosa.
For example, if a company like Amazon has produced a certain amount of carbon, then it has to detail the ways it will cut that amount of carbon from other sources, whether that’s within its supply chain, packaging, transportation or other factors.
Knowing What Your Company is Responsible For
According to Dr. Khosa, your company needs to figure out which SDGs they are aligning with and how they are going to measure them. Fortunately, for each SDG, the UN has made guidelines, benchmarks, and resources publicly available for governments and firms to follow. These should be written up, submitted and reported on regularly by your company.
For Climate Action and other environmental SDGs, setting up a target goal and accompanying plan is critical. The Science Based Targets Initiative – a joint venture between the UN Global Compact, Climate Disclosure Project, World Wildlife Foundation, and the World Resources Institute – helps companies develop, promote and validate their progress to ensure their public image matches their on-the-ground actions. All of this is open sourced, publicly available information via Call to Action Guidelines.
Understand Scope 1, 2 and 3 Emissions
Tackling climate change requires practical steps that include measuring, reporting and ultimately limiting greenhouse gas (GHG) emissions. There are many company and country-level requirements on Scope 1 and 2 emissions reporting, and organizations like the global Climate Disclosure Project (CDP) have played a large role in helping municipalities, companies and other entities disclose environmental footprint. Scope 3 emissions, however, have been harder to track. But understanding these 3 scopes – and ensuring key stakeholders do as well – is a foundational part of ESG and sustainability success.
Scope 1 emissions: These are emissions that are produced directly by a company or entity, such as GHG from company vehicles or energy produced and consumed within company-owned or operated facilities.
Scope 2 emissions: While these are more indirect than Scope 1 emissions, companies still have more direct control over these emissions than Scope 3. Examples include emissions that are purchased by a company such as electricity, heating or cooling.
Scope 3 emissions: The third category encompasses the emissions produced within an entity’s entire value chain, including those of their suppliers, vendors or buyers. Due to the complexity of global supply chain networks, this final scope has been notoriously difficult to quantify and standardize.
“For Scope 3 emissions, there is not one right way to measure it. There are multiple proposals to get the best estimate of it but even if there is not one right way, that doesn’t mean you don’t do it. You still have to do it in the best possible way you can,” said Dr. Khosa.
Educate Your Employees and Value Chain
A goal and a plan can only be realized when all stakeholders are involved, and that includes everyone from leadership to rank and file workers. Be sure to provide resources, training and management so that everyone understands what the initiatives and policies entail.
But educational empowerment doesn’t stop there. In light of the heightened focus and legislation on Scope 3 emissions, companies must actively support their suppliers in adhering to their ESG standards and consistently communicate their expectations during the supplier onboarding process and throughout the entire relationship.
A New Way to Think about Sustainability within the Global Economy
A sustainability mentality typically approaches a more circular way of thinking about the economy and society, rather than a linear model. In other words, instead of a “Take, Make, Waste” approach we should embrace a closed loop mentality where we recycle and minimize inputs and outputs as much as possible.
The economist Kate Raworth has championed the theory of doughnut economics, an idea that challenges the concern that sustainability will slow down economic growth.
But high economic growth (as measured by GDP), according to Raworth, is not necessarily the right goal, especially if it comes at the expense of the planet and societies long term.
“The old way of thinking is that the more and more GDP growth and revenue growth, the better. The new thinking is the idea of good growth, which is sustainable, safe and just,” said Bradford.
The doughnut model acknowledges that the consequences of a shrinking economy have negative social consequences, such as poverty and an unhappy population. On the other hand, if you have very fast growth, which is eating up a lot of the planet’s resources, the danger is that you break through an ecological ceiling where you end up with a highly strained planet.
In the middle is the right amount of growth for society. It’s no longer about “the more growth the better” thinking, but having the right amount of growth.
How Sustainable Procurement is Involved
Sustainability impacts virtually all industries, entities and departments. But with a heightened focus this year on Scope 3 emissions, supply chain and procurement leaders are becoming increasingly responsible for ensuring that they’re aligned with their company ESG goals and that they’re in compliance with new laws and associated UN Global Goal standards.
Procurement leaders need to understand how they are gathering the right supplier intelligence in order to measure Scope 3 emissions and how they are working in line with company ESG goals and initiatives.
Watch the full Sustainability Procurement Pledge webinar here.