The procurement opportunity

Business leaders are looking for practical ways for their organisations to respond to the challenges and opportunities presented by climate change. An organisation’s procurement activity is an important lever for positive climate impact, yet very few New Zealand companies are actively using procurement to achieve positive social or environmental impact.

Organisations are already buying things. They have committed expenditure, and they will continue to spend. By spending differently, an organisation can benefit the climate, build its own resilience to climate change, and take advantage of the increasing commercial opportunities associated with climate change.

This different spend could include incentivising suppliers to adopt sustainable practices, bringing local suppliers into supply chains, or assessing how sustainable your corporate suppliers (eg office consumables, energy providers) actually are.

There are immediate, and significant commercial benefits associated with aligning procurement practices with climate priorities. Being able to demonstrate a reduction in supply chain emissions is already necessary in order to attract certain green investment. Globally, ESG assets are predicted to represent half of all professionally managed assets by 2024.

The New Zealand Government sees sustainable procurement as one of the pathways to a net-zero emissions economy. The Government is requiring that suppliers demonstrate how they, and their supply chains, are reducing emissions. Broader outcomes assessment (including emissions) is typically weighted at a 10-15%, and sometimes up to 25%, in the evaluation of suppliers’ capabilities.

There are concerning risks associated with organisations not being aware of their supply chain emissions, and the procurement functions not considering social and environmental impact. Examples include:

• Supply risk. Organisations will need to diversify supply chains to build climate resilience. Over-reliance on single source suppliers can leave organisations vulnerable to supply issues in the event of environmental events such as the Suez Canal obstruction, which blocked 12% of global trade, highlighting the fragility of supply chains.
• Exclusion from markets. There are growing demands on organisations to rigorously measure and report their impact on the climate, including scope three emissions (which incorporate supply chain emissions). Failure to comply with environmental reporting requirements is likely to exclude organisations from markets, such as in the proposed European Union regulations regarding deforestation linked to wood and cattle products.
• Legal Globally, we are seeing an increase in the number of lawsuits being brought against companies for greenwashing and net zero claims, including KLM Airlines, Glencore coal company and a District of Columbia power utility Washington Gas. Visibility and management of supply chain impact will be important to avoid future liability.
• Increased cost of finance and insurance. Mandatory climate-related disclosures are likely to impact most New Zealand directors. As directors are aware, the Government has passed legislation making climate-related disclosures mandatory for large publicly listed companies, insurers, banks and financial service providers. This will require around 200 large financial institutions to start making climate-related disclosures from FY 2023. In order for them to report on their own scope three emissions, those financial institutions are likely to begin to demand data from organisations they invest in, and organisations in their supply chain. This means directors need to ensure their organisations are ready to provide data to their banks, large customers and insurers very soon, or risk increased costs of finance and insurance.

There is increasing momentum amongst procurement practitioners in many large New Zealand companies to grow their organisation’s capability to achieve positive impact through purchasing decisions. Leadership and sustainability teams should capitalise on the increased capability.

The Ākina Foundation recently surveyed procurement practitioners from large organisations. Fewer than 25% reported that the procurement and sustainability teams have shared goals and are actively using procurement to achieve these. Many responded that they lacked clarity on the organisation’s priorities.

Directors should encourage leaders to take strategic, practical climate action and working with the procurement team is an interesting, and exciting place to start. The procurement team has a unique line of sight to activity across the whole organisation. There is significant value in involving procurement early and in investing time in adapting procurement practices to consider not just price and value, but also social and environmental impact.

Procurement teams and sustainability teams could be encouraged to work more closely to achieve positive impact for the climate, and to create consistent approaches for measuring the positive impact of their separate and joint initiatives.

Climate-positive buying decisions have the potential to create meaningful impact for the climate and for New Zealand. Procurement is a valuable lever for impact that can support New Zealand companies to contribute to, and benefit from, reduced emissions, a healthy environment and a strong, resilient economy and workforce.

---

About the Ākina Foundation

The Ākina Foundation is New Zealand’s leading impact consultancy, working to transform the economy through the power of positive social and environmental impact. Ākina is the official impact partner of Chapter Zero New Zealand. They are working to support Chapter Zero, and its members, to understand the positive impact of their activities, and to enhance that impact using the various levers that are available to them. akina.org.nz