There was a time when it was not unusual to see people toss trash out their car windows. Today, littering is not only abhorrent, but it also carries a hefty fine. A similar trend is emerging for sustainable procurement. While some companies and individual consumers are still unaware of the origins of the products and services they purchase — not to mention their impact on the environment and workers — an increasing number realize the importance of understanding a product’s journey from its raw materials and manufacturing process to its transportation and eventual use. This growing awareness is driven by both ethical considerations and the potential risks of ignoring sustainable procurement practices, including reputational damage, loss of business and, in some cases, regulatory penalties for noncompliance with specific environmental laws or corporate social responsibility standards.

What Is Sustainable Procurement?

Sustainable procurement is the practice of considering the social, economic and environmental impact of sourcing and purchasing along the supply chain. This involves everything, from purchasing recycled materials and choosing vendors that pay fair wages to selecting local suppliers to reduce transportation costs and support regional economies. But sustainable procurement is more than just taking care of the environment, society and economy; it’s also about supporting business longevity.

For example, sustainable procurement practices include carefully vetting suppliers to ensure that they source materials ethically, treat workers well, follow sound business practices and can reliably deliver what’s promised. Sustainable procurement practices also include diversifying the supplier base to reduce the risk of supply chain failure, as well as enhancing transparency and traceability to mitigate risk and minimize damage should setbacks arise. These practices involve building strong partnerships with suppliers, which results in both a stronger supply chain and enhanced brand reputation.

Key Takeaways

  • Sustainable procurement can reduce costs, support small businesses, protect the environment and uphold worker’s rights.
  • Sustainable products may cost more up front but often save money over time.
  • Metrics for measuring sustainable procurement practices include environmental impact, social responsibility, economic performance and governance standards.
  • It’s important for companies to vet suppliers carefully and conduct regular audits to avoid “greenwashing.”
  • Organizations can leverage existing technology platforms to measure sustainable procurement metrics and improve procurement operations.

Sustainable Procurement Explained

Procurement is the process of sourcing the goods and services a company needs, with the goal of obtaining them for the best value. Sustainable procurement extends this concept by integrating environmental, social and economic factors into purchasing decisions and processes. It considers a wide range of factors, including raw materials, labor, manufacturing, packaging, distribution, reuse, maintenance and disposal.

Organizations getting started with or expanding their sustainable procurement initiatives should evaluate their current sustainability efforts (even if that means acknowledging that they currently have none). They can then set goals based on factors such as business needs, customer expectations, regulatory mandates and industry benchmarks. No matter what areas organizations focus on, a successful sustainable procurement program requires buy-in from across the business. This hinges on thorough education about the costs, as well as the direct and indirect benefits of making a sustainable procurement commitment. Benefits often align with the “triple bottom line,” a sustainability framework that evaluates business performance in terms of people, planet and profit.

Why Is Sustainable Procurement Important?

Sustainable procurement practices protect organizations from supply chain disruptions and enable them to effectively and flexibly adapt to changes in pricing, supply and demand, regulatory mandates and societal shifts. Also, sustainable procurement can help companies reduce costs and increase savings. This can be achieved by opting to procure reusable materials and strategically sourcing from suppliers that are closer to delivery destinations.

Lastly, as industry, government and customer demand for more sustainable practices grows, organizations committed to sustainable procurement will be better positioned to respond to changing regulations and laws. They’ll also stand out among competitors as customers and partners seek to purchase from and work with companies that demonstrate tangible efforts to address environmental and social concerns.

Core Principles of Sustainable Procurement

Sustainable procurement aims to balance social progress, economic development, environmental protection and organizational value. Core principles of sustainable procurement may differ depending on factors such as the nature of an organization’s business and industry, but they commonly include:

  • Environmental stewardship: This principle involves making purchasing decisions that minimize negative environmental impact, such as purchasing products from manufacturers that use clean production methods to reduce pollution. Environmental stewardship also promotes conservation and sustainable resource use throughout the supply chain. This is achieved not only by prioritizing suppliers and manufacturers that innovate in these areas, but also by developing internal processes and products that utilize and optimize environmentally responsible materials.
  • Social responsibility: Commitment to sustainable procurement considers how purchasing impacts and is impacted by labor rights; diversity, equity and inclusion; human rights; and community development. For example, an organization demonstrating social responsibility throughout the procurement process might consider prioritizing small, local or diverse suppliers. Organizations also might work to ensure that a supplier’s workers are being treated fairly.
  • Economic viability: Organizations must balance sustainability criteria with the financial viability of their procurement process. While some sustainable procurement practices may lead to immediate cost savings, others may involve higher up-front costs. For example, sourcing products with longer lifespans or selecting suppliers closer to the point of use might be initially more expensive but can result in long-term savings and reduced environmental impact.
  • Ethical sourcing: Organizations that prioritize ethical sourcing strive to align their purchasing decisions and processes with the greater good of society and the environment. This principle involves maintaining transparent procurement practices and implementing robust governance structures to ensure accountability throughout the supply chain.

7 Advantages of Sustainable Procurement

Sustainable procurement is important for many reasons — some for the good of the organization, some for the greater good and some for both. For example, working with vendors to ensure that orders are packed and delivered in a way that will reduce the number of trucks on the road may result in lower shipping costs for the organization and is also good for the environment.

  1. Positive social impact and community engagement: By prioritizing small, diverse and/or local suppliers that adhere to fair labor standards, sustainable procurement supports organizations and people that might not otherwise have equal opportunity for economic growth. Food service company Aramark’s sustainable procurement practices and targeted purchases, for example, helped improve working conditions for farmworkers within its Florida tomato supply chain.
  2. Cost efficiency and savings: Sustainable procurement has the potential to reduce costs and increase savings. Sourcing from local vendors can reduce shipping costs and speed up delivery times, supporting a leaner inventory model that boosts cash flow. Selecting suppliers with sustainable practices may lead to more stable prices over time. Investing in reusable products, like metal straws, will initially cost more than disposable counterparts, but reusable options won’t need to be purchased again and again.
  3. Improved risk management: The integration of environmental, social and governance (ESG) criteria into the procurement process can help organizations manage risk by increasing supply chain resilience. Identifying — and planning for — supply chain vulnerabilities caused by factors such as environmental impact, labor issues and changing regulatory mandates can mitigate the risk of disruption, for instance.
  4. Regulatory compliance: Regulatory mandates can be a moving target as local, federal and global laws are put into place and expanded. Effective in May 2024, for instance, the Department of Defense, General Services Administration and NASA issued a rule amending the Federal Acquisition Regulation, now requiring that federal agencies procure more sustainable products and services to the maximum extent possible. Organizations that commit to sustainable procurement processes are more likely to maintain compliance with existing, changing and new regulations.
  5. Strengthened brand reputation and market position: Almost 80% of consumers say that a sustainable lifestyle is important to them. A company that implements sustainable procurement principles improves its brand reputation and attracts like-minded customers. Clothing company Patagonia’s website, for example, provides information on its commitment to sustainable procurement practices, as well as its participation in groups such as the Fair Labor Association and Better Buying Institute. This transparency and commitment to sustainability can be a powerful differentiator. Consumers who prioritize sustainably sourced goods are more likely to choose brands with a demonstrated track record in this area — even if it means spending more to do so.
  6. Competitive edge and business growth: Committing to sustainable procurement practices can help a company stand out in a crowded market, expand its customer base and grow the business. By focusing on local suppliers, for instance, companies can reduce the risks — and costs — associated with cross-country or overseas shipping. This makes it much more likely that an organization will have the goods and services it needs to expand its product base, serve its current customers and attract new ones. Working with like-minded partners can also result in the development of new products, services and strategies that leverage sustainability for business growth.
  7. Long-term business resilience: What’s good for the environment and society is also good for the company. Sustainable procurement increases long-term business resilience by encouraging supplier diversity, which prevents the possibility of single points of failure in the supply chain. It focuses on long-term value, rather than just low cost, which saves money and builds financial resilience over time. Sourcing from reputable providers also guards against the kind of debilitating brand damage associated with unethical or environmentally harmful practices.

Considerations of Sustainable Procurement

A sustainable procurement life cycle requires buy-in from stakeholders across the company, training in best practices, purposeful technology purchases and integrations, and a long-term view of return on investment. Here are some of the most important considerations — and biggest challenges — when it comes to sustainable procurement.

  • Maintaining supply chain visibility: Any company can claim that a product meets sustainability criteria, but the only way to know for sure is to follow that product’s journey from idea to production to delivery. Supply chain visibility is critical to achieving this goal and requires close collaboration with suppliers. Advanced technology, such as artificial intelligence (AI) and data analytics systems, can improve transparency — and resilience — by automatically identifying patterns and anomalies that indicate blind spots, providing data on supplier performance and energy usage, and recommending suppliers that align with energy-saving initiatives.
  • Engaging and collaborating with suppliers: Once organizations have identified, evaluated and partnered with suppliers that meet their sustainability criteria, it’s important to continually measure and monitor the supplier’s performance against sustainability criteria and key performance indicators (KPIs), using AI, data analytics and other tools. Organizations can also use this data to more tightly align with suppliers on sustainability criteria and develop new products and strategies for improving sustainability.
  • Tracking, measuring and reporting sustainability metrics: Effective sustainable procurement performance assessment begins with identifying which KPIs are most relevant for the business. Common categories of KPIs include environmental, social, economic, governance, process, outcome, supplier and transportation. Specific KPIs include energy consumption, supplier diversity, cost savings from sustainability initiatives, regulatory compliance, carbon emission reduction, percentage of suppliers meeting sustainability standards and vehicle reduction. These and other KPIs can be tracked through supplier assessment tools, sustainability scorecards and regular audits.
  • Navigating the trade-offs between cost and sustainability: Sustainable procurement often requires balancing immediate costs against long-term benefits. Though some sustainable practices, like sourcing products with longer lifespans, may carry higher up-front costs, they can lead to savings over time through reduced frequency of purchases and lower disposal expenses. Other sustainability efforts, such as partnering with smaller local suppliers, may not directly recoup costs but can mitigate risks of regulatory noncompliance and attract environmentally conscious customers with like-minded sustainability goals.
  • Mitigating the risk of greenwashing: Labeling products and processes as “sustainable” doesn’t guarantee that they are. To avoid this so-called greenwashing, organizations should set clear and measurable sustainability goals, conduct thorough supplier assessments and prioritize transparency. Using standardized reporting frameworks like the Global Reporting Initiative, implementing product life cycle assessments and seeking third-party verification can help evaluate a product’s full environmental impact. Continuous improvement, supplier collaboration and ongoing education for procurement staff can also help prevent the acquisition of products that are sustainable in name only.
  • Managing initial investment costs: While sustainable procurement offers long-term benefits, initial investments can be challenging. To manage costs, start with small, discrete projects that can be easily controlled and monitored via performance metrics. Companies can also balance environmental and governance initiatives with projects that are more directly focused on cost savings to help manage overall expenses. Collaborating with suppliers can also help reduce the costs associated with sustainable procurement, for both the buyer and the seller. For example, by sharing data about things like supply chain logistics, anticipated spikes in business and planned product releases, buyers and suppliers can work together to identify the most cost-effective transportation schedules and routes.
  • Addressing the complexity of global supply chains: The complexity of global supply chains is a major challenge for sustainable procurement. Dispersed locations, differing regulations and multiple supplier tiers all complicate the jobs of procurement teams. Organizations can mitigate these challenges by strategically integrating products and best practices. Leveraging the Internet of Things (IoT), data analytics, enterprise resource planning (ERP) and other platforms enables real-time data tracking and sharing, while AI helps make sense of the data to provide supply chain visibility. Ongoing training for procurement staff is also crucial to ensure that sustainability priorities are maintained amidst these complexities.

The Future of Sustainable Procurement

There’s no way of knowing what sustainability regulations governments will mandate in the future. We also can’t predict how consumers’ attitudes and commitment toward sustainability will evolve. However, we do know that President Joe Biden’s 2021 Federal Sustainability Plan set goals, including net-zero emissions procurement by 2050, and that consumers’ sustainability demands are rising (especially among younger consumers). With global awareness of and demand for sustainability rising, we may soon see a future where the adjective “sustainable” will not have to be applied to “procurement” — a future in which all procurement will be sustainable procurement. A trend in this direction is likely to result from an increasing awareness of the importance of sustainability, including the positive impacts on the environment and people, as well as the cost savings that sustainable procurement can provide.

Technological advances are also expected to increase momentum. For example, in the circular economy, products will be built to have a light environmental footprint, last longer and be easily reused. Meanwhile, in AI-powered, data-driven supply chains, companies will be able to leverage cloud-based supply chain execution systems that provide detailed analytics on supplier performance and environmental impact. These systems may even pull data from equipment sensors and other IoT devices to monitor resource usage and optimize sustainable practices in real time.

None of this is to say that any of this will be easy, especially because sustainable procurement can be particularly challenging for certain industries. For example, the electronics industry faces significant hurdles in sourcing conflict-free minerals and managing e-waste, while the fashion industry grapples with the environmental impact of textile production and fast-fashion practices. That said, there is significant momentum toward building a more sustainable future, and this movement is increasingly demanding that all stakeholders along the supply chain contribute to sustainability goals.

Grow Sustainability With NetSuite’s Procurement Solutions

NetSuite Procurement helps companies grow their sustainable procurement programs by enabling them to buy goods and services at the best price and in a timely manner, while also ensuring compliance with ESG benchmarks. Its solutions provide centralized management of vendors and the procurement process, offering real-time views into company spending and vendor performance — all in one place. NetSuite Procurement also fosters clear communication throughout the procure-to-pay process, allowing vendors and buyers to collaborate via a portal to determine ways to strategically share costs and risks. Additionally, its cost controls help companies balance the initial expenses of sustainable procurement with the long-term savings these practices provide.

Sustainable procurement is about more than protecting the environment, workers and customers. It’s also about protecting businesses by increasing supply chain resiliency, reducing costs over time and ensuring that organizations maintain compliance with global regulatory mandates. Sustainable compliance may be a goal today, but it may very well become a competitive requirement in the near future.

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Sustainable Procurement FAQs

What hinders sustainable procurement?

Lack of visibility and poor communication are two of the biggest hindrances to sustainable procurement. To successfully implement and maintain sustainable procurement practices, organizations must be able to determine the sustainability of suppliers and their goods, as well as collaborate with them to improve sustainability efforts over time.

How do you measure sustainability in procurement?

Sustainable procurement KPIs — including environmental, social, economic, governance, process, output and supplier metrics — form the foundation for measuring sustainability. Once organizations define which key performance indicators to track, they can use supplier assessment tools, sustainability scorecards and regular audits to gather and verify the data needed to measure those KPIs. These tools provide structured, reliable ways to evaluate supplier performance and track sustainable procurement progress.

What is the sustainability procurement cycle?

The procurement life cycle refers to the steps involved in obtaining goods or services for a business. These steps can be broadly categorized as defining business needs, inviting suppliers to bid, evaluating and selecting suppliers, managing contracts and deliverables, and refining procurement processes. While the traditional and the sustainability procurement life cycles both aim to source the highest quality goods for the best value, the sustainability procurement cycle integrates environmental, social and governance factors at each step.

What is the meaning of sustainable procurement?

Sustainable procurement considers the social, economic and environmental impact of sourcing and purchasing goods and services.

What are the four elements of sustainable procurement?

Four elements of sustainable procurement are environmental responsibility, social equity and inclusivity, economic viability, and ethical and transparent governance.

What are the three pillars of sustainable procurement?

Also referred to as the “triple bottom line,” the three main pillars of sustainable procurement are environmental protection, social responsibility and economic prosperity.

What are the 7 pillars of sustainable procurement?

Seven pillars of sustainable procurement include:

  • Environmental responsibility
  • Social equity and inclusivity
  • Economic viability
  • Supplier relationships
  • Ethical and transparent governance
  • Innovation
  • Risk management and resilience