Understanding the Most Evolved Practices in Sustainable Purchasing: Lessons in Measuring and Communicating Sustainability Benefits and Outcomes
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Understanding the Most Evolved Practices in Sustainable Purchasing: Lessons in Measuring and Communicating Sustainability Benefits and Outcomes
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Understanding the Most Evolved Practices in Sustainable Purchasing: Lessons in Measuring and Communicating Sustainability Benefits and Outcomes
- 1. Understanding the Most Evolved Practices in Sustainable Purchasing: Lessons in Measuring and Communicating Sustainability Benefits and Outcomes Anastasia O’Rourke, Industrial Economics & Sustainable Purchasing Leadership Council Angela J. Helman, Industrial Economics, Inc.
- 2. UNDERSTANDING THE MOST EVOLVED PRACTICES IN SUSTAINABLE PURCHASING Lessons in Measuring and Communicating Sustainability Benefits and Outcomes October 8, 2015 Dr. Anastasia O’Rourke Angela Helman INDUSTRIAL ECONOMICS, INCORPORATED
- 3. INDUSTRIAL ECONOMICS, INCORPORATED DISCRIMINATION OVERFISHING Many impacts are more prevalent in supply chains, not just GHGs 3 DEFORESTATION SWEATSHOPS
- 4. INDUSTRIAL ECONOMICS, INCORPORATED 4 Share of US GDP by end-use consumption
- 5. INDUSTRIAL ECONOMICS, INCORPORATED Share of US GDP by end-use consumption 5 Education services Health care Housing Financial services and insurance Food services Transportation services Recreation services Communications services Personal care services Hospitality services
- 6. INDUSTRIAL ECONOMICS, INCORPORATED Share of US GDP by end-use consumption 6
- 7. INDUSTRIAL ECONOMICS, INCORPORATED Scale Estimated institutional purchasing in the US equates to: Source: Sustainable Purchasing Leadership Council, 2015; US EPA 2013
- 8. INDUSTRIAL ECONOMICS, INCORPORATED The largest professionally-managed demand signal driving the global economy 8Analysis by TRUTHstudio based on US Bureau of Economic Analysis 2011 Summary Use Annual I-O Table
- 9. INDUSTRIAL ECONOMICS, INCORPORATED Institutional Purchasers 9 …are uniquely positioned to demand transparency into the upstream and downstream impacts of goods and services. …are capable of incorporating sustainability criteria into purchasing decisions at a scale that can shift markets. … and need both the tools and motivation to do so.
- 10. INDUSTRIAL ECONOMICS, INCORPORATED Number of sustainable purchasing guidelines by product category (Sample of US Government Agencies: Fed, State, Local) 0 20 40 60 80 100 120 140 160
- 11. INDUSTRIAL ECONOMICS, INCORPORATED Fragmented demand signal… 11
- 12. INDUSTRIAL ECONOMICS, INCORPORATED …Causes confusion for suppliers, slowing market transformation 12
- 13. INDUSTRIAL ECONOMICS, INCORPORATED Analogy: USGBC / LEED 13 * Green building is estimated at 44% of non-residential new construction in 2012. BEFORE (early 1990’s) AFTER (early 2010’s) Market fragmented by inconsistent guidelines LEED provides buyers and suppliers with common language No shared training program for green building LEED AP makes training accessible to everyone Can’t differentiate credible from greenwash LEED identifies credible standards and eco-labels Leadership recognition based on marketing Leadership recognition based on performance Shared challenges solved project by project Shared challenges addressed through LEED versioning Documentation is expensive and rare Documentation costs steadily decrease Creativity consumed reinventing the wheel Creativity focused on innovation ROI demonstrated on case by case basis ROI of LEED approach consistently documented Green building is expensive Building LEED-certified adds negligible cost “A common standard is impossible.” ➔ A common standard is widely embraced and used. “Green building will always be niche.” ➔ Green building is becoming the norm.*
- 14. INDUSTRIAL ECONOMICS, INCORPORATED Several initiatives in sustainable purchasing and supply chain • Association for Sustainability in Higher Education • BSR- Center for Sustainable Procurement • ECPAR Canada • ICLEI Procura+ • International Green Purchasing Initiative • IISD - Partnership for Procurement and Green Growth • NASPO Green Purchasing Guide • Responsible Purchasing Network • Practice Green Health • Sustainable Purchasing Leadership Council • The Sustainability Consortium • UNEP 10YFP SPP Program 14
- 15. INDUSTRIAL ECONOMICS, INCORPORATED SPLC Program Development Community of Practice (July 2013) 15
- 16. INDUSTRIAL ECONOMICS, INCORPORATED Higher Education Purchasing Analysis Analyzing and prioritizing enables focus on best opportunities. Helps avoid exhausting resources chasing the long tail. 16 purchasing categories5 64% of total spending 83% of estimated environmental impacts INSIGHT
- 17. INDUSTRIAL ECONOMICS, INCORPORATED SPLC: Guidance for Leadership in Sustainable Purchasing 17 Chemicals Construction & Renovation Electricity Food IT Hardware & Services Professional Services Transportation & Fuels Wood & Agrifiber Technical Advisory Groups Technical Advisory Committee (TAC)
- 18. INDUSTRIAL ECONOMICS, INCORPORATED SPLC Guidance V1.0 Overview Released in Feb. 2015: Download at www.sustainablepurchasing.org 18
- 19. INDUSTRIAL ECONOMICS, INCORPORATED Strategic Approach •Build interoperability and collaboration •Prioritize our efforts •Measure and communicate results •Recognize and reward success 19
- 20. INDUSTRIAL ECONOMICS, INCORPORATED How do we measure the impacts of sustainable purchasing? Policies • Measure adoption, type, scope and mandate Green purchasing policy for copy paper adopted Activities • Measure outputs and progress towards goals 90% of copy paper purchases are now recycled paper, up from 40% of purchases before Outcomes • Measure environmental, economic, and social impacts Annual savings (lifecycle): - X virgin trees - X Btus energy - tons GHGs (MTCE) - tons air emissions - X tons pollutants discharged to water 20
- 21. INDUSTRIAL ECONOMICS, INCORPORATED Common Benefits of Sustainable Purchasing ENVIRONMENTAL REQUIREMENT KEY INTERNAL BENEFITS KEY EXTERNAL BENEFITS Reduced energy use of specified products • Reduced operational cost • Addresses high profile problem (GHGs)/ improves reputation • Carbon mitigation • Air quality improvement • Energy independence Reduced use of hazardous materials in specified products • Improved occupational safety/ reduced business risk • Reduced regulatory burden • Sometimes reduced cost of products • Human health risk reduction at all lifecycle stages • Protection of natural resources Use of recycled content in specified products Sometimes reduced cost of products • Preservation of natural resources/biodiversity • Reduced end of life environmental impacts • Support of markets for recycled materials • Sometimes reduced impacts during manufacturing process 21
- 22. INDUSTRIAL ECONOMICS, INCORPORATED Common Benefits of Sustainable Purchasing (Continued) SOCIOECONOMIC REQUIREMENT INTERNAL BENEFITS EXTERNAL BENEFITS Human rights protections (child labor, coerced labor) • Addresses high profile problem/improves reputation (self-evident) Buy local provisions • Addresses high profile problem/improves reputation • Operating in an economically healthy locale • Development of local labor force • Regional economic development benefits • Supports economic cluster development efforts • Reduced transportation impacts 22
- 23. INDUSTRIAL ECONOMICS, INCORPORATED Measurement Happens At All Steps 23
- 24. INDUSTRIAL ECONOMICS, INCORPORATED Prepare Step: Benefits Measurement Issues to Consider Choose benefit categories your organization cares about: • What benefits are relevant to your organization, mission, and stakeholders? • Focus on environmental impacts, or focus on economic or social as well? • Are there already purchasing initiatives in place that inform future vision? 24
- 25. INDUSTRIAL ECONOMICS, INCORPORATED Design Step • Conduct a preliminary analysis of tracking systems and data sources. • Lay the foundation for measurement by considering: • Baselines • Expected outcomes • Evidence required • The need for validation for some outcomes 25
- 26. INDUSTRIAL ECONOMICS, INCORPORATED Commit Step • Ensure management’s commitment includes measuring and reporting. • Encourage managers to use measurement data as part of a continuous improvement cycle. 26
- 27. INDUSTRIAL ECONOMICS, INCORPORATED Analyze Steps • Review spend analysis options • Product/service category focus or supplier focus • Different methods available, e.g. EIOLCA • Collect purchasing data to support spend analysis • Conduct analysis to identify priority product/service categories or priority strategies 27
- 28. INDUSTRIAL ECONOMICS, INCORPORATED Planning Steps: Decision Point • Select benefit categories and purchasing activities to focus on • Develop specific plan for collecting and reporting data 28
- 29. INDUSTRIAL ECONOMICS, INCORPORATED Implementation Steps For each priority strategy implemented: • Identify key metrics for each purchasing activity • e.g., trees and GHGs for recycled paper • Establish a baseline for each metric to measure progress against • e.g., X MTCE GHGs in 2015 • Check on data quality as you implement, correct errors 29
- 30. INDUSTRIAL ECONOMICS, INCORPORATED Reporting and Communication Steps What to Communicate: • Progress on each strategy • Benchmarking • Attribution issues: double counting of credit, tying back to program And to Whom: • Within your organization • Stakeholders • Shareholders • Public 30
- 31. INDUSTRIAL ECONOMICS, INCORPORATED Using Results Continuous improvement of sustainable purchasing program: • Decisions to take on new purchasing strategies • Inform overall sustainability policy • Management tool to inform broader/higher-level organizational and business planning 31
- 32. INDUSTRIAL ECONOMICS, INCORPORATED Case Example: FedEx Planes Buying more efficient planes: • Each new model 757 bought uses 36% less fuel • Each new 777 bought uses 18% less fuel • Fedex buys at least one of these new planes every year Possible next steps for measurement: • Monetize fuel savings (internal benefit) • Estimate GHG reductions from each plane purchased- use phase (external benefit) • Scale to number of purchases/retirements annually 32
- 33. INDUSTRIAL ECONOMICS, INCORPORATED Case Example: FedEx Planes Advanced measurement steps: • LCA analysis of upstream and downstream benefits, other benefit categories • Apply social cost of carbon • Address potential issues of public double counting with supplier 33
- 34. Thank you! Dr. Anastasia O’Rourke AORourke@indecon.com 203-215-1575 Angela Helman AHelman@indecon.com 617-354-0074
Editor's Notes
- Hello, my name is Anastasia O’Rourke, and I am here today to give you an overview of what’s happening with a really hot area in sustainability, purchasing. OK so some people may think that procurement is abit of a “snooze”; and certainly some of the people working in procurement – government in particular – are hard nuts to crack. I hope to convince you otherwise. I am here to explain the “who what where” of sustainable purchasing and the opportunities before us. And my colleague Angela Helman will then talk about the “How” – and the how to measure this in particular. Some of the material I will share with you today is from the Sustainable Purchasing Leadership Council – a non profit that I helped to establish in 2013, and am Board Chair of. We will also share with you some work that Angela and I have done with UNEP, GSA and EPA, CITY OF DC more focused on metrics and measurement – the analytical component that makes up our practice area as consultants at IEc.
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- While it’s great that individual organizations are starting to think that way. How big of a difference could it make if *all* organizations started thinking that way? At first glance, US GDP data would suggest that consumer purchasing decisions are by far and away the most significant force in determining what is extracted, manufactured and sold. Which is a big problem, right? In the US, at least, consumer purchasing decisions are dispersed across 300 million people whose habits are expensive to influence, slow to change, and at times downright irrational.
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- In GHG terms, this 10 trillion is responsible for 2/3 of US GHG emissions.
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- Oftentimes organizations There are many and varied sustainability policies and programs out there. I started collecting sustainable purchasing policies and guidance documents for sustainability or EPP by product categories a few years ago, and then got an amazing intern Cuchulain Kelly to work with me on collecting, categorizing and comparing them all. We thought we would find maybe 20 or 300. By the time the summer was out, we were at 1200; and these were mainly in the US. I continue to build on this data set. That’s great right? So many organizations buying greener. But lets look back at that demanad signal again and ask what is really going on here.
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- There are several initiatives in the US and internationally working on this problem, SPLC is not the only group. And given the nature of the problem we are all tackling, the good news is that we ARE all coordinating our activities.
- Here we are at the SPLC founding summit in 2013; SPLC now has 200 members and is growing fast.
- In 2012, in preparation for launching the Council, we conducted a pilot in which we performed a spend analysis for the higher education sector as a whole. It suggested that just 5 purchasing categories (Electricity, Food, Construction, Fuels, and Waste & Sanitation) represented 64% of spending and 83% of estimated supply chain environmental impacts. Paper, by comparison, was less than 1%, which is NOT to say that buying green paper isn’t important. It’s just that doing that alone doesn’t capture the greatest opportunities to reduce impact.
- Next, more than one hundred volunteers on nine program committees developed the Council’s comprehensive Guidance for Leadership in Sustainable Purchasing v1.0, which was released in February. This 200 page document provides “how to” guidance for establishing and operating an effective sustainable purchasing program, as well as category guidance for purchasing sustainably within 26 high priority product and service categories.
- This is the structure of the SPLC Guidance released early this year. Angela will talk through the key measurement issues and steps. The basic idea is to build up a sustainable purchasing program in a deliberate, strategic way – a way that can be scaled depending on the szie of the organization. And a approach that builds into it several different ways of getting buy-in from key internal stakeholders. In part one – you are preapring, enlisting and designing your program. Then, whens ome senior level commitment is made, you move into execution. And important part of that is to convene cross functional teams. To Analyse data and prioritise 9using spend analysis) To then plan and select projects. To implement those projects Reporto n them and then launch a NEW cycle of projects. This follows a strategic sourcing approach. And should look familiar to purchasers working in strategic purchasing. To do this well, is an effort. It requires leadership.
- TOGETHER we need to make the task of purchasing and procurement meaningful and interesting to those doing it. A big part of that is brining the environment and society back into the purchasing decision. And we think measuring outcomes is KEY to that transformation. With that, I would like to introduce my colleague Angela Helman, a Principal at IEc, will now talk about HOW to do this, and do this well. ----------- Thanks Anastasia. So Anastasia talked about why purchasing is important and compelling. And I’m afraid that she got most of the fun glossy slides in her part of the talk. I am going to talk about how to measure purchasing effectively, which is kind of a technical topic for 5 pm, so I appreciate you still wanting to hear about it so late in the day!
- Most organizations develop an official policy on sustainable purchasing prior in conjunction with implementing sustainable purchasing activities. It is very common for organizations to use policies and plans as the unit of analysis for sustainable purchasing. For example “we now have a policy on buying recycled copy paper, a policy on EPEAT appliances, a policy on fleet vehicles.” etc. This is the most basic way or measuring your impact. I would also argue that it’s insufficient, as there is often a gap in this area between policy and practice. Some organizations are more specific and measure activities, actual changes in what we are buying. For example “90% of copy paper purchases are now recycled paper. Before the policy, it was 40%.” This information is ideally coupled with actual numbers, in this case reams of paper. This is far more specific, and far better than information about a policy. But it doesn’t tell us about the actual environmental and social impacts that we care about. I’ll talk in a few slides about how to figure out where to focus your sustainable purchasing energies. In this example, the environmental impacts of being recycled content paper would include, obviously, saving trees, but the lifecycle impacts of choosing recycled paper over virgin paper are more diverse, and include energy and GHG savings, reductions in air emissions and water pollution associated with virgine pulp and paper processing. There is an excellent lifecycle calculator called, aptly, the Paper Calculator that estimates impacts of paper purchasing options. Most organizations stop at measuring activities because they think it is too difficult to measure outcomes. It is sometimes difficult, but if a significant proportion of your organization’s environmental and/or social impacts are bound up in what you purchase as opposed to what you make, it’s worth pursuing. So if you’re manufacturing businesses, going to the effort to analyze the env impacts of your paper purchasing may not be worth it. But if you are an office-based business, it may be.
- I’m first going to walk through some benefits of sustainable purchasing, starting with the common environmental requirements, and identifying their internal and external benefits. Internal Benefits: Benefits enjoyed by the purchaser, e.g. cost savings, risk reduction, and reputational benefits. So in the first example here, buying products that took less energy to produced, and/or use less energy during their use phase, can reduce operational costs. Also addressing high profile issue such as climate change buys a certain degree of goodwill as well, reputational benefits. External Benefits: these are public good/ social welfare benefits. For products that use less energy, these are carbon mitigation, air quality improvements, and energy independence, among others. In another example, if you select products that are made with fewer hazardous materials, you are reducing your business risk, sometimes reducing your regulatory burden, and sometimes reducing cost as well. For example, greener cleaning products are often less expensive than their conventional counterparts. Externally, you are also reducing human health risks associated with exposure to that material up and down the supply chain and lifecycle stage, and you’re protecting the environment from contamination by this material. I should note that the benefits list here is not exhaustive.
- On the social side, it’s common to find human rights protections in procurement policies. This is particular important for global supply chains. The benefit to your organization is reputation. The benefits to society are self-evident. Buy local provisions are also common purchasing provisions for some types of industry (construction products are an example). The main purpose of buy local purchasing policies is to support local economies, which is an external benefit. However, there can be additional internal benefits of these provisions that are indirect but potentially quite real, depending on the scale of your operations and local sourcing efforts. Firms benefit from operating in an economically healthy areas. Economically healthy areas have better trained workers and are easier to attract talent to. Again, benefit list here is not complete
- Now I’m going to walk through measurement steps, in a very abbreviated fashion. Anastasia went through overview of SPLC guidance. Measurement considerations occur at each step. In the interest of time, I’m providing highlights here, but forthcoming guidance that IEc developed for UNEP and SPLC covers measurement considerations in all steps.
- First, independent of any analysis choose some benefit categories your organization cares about: What benefits are relevant to your organization, mission, and stakeholders? Focus on environmental impacts, or focus on economic or social as well? Are there already purchasing initiatives in place that inform future vision? Answers to these questions give you a starting place.
- In the design step, you need to conduct preliminary analysis of systems you have in place to see if they support tracking data on sustainability attributes of purchases. Typically procurement systems need to be customized to do this. You may also need to work directly with vendors to get information. Get a handle on likely data needs here. Then, lay the foundation for measurement by formally identifying: Baselines of sustainable purchasing Expected outcomes of new policies Evidence/data that will be required to measure The need for validation for some outcomes- more on this in a bit This foundation in measurement, which is explained in depth in Guidance, is based on a discipline called program evaluation. Program evaluation is widely used in the public sector and in the philanthropy sector to understand the impacts of investments (of tax dollars, philanthropy endowments). Program evaluation is a systematic study that uses measurement and analysis to answer specific questions about how well a program is working to achieve its outcomes, and to trace the link from program activities to outcomes, and to address attribution issues.
- Make sure your management is on-board with both sustainable purchasing as a direction but also the need to track data, measure results, and use results to continually improve.
- The analysis steps is the big one. First you need to conduct an analysis of your spending to inform where to focus. It’s common in the private sector to take a supplier focus on spend analysis. The typical approach here is to send suppliers surveys regarding their practices and use that information as a primary source of information on where to buy goods and services from, although some existing supplier data may already available from public sources. The alternative is to start with your organization’s own spending data as the basis for analysis. Either way, you ultimately want to convert spending data on particular products into environmental data. It’s often easier to set up a green purchasing program that relies on supplier data, but down the road, it may be harder to the convert those data into environmental outcomes and aggregated them. If you take a product category approach, then you are going to apply some methods to analyze your spend data. These methods are already familiar to you as sustainability experts, we’re just applying them to a broader suite of activities than you may be used to. EIOLCA for environmental impacts, impacts up and down the lifecycle Alternatives to LCA- you can use existing “calculators” on your own for some product categories, but they are limited to a few categories (electronics, paper, vehicles), often focused on one or two lifecycle stages For econ impacts, internal ones such as cost savings are relatively easy to track. For external econ benefits, you may need help. if you want to know how buying locally has had ripple effects in the local economy, you probably want to hire an economics consultant that specializes in regional economic impact modeling. There’s an appendix on potential methods for all of this in a forthcoming UNEP report that IEc developed that crosswalks benefits and potential methods available to you.
- Your planning step in the SPLC Guidance is your decision point on what product or service categories you will focus on for your green purchasing efforts. If you’re new at this, select a few priority areas at a time based on your analyses, and develop a specific plan for collecting and reporting data. This will likely include some upgrades or customization to your procurement systems, as well as some additional supplier requirements.
- http://www.fedex.com/am/about/socialresponse/environment.html FedEx is buying more efficient planes. This is really important in the grand scheme of things. Planes are a huge contributor to the carbon crisis. Indeed, if you’ve ever calculated your own personal carbon footprint, or conducted a carbon footprint analysis for a medium-sized consulting firm like the one where Anastasia and I work, the impact of air travel jumps off the page. Fedex’s new models of 757s use 36% less fuel and the 777 uses 18% less fuel than the models being replaced. FedEx buys at least one of these new planes every year, but it looks like they are about to retire a number of older planes soon, so this may be a larger area of purchasing activity moving forward. This is exactly the way that FedEx communicates about this purchasing decision on it’s website; these bullets are verbatim. I don’t think they are as effective as they could be for communicating the significance of this purchasing decision. First, they should monetize the fuel savings and report that. Everyone understands impacts in dollars. I also think they should estimate the GHG reductions from the reduced fuel use, and scale to the number of new planes bought/old planes retired. In my mind, these are obvious ways to communicate the significance of FedEx is doing.
- If they want to get fancier, and develop a more complete understanding of the impacts…. An LCA analysis may could uncover additional benefits associated with the new planes, in addition to reducing fuel use and GHGs during the plane’s useful life. Is the production process for the plane greener? Are the new planes designed to last longer? Are they designed for easier end of life disassembly and recycling of materials? If so, these are benefits that can be captured and communicated. You could also monetize GHG benefits of purchasing the new planes using a social cost of carbon, and use that for reporting purposes as well, in addition to reporting metric tons of carbon equivalent. Double counting: Boeing may be reporting these GHGs as well, in CSR reports, to GRI, to CDP. Flag where you may be double counting in public reporting, for transparency purposes.
- We hope this presentation gave you some good foundational information on sustainable purchasing and the role it can play in corporate sustainability, and that we piqued your interest about how to estimate benefits from purchasing. Thanks for your time and for hanging with us during this last session of the conference! We would be happy to take any questions.