Advantages of sustainable procurement: what companies can gain by being in the business of sustainability

BY DBS, 30 JAN 2024

Collaboration with the right suppliers is critical. Read more about the advantages of sustainable procurement practices.

In today’s business world, sustainability is no longer just a buzzword; it has become a necessity. As the importance of preserving our planet’s resources becomes more crucial, sustainable companies are finding that the advantages of sustainable procurement are manifold.

From economic benefits to improved supplier relations, companies that integrate sustainability into their procurement process can provide a significant competitive edge in today's sustainability-conscious market.

In this article, we will look at the advantages of sustainable procurement for those in the business of sustainability. We delve into how sustainable procurement can improve supply chain resilience and reduce risk, the impact on customer and investor relations, and other economic benefits for sustainable companies.

The world's top sustainable companies 2023

A benchmark for corporate sustainable performance is the annual Corporate Knights' Global 100 list, which is in its 19th year. In 2023, companies that excelled in their sustainability initiatives, reducing waste and environmental impact, have made it to the top. These sustainable companies not only adopted environmentally sustainable business practices but also integrated them into their business models.

According to Corporate Knights’ research director Ralph Torrie, the rising oil prices born out of the global conflict have stimulated growth in renewables, smart buildings, electric vehicles and other climate solutions, including circular economy measures. He added, “Global 100 companies are providing the products and services that are needed for the sustainability transition and that will form the basis of the emerging 21st-century economy…They’ve outperformed the market through these last few tumultuous years.”

Related: How sustainable companies are moving ahead

According to the list, the world’s top sustainable company of 2023, Schnitzer Steel, is a metals recycler headquartered in Portland, US. Meanwhile, the highest entry from Asia at number 10, is Taiwan High Speed Rail Corp, an electric-rail company. Singapore, too, has four sustainable companies on the list: City Developments Limited comes in at number 28, StarHub takes number 34, CapitaLand Investment at number 56, and Maxeon Solar Technologies took the number 69 spot. Indeed, there are many leaders driving the business of sustainability.

The benefits of sustainable procurement for businesses

In a September 2021 article, McKinsey & Company said, “Two-thirds of the average company’s environment, social, and governance footprint lies with suppliers.” Beyond having greener credentials, the benefit of sustainable procurement extends beyond environmental impact. When businesses integrate sustainability into their procurement process, they often see improvements in their supply chains and risk management. These are some advantages of sustainable procurement.

Analysis by McKinsey showed that top environmental social and governance (ESG) performers for those in the business of sustainability enjoy up to 20% faster growth and higher valuations than others in their sectors. As these sustainable companies focus on operational efficiency and reducing waste, this could in turn drive down costs by 5-10% and helps them reduce transition risk – those in the business of sustainability are able to stay ahead of changes in stakeholder sentiment and regulation.

By working closely with suppliers who share the same sustainability goals and sustainability practices, sustainable companies can ensure that all steps of their supply chains align with their sustainability strategies. This approach helps those in the business of sustainability with reducing waste, conserving natural resources, and can even lead to cost savings in the long term.

Moreover, sustainable procurement can help those in the business of sustainability gain a competitive advantage in the eyes of their customers (one of the advantages of sustainable procurement). As consumers become more sustainability-conscious, they are more likely to support companies that demonstrate a commitment to sustainability. This consumer preference for sustainable companies can translate into brand recognition, leading to customer loyalty and increased sales or higher demand for their services.

The role of sustainable procurement in achieving corporate social responsibility (CSR) goals

Sustainable procurement is a crucial part of achieving a company's CSR goals. By sourcing from suppliers who prioritise environmental, social, and governance (ESG) factors, those in the business of sustainability can ensure that their operations align with their CSR commitments.

For instance, sustainable companies might choose to source materials from a supplier who uses renewable energy in their production process. This decision not only demonstrates the company’s commitment to sustainability, but also reduces the company's carbon footprint and supports the supplier’s sustainability-conscious business.

At DBS, we recognise that the actions of our suppliers contribute to the bank’s sustainability performance and that we can influence and partner with them for mutual improvements. Our DBS Sustainable Sourcing Principles outlines the expectations that we have of our suppliers in four key areas, namely: human rights, health and safety, environmental sustainability, as well as business integrity and ethics.

Read more about our sustainability initiatives here.

We also actively work with our suppliers and other industry leaders to advance supplier sustainability, where sustainable procurement practices can help those keen to venture further into the business of sustainability in reducing waste. DBS is also one of the four founding members of Singapore’s first industry workgroup promoting sustainable procurement, the National Sustainable Procurement Roundtable (NSPR).

How sustainable procurement can improve supply chain resilience and reduce risk

In today's volatile market, supply chain resilience is more important than ever. Companies that integrate sustainability into their procurement process often find that their supply chains become more resilient as a result. For example, by sourcing from suppliers who use sustainable business practices, those in the business of sustainability can reduce the risk of supply disruptions caused by environmental events or regulatory changes. Furthermore, sustainable procurement can help companies mitigate reputational risk by ensuring that their operations are environmentally responsible.

However, one barrier to entering the sustainable space could also be a result of the lack of knowledge. Research from McKinsey revealed that chief procurement officers who have yet to build ESG into their organisation’s sourcing DNA, felt they lacked the necessary tools, skills, and data. The report said, “Seventy percent of our sample said their organisations didn’t understand where Scope 3 emissions were generated in their value chain, for example. Ninety percent told us they had difficulty identifying the right actions to move the needle on ESG topics, and almost three-quarters didn’t know what ESG targets to set.”

According to the World Bank, SMEs are the backbone of our economies, representing 96% of businesses across Asia and 90% globally. “SMEs are increasingly facing pressure to turn ‘greener’ as their supply chain ecosystem often includes large corporates, many of which have adopted or are increasingly compelled to adopt ESG strategies and standards,” said Helge Muenkel, Group Chief Sustainability Officer at DBS Bank.

With this critical knowledge, DBS worked with Bloomberg Media Studios to interview more than 800 SMEs across the region. This culminated in an e-book, Catalysts of Sustainability, to find out how financial institutions can help SMEs progress in their sustainability journeys and become a business of sustainability.

Helge added, “SMEs do not have the same human or financial resources as large corporates do to tackle complex sustainability challenges. For instance, SMEs often struggle to source and process relevant ESG data to develop ESG strategies and make informed decisions.

“At DBS, we are ready to support SMEs in their decarbonisation efforts, whether it is via knowledge transfer, in partnering them to identify and deploy digital solutions to address the ESG data challenges, or in financing their transition journeys.”

Being the first bank in Singapore to sign up for the Net-Zero Banking Alliance (NZBA), and the first in Southeast Asia to publish a concrete and comprehensive set of targets for our Scope 3 financed emissions, DBS offers a host of corporate sustainability solutions. These include Green and Sustainable Trade Financing, and recently launched in October 2023, the DBS Eco Renovate Loan, a first-of-its-kind hybrid financing solution to help SMEs access a wider pool of capital to finance their journey to become a business of sustainability.

The impact of sustainable procurement on customer and investor relations

It goes without saying that sustainable procurement can have a significant positive impact on a company's relations with its stakeholders, which include customers and investors. Today's consumers and investors are increasingly interested in supporting those in the business of sustainability. Underscoring this notion is a joint study from McKinsey and NielsenIQ that found the majority of consumers do indeed care about buying environmentally and ethically sustainable products.

By demonstrating a commitment to sustainable procurement, companies can attract and retain customers who value environmental responsibility. Similarly, investors are more likely to invest in companies that demonstrate a commitment to sustainability, as these companies are often seen as less risky and more likely to succeed in the long term.

As a purpose-driven bank, DBS has completed 29 renewable energy projects across Asia amounting to around SGD 3.6 billion and has done over 100 sustainable financing deals worth SGD 15 billion – including sustainability-linked loans and green loans. The bank also published the world’s first Sustainable and Transition Finance Framework and Taxonomy in 2020, and was the first Singapore bank to offer transition financing with its latest framework.

The economic benefits of sustainable procurement for businesses

While the environmental benefits of sustainable procurement are clear, the potential economic benefits are also apparent. As mentioned above, companies that prioritise sustainable procurement often find that they can reduce costs, improve efficiency, and gain a competitive advantage over their peers in the same sector.

For example, by reducing waste and conserving natural resources, those in the business of sustainability can lower their operating costs. Over time, the investment in energy-efficient machinery or even renewable energy could lead to lower electricity bills, while reducing waste could decrease disposal costs.

Additionally, sustainable procurement can lead to improved supplier relations, which can result in cost savings and increased efficiency. An earlier transition to a business of sustainability and relooking supply chains ahead of mandatory regulations could also help companies gain an advantage in the race for building a network of environmentally sustainable suppliers to achieve sustainable procurement goals.

In conclusion, the advantages of sustainable procurement are clear. From economic benefits to improved customer and investor relations, sustainable companies that adopt smart procurement strategies are well-positioned to achieve their sustainable goals and can thrive in today's sustainability-conscious market.

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