Procurement profession takes the lead on tackling climate change

Article taken from Supply Management. To view article click here

Whatever the UN Climate Change Conference in Copenhagen decided about the industrialised world's carbon footprint, its vast media footprint ensured it didn't tiptoe unnoticed past buyers. World leaders were trying to agree targets for cutting CO2 emissions, thrashing out which countries should be doing the cutting and who should pay for it.

At the summit's heart was a debate between developed and developing economies. Developed countries are responsible for 75 per cent of historic carbon emissions and responsible for the current climate change debate. However, as UK chancellor Alistair Darling pointed out, 90 per cent of future emissions will come from the emerging and developing countries such as Brazil, Russia, India and China.

A recent report by PricewaterhouseCoopers (PwC) ranking G20 economies in order of emissions performance between 2000 and 2008 found the only country whose economy became less, rather than more dependent on carbon fuels was Russia. Britain recorded the eighth best performance in the G20, behind France and Germany. The US came 12th and China came 19th.

With such poor performance globally on changing carbon emissions behaviour, the need to reach an agreement on action will only increase. Richard Gledhill, global leader of climate change at PwC, believes an ambitious political deal on emissions will "pave the way for a legally binding treaty in 2010".

He added: "This in turn will drive new policies and regulation at a national level. Business needs to get ready for a change of gear."

So what does this all mean for procurement and its part in halting climate change?


Ahead of the curve

Where procurement can have the greatest impact is in reducing the amount of carbon expended in the manufacture and delivery of goods and services throughout the supply chain.

Many purchasing experts anticipate international treaties and national regulation will have only a limited impact on procurement to begin with, so advise buyers not to wait to act.
Shaun McCarthy, director of Action Sustainability, says: "You have to question how much difference the Kyoto protocol made." He believes the "unilateral actions" of companies can do more ultimately than governments to lower CO2 emissions.

He cites the example of Marks & Spencer in the UK, which has established demanding sustainable procurement policies to enhance its appeal to consumers. On the world stage, a demand by Wal-Mart that all its suppliers measure the environmental cost of making their products and give each item an eco-rating shows how individual companies can be ahead of regulation. "Wal-Mart doesn't necessarily differentiate on sustainability. It differentiates on price. If the world's largest retailer is doing this, I think that's an interesting sign," says McCarthy.

He added that this approach can also work for UK local authorities by helping councils to attract investment in their area. "Inward investors want to see more sustainable solutions. They want their energy bills reduced and their waste disposed of in a sustainable way. In the immediate and longer term, responsible companies will want to put their factories and their offices in places that share their values," he says.

For many buyers, a single telling fact buried in a 2008 NHS study in the UK may provide a better testament to what they can do to make the world a greener place than all the literature generated around Copenhagen. The NHS Sustainable Development Unit published a wide-ranging report examining the sources of its 18 milliontonne annual carbon footprint. The result outlined in NHS England Carbon Emissions: Carbon Footprinting was that, while energy use made up 22 per cent of total emissions, and travel 18 per cent, the other 60 per cent were generated by procurement (defined in this case as the purchase of goods and services through the supply chain by the NHS in England).

For Graham Randles, programme manager of the Mayor of London's Green Procurement Code, the publication of the report was "groundbreaking" for purchasing. He told Supply Management it emphasised how much of an organisation's carbon emissions come under procurement's influence. Many buyers may not be keen to become the focal point for their organisation's attempts to reduce CO2 output on top of everything else, but Randles says those already involved in this agenda have made a lot of progress in recent years.

He recalls 2001, when the code was launched. "The level of awareness didn't go much beyond recycling. Now we're starting to see the early signs of more fundamental change," he said.

Yet Randles believes some of the modern concepts used to measure carbon emissions have yet to take off in any other than the most forward-thinking organisations.

"There needs to be significant changes in the way procurement is actually done in public sector organisations," he said.


Measuring emissions

The modern protocol for greenhouse gas accounting divides an organisation's carbon emissions into three categories: scope 1, scope 2 and scope 3. These measure, respectively: emissions generated through fuel burned directly; those generated through electricity and fuel burned offsite; and emissions through the supply chain.

"It's relatively easy to measure your energy consumption but far more difficult to measure the carbon footprint of your supply chain. What we are seeing is that all organisations bar 5 per cent are concerned only with energy," Randles said.

Siobhan O'Keeffe, commercialisation project manager at EcoSecurities, a carbon trading consultancy, told Supply Management that a survey of 600 company directors conducted last year by consultancy BearingPoint highlighted that, even though 83 per cent of respondents claimed to put green issues at the heart of their business strategy, only one-third had instigated any kind of green supply chain policy.

O'Keeffe said: "The challenge of greening your company's operations can seem inordinately complex and off-putting. Supply chains are often not clearly defined, with many suppliers having their own networks of suppliers, in a diverse number of locations around the world."

A report earlier this year, The Shape of Tomorrow's Supply Chain by the Future Laboratory, commissioned by business software company Oracle UK, found companies were concentrating on easy wins. Efforts were often focused on lowering the amount of waste generated by the business or implementing a recycling system. Many respondents were frank about the difficulties of obtaining data within their own organisations, with 53 per cent citing this as a major barrier to effective sustainability reporting.

But there are other drivers pushing organisations forward at a national level. In the UK the Carbon Reduction Commitment will be introduced in April. About 5,000 private and public sector organisations with an annual energy spend greater than £500,000 will be obliged to take part, according to energy and climate change minister Joan Ruddock.

They will have to start monitoring emissions use, and buy permits to release CO2 emissions initially at £12 per tonne of CO2 and after 2012 at a price determined by auction. The European Union's Emission Trading Scheme already regulates the largest energy users.

McCarthy at Action Sustainability believes many organisations do not even realise this scheme will apply to them. "I think [the government has] made a bit of a dog's breakfast of the way they have communicated this to affected businesses," he says.

Many purchasers who are familiar with the scheme do not consider the amount their organisations will have to pay for emissions to be onerous, nor do they think they are likely to be affected by new, more stringent CO2 targets as a result of Copenhagen. But Chris Bowden, chief executive of energy procurement consultancy Utilyx, advises buyers to be cautious.

"Whether or not they reached an agreement at Copenhagen doesn't really matter. Eventually there will be an agreement - it will just take time. In any case we already have significant regulatory pressure in the UK. There is no guarantee that because carbon prices are cheap now, they will stay cheap."


Global approach

An issue many larger companies face is the bewildering range of regulatory codes adopted by different countries, which can make it tough to be compliant across all operations. One emerging international standard, however, is the Certified Emissions Measurement and Reduction Scheme (CEMARS), developed in New Zealand.

It has proved to be useful to a group of British utilities companies. It forms the basis of an initiative to reduce emissions in their supply chain by working with competitors. The seven UK firms are now participating in the carbonReduction programme run by sustainable procurement services company Achilles and based on the CEMARS standard. This aims to cut carbon output by assessing suppliers according to a template.

Lucy d'Arville, director of the carbonReduction service at Achilles, told Supply Management the firms asked them to set up a scheme whereby many suppliers could be audited according to their emissions. This would save the confusion that resulted from suppliers having to measure emissions repeatedly for different customers.

"We go to suppliers and tell them their customers are interested in this - and that it's important to their customers for regulatory reasons as well as to reduce the impact on the environment."

Kayzi Ambridge, responsible procurement manager at E.ON UK, which participates in the scheme, describes its arrival in the market as timely. E.ON's analysis of the supply chain carbon marketplace and legislative landscape in the UK had shown there was a lack of clarity on how to proceed, she said.

"Other utility companies were thinking exactly the same thing. For example, internal and external stakeholders were asking us more about carbon."

Through sector-wide supplier engagement workshops the utilities found they had many key suppliers in common. "Some of the key utility suppliers were already early adopters of CEMARS, so we knew it was perceived as having value and relevance to them," Ambridge said.

Kieran Brocklebank, sustainable supply chain manager at United Utilities, which is also participating, said: "We want all our suppliers to be measuring and managing their carbon emissions and the carbonReduction programme is a great low-cost, easyentry method of doing that.

"One of the benefits of collaboration is that seven utilities are using the same language, so if a supplier registers with the scheme they are hitting seven of their clients' needs all at once."


Taxing buildings

Another important energy-related challenge for buyers lies in construction. Anna Warrington, sustainability adviser at Forum for the Future, told Supply Management she has seen examples of projects that have had energy-saving proposals removed to save money in the short term.

"We've seen several examples of newly built hospitals, for example, that have had energy-saving solutions engineered out to save on capital costs. However the long-term running costs make this a real false economy."

Warrington said solutions including "passive measures" such as properly opening windows, particular types of tree positioned in the right place to cast shade, labyrinth under-floor heating and cooling solutions, can bring significant savings over the lifetime of a building.

Bowden at Utilyx advises purchasers to be aware of changes to building tax, which come into force in 2019. At this point they will be taxed on the emissions rather than floor space.

He believes the cumulative effect of the need to reduce CO2 emissions will mean procurement needs to expand its focus beyond looking for "incremental, measurable changes in the cost-base" in the long term.

But it isn't all bad news. He added: "It also gives procurement the chance to become more influential within the business by performing well in league tables. It might help you win business from other customers looking for low-carbon suppliers."


Case study: Carbon reduction measures at Fife Council

Some UK organisations have begun to take steps to prepare for a low-carbon future. One is Fife Council, which has been working with Forum for the Future to introduce into its supply chain a whole-life costing process that also takes into account the price of carbon emissions - set at the Department for Environment, Food and Rural Affairs' recommended price of £12 per tonne of emissions.

Keith Grieve, team leader, procurement and supply chain management, said the scheme has been under trial in the past year and is now about to be rolled out throughout the council.

In the first part of the pilot the authority carried out a dummy tender for a fixed green waste shredding plant. The second was a real tender for a mobile plant.

The trial raised some tricky questions, Grieve said. Procurement had to carefully consider how decisions about whole-life costing were communicated to internal customers and how purchases fitted in the one-year budget cycle.

"Imagine a service wants us to buy five tractors but the energy-efficient tractor we want to buy is 25 per cent more expensive," said Grieve. "If we tell the manager he can buy only four tractors this year, he might say: 'What piece of grass do you want me to stop cutting this year?'

"This goes right to the heart of the debate about wholelife costing."

Fife Council is still wrestling with questions around how an energy-efficient purchase can be accounted within the current financial framework and also how to ensure the service that adopts energy-saving benefits does not lose out in the long term.

One possible option is to create a standby fund to help buy energy-efficient purchases that do not fit into the normal budget cycle.

"If we are serious about climate change then there are a whole series of dilemmas to consider. Do we look at the short term and say let's get the job done, or do we look at the long term because it's benefiting the whole planet?" Grieve asks.

Your Feedback

Related News

• Suppliers need nudge on climate management
• The UK Low Carbon Transition Plan
• Managing sustainable value chains
• Measurement of sustainable procurement
• CSR ambitions