17 March 2011 | Luca Del Buono
Finance/insurance, Europe

 

Green procurement in business means meeting needs for goods, services, utilities and working with a view to maximising benefits, not only for companies but for the wider world. Green procurement responds to pressure to protect local environments and economies from the effects of their products. To meet this demand, the focus is on local supply chains, extended producer responsibility (EPR), also known as product stewardship, and resourse conservation.

EPR describes the financial incentives put in place to encourage manufacturers to design environmentally friendly products by holding the producer liable for the costs of managing their products at end of life. Resource conservation involves reducing energy and water use and building materials in new developments via reusing building materials; design and layout using natural heat and light, harnessing renewable energy sources and managing water sources. These options can also boost the bottom line for businesses by promoting cost-reduction and sustainability.

Sourcing locally - procuring from local suppliers - may ultimately boost sales. Local sourcing can widen profit margins owing to 'the multiplier effect': an economic principle which holds that increased spending in one part of the economy, for example local purchasing jobs, will lead to increased spending in other parts, employers will spend this money in the local vicinity.

In addition, local sourcing opens new markets for consumers interested in locally produced products and services. Market research reveals rising public interest in local sourcing. Many major grocery chains have set up local sourcing programs. For example Waitrose launched its regional and local food section in 2001, and now stocks over 2,000 products from over 450 small producers. The British grocery chain Asda is another example. The chain has extended tender invitations to local suppliers and expanded their supply chain to include 'hubs' where the producers can sell their products, which are then consolidated and transported in vans to the stores. The first hub was opened in 2002, and now a total of nine hubs allow 500 local businesses to stock food ranges in Asda. The hubs, as businesses themselves also provide jobs in the areas. As the vans have less distance to travel – the company decreases its fuel costs and its carbon footprint. The shorter supply chains involved in local sourcing also offers stores a greater reliability for delivery times, making delivery costs lower.
 
A company’s procurement policy must also take into account regional waste regulations. With the adoption the Packaging Directive , which tries to minimise the creation of packaging waste material, and promotes energy recovery and the re-use and recycling of packaging, many EU member states have introduced national measures on packaging. In Germany manufacturers and distributors are now required to accept used packaging from customers and ensure that a percentage is recycled. The EU has similar policies for electrical equipment and vehicle waste. In Japan, and EPR laws also cover consumer batteries, electronic equipment and end-of-life vehicles. Canada has over 50 EPR programs.

Following releases by the United Nations and the G8, the EU released a Communication in August 2010 that noted the importance of EPR to preventing resourse depletion. The EU issued a statement proposing that companies enact product stewardship policies concerning the use of critical minerals, the depletion of which 'could hurt the EU's competitiveness'. The lack of stewardship and recycling programs for these critical minerals and the costliness of producing them artificially contributes to their critical status.

In addition to product stewardship, the UN also advocates sustainable development of products made from wood. A steering committee of finance experts from the United Nations Environment program (UNEP) has proposed a biodiversity and ecosystem service market, which will incentivise companies to create sustainable wood products by offering tradable credits for limiting deforestation. The system would also incentivise preventing water pollution and investment in water pollution solutions.

By adopting EPR and sourcing locally, procurement managers have the potential to design new products, alter industry-wide standards and reduce overall production costs. These measures may optionally be outsourced. Specialist management consultancies can eliminate the worry of regulatory, corporate and industry compliance obligations.

 

Image 1: Garry Knight | flickr

Image 2: Mark Hillary | flickr

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