Sustainable sourcing integrates environment, social, and governance (ESG) criteria and performance factors into a company's sourcing process and sourcing decisions arounds purchased goods, services, and materials
Sustainable sourcing focuses on identifying and selecting suppliers who are committed to sustainability and who can demonstrate they meet certain standards related to environmental performance, labor practices, and social responsibility. Sustainable sourcing aims to minimize negative impacts on the environment and communities, while also contributing to the long-term viability of the businesses and organizations involved.
Rising pressure from customers, ESG investors, regulators, and other stakeholders is leading more companies to implement sustainable sourcing practices and programs to improve the safety and sustainability of their supply chain. According to both McKinsey and our own internal data, a corporate supply chain’s enviromental impacts are, on average, 5 to 25 times higher than the company's direct operations, making sustainable sourcing a priority for organizations taking action to decarbonize, reduce sourcing costs, de-risk their brand, and improve ESG performance.
While environmental sustainability is one of the foundational attributes of "sustainable sourcing," the practice is also defined by economic, ethical, and social criteria and considerations. Sustainable sourcing promotes value chain circularity, well-being, and long-term resilience - both in nature and among organizations.
Sustainable sourcing integrates processes, systems, requirements, and criteria designed to provide double-bottom-line benefits for the organization and its stakeholders. A comprehensive sustainable sourcing strategy or program-set is based on:
There are a number of different specific approaches to sustainable sourcing, including sourcing locally, supporting small and medium-sized enterprises, and working with suppliers to improve their sustainability performance. Many organizations develop specific sustainable sourcing policies and programs to guide their procurement practices and to ensure they're aligned with their sustainability goals.
Strategic, sustainable sourcing delivers consistent financial, social, and stakeholder benefits. Here are just a few examples highlighting the ROI of sustainable sourcing:
Sustainable sourcing efficiency improvements helped Unilever realize over €1.2 billion in operational cost savings since 2008
Operating cost savings from manufacturing efficiency improvements that reduced product defects and waste
Reduction in operating costs from sustainable sourcing programs and practices focused on product ingredients
Company-wide improvement in profit margins for Nike by replacing certain shoe components with more sutainable materials and improving its supply chain sustainability practices
Beyond cost reductions and savings from reduced energy use, lower materials consumption, and more efficient transportation, sustainable sourcing unlocks other value levers too. Authentically sustainable products improve brand reputation, provide opportunities for premium pricing, and reduce legal, compliance, and publicity risks. Research by the World Economic Forum finds effective sustainable sourcing can raise revenue by 5-20% and reduce sourcing costs 9-16%, while improving brand perception and reducing risk.
Moreover, strategic sustainable sourcing helps derisk and future-proof organizations when it comes to supply chain pressures, resource scarcity, and consumer purchasing trends.
Brightest helps hundreds of companies see, engage, manage, and measure their suppliers' ESG performance
Sustainable supply chain management is complex. It requires a holistic view of all the partners, processes, logistics, and raw materials involved in manufacturing and delivering your products to customers, plus the ability to track, collect, and connect data at each step. It also involves use of sourcing influence to shift suppliers in sustainable directions. By reducing partners’ Scope 1, 2 & 3 emissions, you reduce your company’s Scope 3 emissions.
But sustainable sourcing isn’t just about risks and challenges. It also presents historic opportunities to make and distribute more appealing, durable, valuable, and differentiated products, invent (or reinvent) new products, reduce costs, protect the environment, and elevate your company’s brand. Products and packaging can become biodegradable, compostable, or even upcycled from other products’ waste. The entire world benefits - both now and in the future.
Sustainable sourcing opportunities include:
As well as setting better, more sustainable sourcing standards - and helping suppliers meet them.
Your sustainable sourcing strategy should fit the needs and realities of your business, but at a minimum consider material ESG factors and key supplier relationships.
Supplier relations is an ongoing dialogue, and your organization will have varying degrees of influence in a specific value chain. When working with suppliers on sustainability initiatives, it's important to be clear, consistent, and understanding with your sustainable sourcing approach and policies:
Once you've established one or more sustainable supply chain programs, work with your suppliers to implement best practices:
For example, in 2021 Hewlett-Packard (HP) launched a new Sustainable Bond Framework, which the company will use to issue bonds to help finance HP sustainability projects. The company plans to issue up to $2 billion in sustainable bonds, and one use of proceeds will be projects that help decarbonize its supply chain. Similarly, Unilever and Campbell Soup Company offer their farmers technologies, guidelines, and products to help them optimize their fertilizer and water use and improve soil conservation.
Aligning your organization's sourcing policies, programs, and decision-making with its ESG and sustainability targets can be challenging - but also incredibly powerful for innovation, differentiation, and value creation. If your company makes or sells physical products, your supply chain is the foundation for your organization's overall sustainability performance - putting sustainable sourcing at the forefront of ESG implementation.
Achieving sustainable sourcing exellence does require internal capacity, resources, and investment. But, done correctly, it can boost everything from your firm's brand and reputation to employee morale and retention, operating financials, and risk management efforts.