pillars sp – The Global Sustainable Enterprise System

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THE GSES system

Sustainable Procurement

ISO 20400 Guideline as the Basis

The Sustainable Procurement (SP) pillar from GSE-Standard is based on the ISO 20400. SP is a process that plays a prominent role in organizations that develop and implement a sustainable strategy.

The ISO 20400 guideline offers a practical and highly professional approach to help achieve sustainable goals and implement a way of work on the one hand and to make supply chains more sustainable on the other.

Concept and Definition

Sustainable Procurement is a powerful tool for all organizations that wish to behave responsibly and contribute to sustainable development and achieve the UN goals for sustainable development. By integrating sustainability into procurement policies and practices, including supply chains, organizations can manage risks and opportunities for environmental, social and economic development.

Buyers play a key role in the organization when it comes to SP. Buyers can help realize the strategic goals of the organization while at the same time helping to make chains more sustainable.

How? By purchasing in a socially responsible manner. They can show what purchasing power means in terms of increasing a positive environmental impact, fair wages, and combating child labour.

In ISO 20400 ‘Sustainable Procurement’ is defined as ‘purchasing with the most positive environmental, social and economic effects that are possible throughout the entire life cycle.’

When it comes to Sustainable Procurement, it involves the sustainability aspects associated with the goods and services and with suppliers in the supply chain. Sustainable Procurement contributes to achieving organizations’ sustainability goals, targets and objectives and sustainable development in general.

SP Pillar content

The 12 Principles of Sustainable Procurement

The ISO 20400 guideline embraces 12 Sustainable Procurement principles, which have been established as follows:

01. Accountability: An organization should be accountable for its own effects on society, the economy and the environment.

02. Transparency: An organization should be transparent in those decisions and activities that have an impact on the environment, society and the economy.

03. Ethical Conduct: An organization should behave ethically and promote ethical conduct throughout its supply chain.

04. Respect for the interests of stakeholders: An organization should respect, consider and respond to the interests of its stakeholders who experience the effects of its purchasing activities.

05. Respect for the Rule of Law and International Standards of Conduct: An organization should strive to be aware of any violations of this at some point in its supply chains.

06. Respect for Human Rights: An organization should respect internationally recognized human rights.

07. Full and fair opportunities: An organization should avoid bias and bias in all purchasing decisions.

08. Innovative Solutions: An organization should seek solutions to meet its sustainability goals and promote innovative procurement practices to promote more sustainable outcomes throughout its supply chain.

09. Focus on Needs: An organization should assess demand, buy only what is needed, and look for sustainable alternatives.

10. Integration: To maximize sustainable outcomes, an organization should ensure that sustainability is integrated into all existing procurement practices.

11. Analysis of costs: An organization should consider the costs that arise over the life cycle, the value for money that is realized and the costs and benefits for society, the environment and the economy as a result of its purchasing activities.

12. Continuous Improvement: An organization should work to continuously improve its sustainability parks and outcomes and encourage organizations within its supply chain to do the same.

In addition to these 12 Sustainable Procurement principles, each organization can also use its own principles. If the organization already applies codes of conduct, it is important to compare these with these principles and tighten them where necessary.

The GSE-Standard Sustainable Procurement Pillar, with its 12 core themes, is able to contribute to all UN goals for sustainable development (SDGs).

Companies and governments are all part of a larger whole. No organization stands alone. Within the SP Pillar the context analysis of mapping the environment is the first step. A distinction is made between:

Issues (both internal and external) and
Stakeholders (both internal and external).

See pillar Corporate Social Responsibility of this Handbook for more information on external and internal issues.

When it comes to Sustainable Procurement the organization deals with a large number of stakeholders connected to supply chains.

The organization should identify the stakeholders who are directly or indirectly involved in purchasing activities. See the table below as an example of the different types of stakeholders of an organization plus their interests and effects.

Type of stakeholders	Examples of stakeholders	Examples of interests of stakeholders
Internal functions	Management/entrepreneurs	Protect image Improve brand reputation Gain a competitive advantage Support innovation Increase investor confidence
	Procurement staff	Manager procurement risks (including opportunities) Reduce costs Comply with regulations Support innovation Motivate buyers
	Prescribers	Buy or use goods or services that are more sustainable Ensuring that goods and services are fit for purpose Ensuring that goods are authentic
	Production workers	Meet production schedules Improve efficiency Check the product quality
	Social responsibility/sustainability employees	Only counts when easily separable into monnostreams and return managementmust be operation for the after use-phase of the product.
	Other internal employees (finances, health and safety, human resources, operational managers, etc.)	Improve health and safety Monitor payment terms Return on investment
Supply chains	Suppliers (layer 1, 2 and further)	Receive fast payment Receive a fair price Gaining insight into customers Obtain fair contract terms Create demand for goods or services that are more sustainable
	Subcontractors/manpower	Receive fair contract terms Get healthy and safe working conditions
	Business relations, consultants	Improve collaboration Innovate Creating mutual benefits
Other stakeholders	Customers, clients and users	Buy or use more durable goods or services
	Local community	Support local employment Promote the creation of wealth and income Enjoy a healthy environment
	Governments, public sector, academic, international bodies	Protect human rights Promote access to essential services Protect the environment Promote joint research
	NGO's	Creating awareness for a more sustainable society
	Unions/workers	Create better working conditions
	Investors, financial sector, credit rating agencies	Limit negative financial effects Reduce uncertainty Support responsible return on investment
	Industry associations	Motivate industrial players Promote good sustainability practices

In the context analysis, the organization can also pay attention to trends and developments in sustainability, such as:

Changing government policy: for example the transitions to sustainable energy and to the circular economy.
Changing regulations: for example mandatory non-financial reporting including human rights.
Changing government procurement policy: for example the Sustainable Procurement manifest in the Netherlands.
Changing consumer wishes: for example more transparency regarding the true value of sustainability labels and certificates.
Changing international standards of behaviour: for example updates in the UN Sustainability Goals.
Economic market forces: for example the fluctuations in availability and price of scarce raw materials.

Organizations should manage their Sustainable Procurement risks and opportunities. Risk management is dynamic and responds to change. The objective of risk management in the context of Sustainable Procurement is to identify the internal and external risks and opportunities related to the purchasing activities of the organization. This helps to set priorities and manage these risks and opportunities.

The risks and opportunity analysis includes a risk assessment (identifying, analyzing, evaluating) and treatment. It also includes reflecting on how suppliers across the supply chains are able to meet sustainability requirements – for example those related to monitoring and audits.

Due diligence is a specific form of risk assessment to identify and tackle negative CSR effects in supply chains. This involves proactively identifying, assessing, preventing, limiting and accounting for actual and potential adverse CSR and ESG effects.

Sustainable Procurement recognizes that organizations can cause or contribute to adverse sustainability effects by:

their purchasing practices or the activities of their suppliers, contractors, trading partners, investment companies or intermediaries throughout the entire supply chain;
designing, purchasing, using or disposing of goods or services by the organization and its supply chains.

Through its procurement activity, an organization should avoid becoming complicit in the wrongful acts of other organizations that cause adverse sustainability effects. The organization can implement a due diligence process to address and account for adverse effects.

One possibility for elaboration is to include a short risk analysis per issue from the context analysis. It can be shaped like the table below:

Procurement analysis
Suppliers component A.	We procure components based on fossil raw materials from 4 suppliers.

Evaluation
Risks	1. Customers are becoming more critical of the CO2 footprint of our products. 2. The Circular Economy transition agenda is forcing us to change. 3. The availability of fossil raw materials is decreasing.
Negative effects	1. More CO2 emissions. 2. Recycling is impossible due to the blending of the fossil raw materials. 3. Pollution of nature because fossil plastics are released into the environment.
Opportunities	By applying bio based innovations in collaboration with new suppliers, we can promote circularity, meet customers and guarantee the continuity of raw materials.

For the due diligence process of analyzing and addressing negative effects for sustainable development in and outside the value chain, the Sustainable Procurement Pillar of GSE-Standard is in line with the “OECD Due Diligence Guidance for Responsible Business Conduct”.

The OECD (Organization for Economic Cooperation and Development) issued this new guideline with practical advice for Due Diligence in 2018.

In February 2022 the European Commission adopted a proposal for a Directive on corporate sustainability due diligence.

The new due diligence rules will apply to the following companies and sectors:

EU companies:

Group 1: all EU limited liability companies of substantial size and economic power (with 500+ employees and EUR 150 million+ in net turnover worldwide).
Group 2: Other limited liability companies operating in defined high impact sectors, which do not meet both Group 1 thresholds, but have more than 250 employees and a net turnover of EUR 40 million worldwide and more. For these companies, rules will start to apply 2 years later than for group 1.

Non-EU companies active in the EU with turnover threshold aligned with Group 1 and 2, generated in the EU.

Small and medium enterprises (SMEs) are not directly in the scope of this proposal.

This proposal applies to the company’s own operations, their subsidiaries and their value chains (direct and indirect established business relationships). In order to comply with the corporate due diligence duty, companies need to:

integrate due diligence into policies;
identify actual or potential adverse human rights and environmental impacts;
prevent or mitigate potential impacts;
bring to an end or minimise actual impacts;
establish and maintain a complaints procedure;
monitor the effectiveness of the due diligence policy and measures;
and publicly communicate on due diligence.

More concretely, this means more effective protection of human rights included in international conventions. For example, workers must have access to safe and healthy working conditions. Similarly, this proposal will help to avoid adverse environmental impacts contrary to key environmental conventions. Companies in scope will need to take appropriate measures (‘obligation of means’), in light of the severity and likelihood of different impacts, the measures available to the company in the specific circumstances, and the need to set priorities.

It is important that the Sustainable Procurement policy is consistent with the overall policy of an organization. The involvement of the organization’s management is critical for successful Sustainable Procurement practices. Also, it is important that management understands how procurement can support the organization’s goals and improve performance. It should be clearly established how accountability for Sustainable Procurement performance is provided. See this example of mapping the roles and levels related to the accountability, responsibility and support for Sustainable Procurement:

In order to gain more support, it is essential to draw up an SP action plan. Any organization is different, not every step has to be necessary. That is why we advise you to take the route that best suits your organization. You can make this plan together with a team of enthusiastic colleagues (buyers, team leaders, clients, policy makers, sustainability coordinators). The plan consists of several parts.

Part 1. Inventory
This step identifies which steps have already been taken in the field of SPP undertaken. Choose a maximum of 5 of the most important points. Questions to ask are:

What has already been done (consciously or unconsciously) in the field of SP?
Have there already been tendering processes in which SP criteria have been included?
What are these and how did they progress?
Were there any eye openers or aha moments?

Part 2. Choose the issues
Which issues are included in the organisation’s sustainability ambition?

Which issues does the organization already have knowledge or experience about?
With which issues can the greatest impact be made?

Part 3. Promising tenders
Look at the tenders for the coming year and select in which tenders Sustainable Procurement is chosen. To determine what the promising tenders, you can start with:

Expiring contracts: what needs to be repurchased soon?
Intrinsically motivated colleagues
Product groups with which you can make a great impact

Part 4. Organize the preconditions
Certain preconditions are important to make this plan successful to integrate in the purchasing process. Think about creating support within the organization, arranging extra budget, drawing up a clear division of tasks and responsibilities for the buyers, clients, administrative bodies and others involved roles in the organization.

Part 5. Have the plan defined and executed
Sustainable Procurement is not only from the purchasing department, but from the entire organization. By having the plan adopted by the management or board, sustainability can be more easily implemented in the purchasing processes.

Integrating sustainability into the purchasing process involves five steps:

Planning: determining a sustainable sourcing strategy;
Specifying: determining purchasing specifications based on sustainability criteria;
Selecting: choosing a supplier and awarding the contract;
Contract management: maintaining the relationship with the supplier and managing the contract with attention to sustainability;
Contract assessment and learning: the basis for further improvement of SP performance.

Step 1: Planning
To determine the sourcing strategy it is necessary to:

Assess sustainability risks and opportunities
Different goods or services (purchasing categories) and different suppliers can entail different sustainability risks and opportunities. Relevant considerations include technical aspects, the compliance culture, purchasing locations, supply chain structures, with special attention to suppliers below the first layer.
Analyzing costs
It is important to take into account all costs that arise during the life of the goods or services. There is a challenge to move from price and to Total Cost of Ownership (TCO), to Life Cycle Costing (LCC). The latter also considers capitalized and non-capitalized effects on society, the economy and the environment.
When assessing costs using a LCC approach, the organization should indicate in the procurement documents what data needs to be provided by the tenderers and what method is used to determine the LCC.
Analyzing business needs
Analyze whether there are alternative options to deliver the same result in a better way.
Analyzing the market
The objective is to obtain a thorough understanding of the existing and future supply market ability to support the sustainable needs of the organization. This while providing the same or an improved level of service, price, functionality and quality. Market analysis allows the organization to gain insight into the sustainability KPIs, lower or increase the level of competition and/or purchasing power of the organization.

The sourcing strategy should further include:

how sustainability objectives are achieved through the purchasing approach;
how sustainability requirements are included in the specification, including any go/no go criteria during the pre-qualification or tender phase. Care should be taken to ensure that all suppliers have full and fair competition opportunities;
how sustainability aspects are included in the draft contract or the draft conditions;
the importance attached to sustainability in the evaluation criteria, with careful attention to finding the best balance with other criteria such as price or quality;
expected sustainability benefits, including
• savings over the entire life cycle;
• the effects of the sustainability approach on the project plan and budget.

This ensures realistic and affordable sustainability requirements. Requirements that are considered in addition to those traditionally addressed in a procurement plan – including specification, options analysis, demand planning, risk and opportunity analysis, market analysis and early market involvement.

Step 2: Specifying
After a decision has been made on the procurement strategy, the sustainability KPIs should be established and documented. Examples are a draft contract, briefing, scope of work or the establishing of pre-qualification KPIs.

Some of these criteria apply directly to goods or services that are purchased. Other requirements may apply to the production and process methods used to provide goods or services. And others apply to the supplier organization itself.

It is important to ensure that the sustainability KPIs are realistic, objective and verifiable. If, for example, supply chain due diligence makes clear that human rights are violated for a purchasing category, it should be clear 1) what should be done by whom and 2) who bears the costs for what.

The organization can apply different types of requirements:

physical or descriptive requirements: specify a characteristic of goods or services.
performance requirements: define the performance standards to be met by the goods or services, including a definition of how goods or services are to be delivered in order to maximize social and environmental impacts related to future performance.
functional requirements: define the proposed function that the required goods or services must fulfil.

Requirements can be:

minimum: when the requirements define the minimum levels of acceptable performance which actively exclude unwanted properties;
optional: when the requirement defines preferred sustainability solutions. In this case, they should relate to evaluation criteria used for rewarding performance that exceeds minimum standards.

Labels and Certifications
Evaluation of the Sustainable Procurement of an organization involves activities such as reviewing documentation, testing, inspections, audits, certification, management systems, assessments, sustainability claims, labels and statements.

These activities may be performed by an independent external agency or organization (third party), an external agency on its behalf (second party), or the supplier or its representative (first party). When defining the evaluation procedure for each requirement, the organization should identify which activities should be performed and by whom.

The evaluation procedure can be carried out in the context of pre-qualification or as a step in the tender process. After the contract has been awarded, additional ongoing evaluation should take place in accordance with the plan established within the tender.

The Footprint Standard of the GSE Meta Standard can be used as an instrument to specify the required level of sustainability of products

Step 3: Selecting
The organization should assess whether the supplier is able to contribute to the SP criteria and expectations of the organization through the delivery of goods or services. This usually involves a pre-qualification or a tender procedure.

The main differences between the pre-qualification and a tender procedure are:

Pre-qualification: usually focuses on the supplier’s overall ability to deliver expected outcomes, including sustainability outcomes;
Tender procedure: usually focuses on the supplier’s capacity and commitment to meeting detailed and specific requirements, including sustainability requirements, for goods or services.

When selecting suppliers, the organization should ensure that all legal requirements (e.g. public procurement regulations) are met. Also, open and fair competition between potential suppliers should be promoted. Attention has to be paid to ethics, respect for (intellectual) property, transparency of the entire selection process, and the (dis)qualification of suppliers.

Various public and private organizations have the ability to negotiate after evaluating the tender. This phase represents a risk of reduced sustainability commitments from the supplier(s), and may provide an opportunity to improve supplier engagement. If negotiation of contractual commitments is not possible, a more informal approach can be helpful in persuading suppliers to join sustainability initiatives.

After the negotiations have been concluded, the contract should be formally awarded to the supplier. Suppliers that are not selected should be notified, explaining why their offer does not meet qualifications including SP.

Step 4: Contract Management
A contract management plan should be established to reflect SP objectives and relevant KPIs. Appointing a contract manager from the purchasing organization is important to monitor the supplier’s progress and SP performance. This includes management of the supplier relationship, performance of the contract, use of a contract management plan, performance management, joint initiatives between customer and supplier, and managing supplier errors and the end of the contract.

If changes are required during the performance of the contract, they should be addressed through a formal change management approach. Performance management is not a one-way street. ISO 20400 encourages an open and transparent way of managing Sustainable Procurement performance, improving procurement performance.

Step 5: Contract assessment and learning
The purchasing organization should regularly review the contract during its term and after its termination. This is essential to ensure that the lessons learned over the life of the contract can be shared. Also it helps to achieve continuous improvements – realizing a better sustainability performance.

The basis for improving and learning about SP is laid by defining Sustainable Procurement criteria in the specifications. Assessment for each sustainability requirement should be possible through an evaluation procedure described by the organization in the tender documents.

Controlling performance over the life of a contract requires that:

the organization informs suppliers how they are evaluated (KPIs, validation or audit conditions);
suppliers are able to provide feedback.

The performance and results achieved are input for adjusting the sustainability ambitions and the Sustainable Procurement policy. In this way, the steps of this Sustainable Procurement pillar can be repeated. Because socially responsible purchasing is a continuous process of improving and setting ambitions.

You can find the complete list of Assessment questions for the pillar Sustainable Procurement ISO 20400 for corporates and for SMEs in Appendix 1 of this handbook.

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