Use Net-Zero Procurement to Win the GHG Reduction Trifecta
Any organization can use Net-Zero Procurement (NZP) with speed and scale to help win the GHG reduction trifecta:
- Reduce the carbon footprints of all purchased products to net-zero by 2050 or sooner
- Reduce businesses’ GHG emissions to net-zero by 2050 or sooner
- Mitigate the climate emergency by 2050 or sooner
Background Context
Organizations are increasingly accountable for their direct and indirect GHG emissions. All organizations are being urged to report on and reduce their Scope 1, Scope 2, and Scope 3 GHG emissions. To address the climate crisis, all organizations’ GHGs emissions must be reduced to net-zero by 2050 or sooner.
CDP found that, on average, supply chain Scope 3 emissions are 26 times higher than an organization’s / customer’s / purchaser’s (“buyer’s”) Scope 1 and 2 emissions. The carbon footprints of purchased goods, services, and capital assets (“products”) are significant components of buyers’ Scope 3 emissions. For a buyer to achieve net-zero GHGs by 2050 or sooner, carbon footprints of its purchased products must be net-zero by 2050 or sooner.
Therefore, all organizations seek to purchase products with the lowest carbon footprints from providers / vendors / sellers (“suppliers”) who are the most committed to science-based GHG reduction targets (SBTs) and who are doing the most to reduce their GHG contributions to their products’ carbon footprints.
A CDP analysis of organizations taking part in their annual survey found that 87% of suppliers who reduce their GHGs are actively engaged by their customers / buyers. However, only 40% of buyers engage with their suppliers on climate issues, and just 10% collaborate with them. Further, only 15% of buyers have set upstream Scope 3 targets, and only 13% of buyers include climate-related requirements in their supplier contracts. Suppliers are 52% more likely to reduce their annual GHG emissions if their buyers offer financial incentives, compared to when only training is provided.
A BDC report found that businesses account for about 80% of GHG emissions. All businesses are suppliers. Unless businesses / suppliers are actively engaged in reducing their GHGs, the climate emergency will get worse. Net-Zero Procurement is an untapped market force that actively engages suppliers and financially incentivizes suppliers to reduce their GHGs. It’s time to unleash the NZP market force to help win the GHG reduction trifecta.
How Net-Zero Procurement (NZP) drives supplier GHG reductions
Net-Zero Procurement (NZP) is defined as obtaining the best value for money when purchasing the most low-carbon and circular goods and services from suppliers who are most committed to science-based net-zero GHG reduction targets and to circularity. In an NZP system, buyers use an SME-friendly supplier questionnaire (“Tool”) to score suppliers on their GHG reduction and circularity commitment, progress, and plans. The Sustainable Purchasing Leadership Council (SPLC) encourages a three-phase “Signal – Prefer – Require” approach when embedding any sustainability elements into procurement processes. Organizations can use that systematic approach to integrate NZP elements into their procurement processes.
Signal (immediately, independent of tender activity)
- Explain to all suppliers why the organization needs them to reduce their products’ carbon footprints.
- Explain how the organization will use the scores from the Tool to determine the supplier’s share of the significant points allocated to supplier progress on GHG reductions in bid appraisals, from now on.
- Request that all suppliers – regardless of size, sector, or location – complete the Tool now, to provide a snapshot of the status of their efforts and provide a diagnostic on where more effort is required. The Tool gives bonus points if suppliers use NZP with their suppliers, launching a ripple effect of commitment to net-zero GHG reductions throughout supply chains.
- Include suppliers’ scores on the Tool in suppliers’ profiles in the buyers’ Supplier Database. Suppliers can update their Tool answers / scores at any time, including at RFx time.
Prefer / Weight
- At tender time, require that all bidding suppliers – regardless of size, sector, or location – respond to the Tool or update their previous response.
- At bid appraisal time, significantly weight (i.e., at least 10% of the points) suppliers’ scores on the Tool. This incentivizes suppliers to do more to reduce their GHGs and their products’ carbon footprints. This is the signature feature of NZP – it financially motivates suppliers to reduce their GHGs because they earn more points if they have a higher score, giving them a competitive advantage over other bidders.
Require / Contract
- At contract time, include terms and conditions that require verification of the winning supplier’s responses to questions in the Tool, and include penalties / incentives to ensure winning suppliers follow through on their stated plans to further reduce their GHGs, as described in their Tool responses.
How NZP helps win the GHG reduction trifecta
A robust NZP system, integrated into an organization’s existing procurement processes as described above, is a powerful market force that helps win the GHG reduction trifecta.
- Reduce the carbon footprints of all purchased products to net-zero by 2050 or sooner
NZP incentivizes a buyer’s suppliers to reduce their Scope 1, Scope 2, and relevant Scope 3 GHG emissions to net-zero by 2050 or sooner. If suppliers’ GHG emissions are net-zero, their products’ carbon footprints are net-zero (see Figure 2). - Reduce businesses’ GHG emissions to net-zero by 2050 or sooner
All businesses are in their customer’s supply chains. Deploying NZP with speed and scale, globally, would unleash a market force worth $trillions to incentivize a critical mass of suppliers / businesses to reduce their GHGs to net zero by 2050 or sooner. - Mitigate the climate emergency by 2050 or sooner
NZP can be used by buyers in all sectors (public, private, academic) to reward their suppliers for reducing their GHG emissions. The ubiquitous use of NZP motivates all businesses to take action to reduce their GHGs to net-zero by 2050 or sooner, increasing the possibility that we can mitigate the climate crisis, in time.
The beauty of NZP is that it can be deployed by any size organization, in any sector, in any location, now. Let’s get on with it.
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