What ROI should you expect from a sustainable procurement policy?

ROI responsible purchasing
April 22th, 2021
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The health crisis has revealed the strategic role of procurement departments, while raising awareness of Corporate Social Responsibility. Previously focused on reducing the carbon footprint of internal operations, strategies are becoming increasingly diverse across the entire value chain, including the product life cycle and services bought by companies. The challenge for procurement departments is therefore to take advantage of the sustainable procurement policy in order to create value for the company by limiting risks, reducing costs and increasing turnover.

ROI no. 1: Mitigating risk

The first return on investment cited by companies committed to taking a sustainable approach to procurement is the reduction of risk. In this respect, the Business Continuity Institute reports that 52% of companies were already experiencing disruptions in their supply chain before the pandemic. The main causes of these disruptions are unplanned downtime of IT systems, poor weather conditions, cyberattacks and data leaks, labour shortages and even disruptions in logistics and transport systems. Of course, these incidents have been exacerbated by the health crisis, particularly with delays in cross-border transport.

In this context, companies that had already mapped their risks and/or had supplier tracking systems in place (both of which are features of sustainable procurement programmes) were able to identify goods coming from the most affected geographic areas more easily. This therefore enabled them to quickly find alternative sources for their critical purchases.

ROI no. 2: Reducing costs

The second return on investment cited by companies is cost reduction. Often, this is also the main reason behind their commitment to a sustainable procurement programme in the first place.

Today, studies confirm that it is possible to reconcile Corporate Social Responsibility with economic performance. According to the World Economic Forum, companies that adopt certain sustainable practices throughout their supply chain (from product design to end-of-life management) can reduce overall costs within their supply chain[1] by up to 16%.

The most striking examples are those where financial savings tie in with savings in energy and resources. PepsiCo is a good example of this, with the company managing to save nearly 80 million dollars over a five-year period, by reducing the volume of water used in its operations by 26%.

ROI no. 3: Increasing turnover

Finally, the third return on investment cited by companies committed to taking a sustainable approach to procurement is their increased turnover. This is first and foremost about responding to market demands. Today, nearly 90% of European consumers want brands to be firmly committed to sustainable development[2], while 92% of distributors are predicting a growth in sales of sustainable products over the next five years.[3] This is a trend that can certainly be seen today.

For example, Unilever reports that its sustainable brands are growing 69% faster than its other activities, which are in turn responsible for 75% of the company's growth. It is true that sustainable purchases now represent a way for companies to stand out from the crowd and can be used to boost their competitive advantage.

Of course, the returns on investment do not stop there. Innovation, improvement of procurement indicators, or even the recruitment and retention of talent can all contribute to returns on investment as well. In any case, it is worth noting that organisations with more experience in sustainable procurement can expect a more conclusive return on investment.

Source: EcoVadis, Return on Sustainability: The Value and ROI of Sustainable Procurement, 2020

[1] World Economic Forum, Beyond Supply Chains — Empowering Responsible Value Chains, 2015

[2] Oney/OpinionWay Group, La consommation raisonnée en Europe (European study of sustainable consumption), 2020

[3] International Trade Centre (2019). The European Union Market for Sustainable Products. The retail perspective on sourcing policies and consumer demand. ITC, Geneva.