SS10 Responsible procurement

Stepping Stone 10 Responsible procurement

Definition

Responsible procurement is a way of sourcing products and services in a manner that takes into account social value and environmental considerations, such as economic growth, labour working conditions, and environmental degradation, and always act in a way that is morally right, fair, and transparent.

Potential approach for members

Implementing principles of responsible procurement for all your suppliers could be tricky and resource intensive. It is therefore recommended to address this in a phased manner.

• To start with, members may want to look to categorise their suppliers into strategic and non-strategic suppliers. Strategic suppliers are those who will impact members’ business negatively in case of any disruptions in supplier’s value chain. Disruptions at non-strategic suppliers will not result in any significant impact at member firms and could be easily substituted by other similar suppliers available in the market
• Once strategic suppliers are identified, members are recommended to do further categorisation by size/turnover and global/local presence
  • Consider doing a qualitative risk assessment for large, global suppliers by a desktop study – visit their website and gather information about their ESG risks from resources such as a) published ESG/Sustainability report, b) news on existing/potential disruptions in their business due to ESG issues (climate action, shareholder complaints, regulatory issues related to environment, workers rights, etc). Study mechanisms in place to address ESG risks from these reports and news articles and based on the level of confidence you get from their risk management approach, rank these suppliers into low, medium or high risks.
  • Suppliers to be priortised on responsible procurement engagements are those in the high-risk categories from the strategic suppliers group consisting of large, global firms, along with any other strategic supplier whose risk assessment was not undertaken.
• Make contact with high priority strategic suppliers to enquire about their ESG credentials
  • Check if they have an ESG strategy or policy
  • Enquire about their ESG risks and their action plan
  • After gathering adequate information, members to update their risk assessment matrix for strategic suppliers
• For high-risk strategic suppliers who are early in their ESG journey or those who do not have adequate control on their ESG risks, the members need to review and plan their next steps:
  • Moving away from strategic suppliers is usually resource intensive and adds to additional cost, so it is recommended to closely work with this set of strategic suppliers in developing an action plan to address ESG risks.
  • Take professional help where necessary and monitor progress frequently
  • Where possible, in the interest of business continuity, evaluate business case to increase supplier base for the supplies received from this set of strategic suppliers
• Above process to be followed for medium risk strategic suppliers and members are advised to gradually consider engaging their wider supplier base on above steps
• For onboarding new suppliers, members can refer to the guidance shared by the UK Government to take account of social value and environmental considerations into the procurement. Though the guidance is mainly for public procurement activities, the level of ESG integration considered is fundamental to any industry and suits any level of firm
  • Consider using this guidance on qualification assessment for onboarding new suppliers
• Annual review of suppliers may be undertaken to review performance on ESG
  • Check with suppliers on environmental notice received from government agencies or local bodies
  • Check with suppliers on their response to ESG related issues (if any) brought by shareholders or other key customers to the attention of leadership at supplier firm, or directly with government bodies.

Key Performance Indicators (KPIs) to adopt

• Number of suppliers per category (strategic and non-strategic; global and local)
• Percentage of suppliers (new and existing) screened on social and environmental parameters
  • Breakdown by supplier category
• Number of suppliers identified as having significant actual and potential negative social and environmental impacts
  • Breakdown by supplier category
• Percentage of suppliers identified as having significant actual and potential negative social and environmental impacts with which improvements were agreed upon as a result of engagements.

Further reading and reference

• Procurement Policy Note PPN 6/20 publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/921437/PPN-06_20-Taking-Account-of-Social-Value-in-the-Award-of-Central-Government-Contracts.pdf
• Government Commercial Function’s Supplier Code of Conduct gov.uk/government/publications/supplier-code-of-conduct
• www.star-procurement.gov.uk/About-us/Responsible-Procurement-Strategy.aspx