Friday, Jan 30 2015
When selecting vendors, products, and services, purchasers should prioritize environmental standards and preferences. Businesses, governments, households and others could be sending powerful market signals favoring sustainable uses of natural resources, funding to protect ecosystems, and lighter environmental footprints. Effective, widespread application of sustainable purchasing would greatly increase conservation financing.
Purchasing power has been mobilized to promote corporate responsibility for various social concerns. In the wake of widely publicized controversies, Apple upgraded factory workers’ safety in China and Nike reduced child labor in Asia. Yet, purchasers often forego opportunities to use spending for conservation; their trillions of dollars in annual expenditures allow some vendors to waste natural resources and bypass the needs of threatened ecosystems.
Three developments signal rising opportunities for conservation financing via environmentally preferred purchasing.
First, customers in many markets can find vendors financing sustainable management of natural resources. In support of forest conservation, companies making zero deforestation commitments represent about 60 percent of palm oil trade (with $30 billion annual revenues) and include about 400 global consumer goods companies. As for harvesting wood, customers in 90 countries buy products from Resolute Forest Products, which has sustainability certified its 54.6 million acres of managed woodlands. United Parcel Service’s foundation financed more than 3 million tree plantings across 47 countries, and in 2014 made grants of nearly $2.5 million to environmental sustainability organizations. In conserving watersheds, Coca-Cola aims to replenish watersheds and reduce water usage, and Walmart Stores notes its investments in water stewardship along with renewable energy and reduced food and packaging waste.
Prodded by customers to try sustainable production methods, companies may find cost savings which further benefit customers. For example, Waste Management uses landfill gas to refuel its trucks, which is cheaper and cleaner than extracting and processing fossil fuels. Additionally, “socially responsible investors” are pressing companies toward greater efficiency in natural resource uses.
Next, some manufacturers and retailers are leaders in sustainable purchasing as they reduce their indirect (supply chain) emissions and use of natural resources. For example, Target aids the recovery of marine ecosystems by working with nonprofit organization FishWise to increase the quantity of sustainable retail seafood products from 40% in 2011 to 100% in 2015. As another leader, Unilever PLC commits to upgrade its sustainably sourced agricultural raw materials from 24% in 2011, to 50% in 2015, and 100% in 2020. Similarly, healthcare company Baxter International (spending about $7.3 billion annually on 35,000 suppliers in more than 100 countries) engages suppliers on their energy use, greenhouse gas emissions, wastes, and raw materials to improve its total environmental performance.
Third, purchasers have growing access to sustainability analytics, metrics, certifications and guidance. For example, U.S. federal government agencies administer energy efficiency certifications for vehicles and electrical products, and publish standardized measures on transportation carriers’ air emissions. Several non-governmental organizations develop multi-sector standards, disclosure guidance and best practices, including Sustainable Purchasing Leadership Council, Sustainable Accounting Standards Board, Carbon Disclosure Project, and The Sustainability Consortium. Additionally, private sector organizations have extensive experience with sector-specific sustainability standards, such as Forest Stewardship Council International and other organizations for forest products, Green Electronics Council for electronic products, U.S. Green Building Council for commercial offices and other buildings, and Green Seal for cleaning products.
Responding to some customers’ purchasing practices, leading vendors have financed conservation initiatives in threatened ecosystems. However, greater efforts are necessary to capture the potential benefits of purchasers’ trillions of dollars in annual spending. Two steps towards more customer-driven conservation financing involve enforcement and prioritization.
1. Enforcement. Effective sustainable purchasing programs require clear accountability, targets, monitoring, and incentives/penalties. Some sustainable purchasing initiatives fail because they are like “paper parks”, where protected status exists in some formality but does not help ecosystems because of non-enforcement.
For example, pursuant to state law, the University of Illinois (USA) adopted a policy statement directing units to purchase office paper with recycled content when available at “comparable” cost to virgin products. Nevertheless, the main campus reported that of $611,000 spent on office paper in 2014, 71% had recycled content less than 10% (likely none). In contrast, other State of Illinois universities and agencies applied the standard of 30% or more recycled content to all purchases of office paper. The campus did not hold any unit or purchasing staff accountable for financing forest destruction. As another example, in 2009 U.S. President Barack Obama ordered that federal agencies pursue opportunities with vendors and incorporate incentives to reduce greenhouse gas emissions, specifically in delivery services. Five years later, the U.S. General Services Administration incorporated clear air emissions and energy consumption measures into the factors for selecting delivery service vendors and into their performance reporting. Yet, the U.S. Defense Department’s subsequent solicitation and contract for package delivery services fail to reflect environmental criteria.
2. Prioritize environmental stewardship in vendor selection. Environmental organizations must focus purchasers’ attention on vendors’ conduct regarding ecosystem conservation. To encourage vendors to support ecosystems, environmentalists must bear some of the burden of communicating threats and opportunities to vendors, then mobilizing purchasers. For example, a company which reduced its energy usage may appear worthy of environmentally preferred purchases; but, environmentalists need to consider the vendor’s other actions, such as if it failed to restore wetlands and forests impaired by its operations. This multi-faceted perspective will help environmental advocates determine how vendors rank among competitors, which can help purchasers in their selection process. To move companies toward significant conservation efforts, buyers must be wary of rewarding vendors that publicize green policies but in reality fail to act to conserve ecosystems.
In conclusion, purchasers need to recognize that some vendors demonstrate leadership in spending to conserve natural resources and ecosystems, while others are wasting and harming such assets. Furthermore, purchasers need to grasp their power to channel toward conservation trillions of dollars annually in their suppliers’ spending. Conservation advocates have the responsibility to identify best practices in terms of actions by both suppliers and purchasers, and to help guide purchasers toward applying environmental standards and preferences. Along with laws which direct government spending for protected areas and various other sources of financing for conservation, purchaser-driven incentives for suppliers represent a large pool of money for threatened ecosystems and natural resources.
 Poeter, D., "NGOs Call for Boycott of Apple Products Over Worker Safety." Consumer Electronics. PCMAG,
10 Mar. 2014. <http://www.pcmag.com/article2/0,2817,2454796,00.asp>.
 Nisen, M., "How Nike Solved Its Sweatshop Problem." Strategy. Business Insider, 09 May 2013. <http://www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5>.
 UN Climate Summit 2014, “Forests: Action Statements and Action Plans” <http://www.un.org/climatechange/summit/wp-content/uploads/sites/2/2014/07/FORESTS-Action-Statement_revised.pdf>
 Resolute Forest Products, "Fast Facts," 2015. <http%3A%2F%2Fwww.resolutefp.com%2FMedia%2FFast_Facts%2F>.
 United Parcel Service of America, "The UPS Foundation Awards Nearly $2.5 Million in Environmental Grants." 14 Oct. 2014. <http://www.sustainablebrands.com/press/ups_foundation_awards_nearly_25_million_environmental_grants>.
 Coca-Cola Enterprises, "Water Stewardship." Corporate Responsibility and Sustainability, 2015.
 Walmart, "Environmental Sustainability," 2015.
 Waste Management. "Renewable Energy." Sustainability, 2015.
 Hirshberg, R., "Landfill Gas to Vehicle Fuel Development Perspectives." U.S. Department of Energy Clean
Cities Program. 1 Dec. 2010. <https://www1.eere.energy.gov/cleancities/pdfs/ngv_wkshp_hirshberg.pdf>
 Ceres, “Ceres Coalition”, 2015 . <http://www.ceres.org/about-us/coalition>
 Target Corporation, “Corporate Responsibility Report 2013”. <https://corporate.target.com/_media/TargetCorp/csr/pdf/2013-corporate-responsibility-report.pdf>
 Unilever. "Sustainable Sourcing." About Us. 2015.
 Baxter International Inc. "Supply Chain." Baxter Sustainability Report, 2014. <http://sustainability.baxter.com/supply-chain/index.html>.
 US EPA, and US DoE. "Fuel Economy," 2015. <http://www.fueleconomy.gov/>.
 US EPA, and US DoE. "Energy Star," 2015. <http://www.energystar.gov/>.
 US EPA, "Smartway," 2015. <http://www.epa.gov/smartway/>.
 Sustainable Purchasing Leadership Council, "Defining and Recognizing Leadership in Institutional Purchasing," 2015. <https://www.sustainablepurchasing.org/>.
 Sustainable Accounting Standards Board, 2015. <http://www.sasb.org/>.
 Carbon Disclosure Project, 2015. <https://www.cdp.net/en-US/Pages/HomePage.aspx>.
 The Sustainability Consortium, 2015. <http://www.sustainabilityconsortium.org/>.
 Forest Stewardship Council, 2015. <https://ic.fsc.org/>.
 Green Electronics Council, "Who Participates in EPEAT," 2015. <http%3A%2F%2Fwww.epeat.net%2F>.
 U.S. Green Building Council, 2015. <http://www.usgbc.org/>.
 Green Seal, 2015. <http://www.greenseal.org/>.
 University of Illinois, Urbana-Champaign, AASHE STARS Report, 01 May 2014. <http://www.sierraclub.org/sites/www.sierraclub.org/files/sierra/coolschools/2014/pdfs/2014-05-01-university-of-illinois-urbana-champaign-il.pdf>
 Illinois Green Governments Coordinating Council, “2013 Annual Report,” 2014. <http://www2.illinois.gov/gov/green/Documents/2013GGCCAnnualReport.pdf>
 Exec. Order No. 13514, “Federal Leadership in Environmental, Energy, and Economic Performance,” 2009. <http://www.whitehouse.gov/assets/documents/2009fedleader_eo_rel.pdf>
 General Services Administration. "Domestic Delivery Service (DDS)," 2014. <http://www.gsa.gov/portal/content/105105>.
 FedBizOpps.gov, "Accessibility Information; Total Delivery Services (TDS),” 07 Oct. 2014.
Warren G. Lavey is an Adjunct Professor, University of Illinois, USA, and member of the Strategic Advisory Committee, Sustainable Purchasing Leadership Council; he teaches courses on legal frameworks for protected areas and monitoring/evaluating sustainability projects; JD and MS, Harvard University; Diploma Economics, Cambridge University. Warren is a CFA member since 2014 and can be reached at email@example.com
Stephanie R. Lavey is an Environmental Scientist, Potomac Hudson Engineering, Maryland, USA; she specializes in industrial pollution monitoring and remediation, storm water pollution prevention, and environmental assessments for federal infrastructure projects; Master of Environmental Management, Duke University. She can be reached at firstname.lastname@example.org
For all CFA Blog articles in PDF, please visit our CFA Members Only area.
Photo Credits: http://www.dutchgreenfields.com/