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Sustainable Procurement & Goal Setting – Multiple Value Creation

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This article was originally published on www.urban-goods.net

By the end of this year, 2016, purchasers will be able to start working with the new ISO20400 norm for sustainable procurement. This norm describes in quite some detail which elements an organization needs to address in order to credibly implement sustainable purchasing. What does this mean for the procurement professional in practice? What will in fact change in their way of working?

This article addresses a core element within sustainable purchasing, namely goals and goals setting. Because, if you are not clear about what an organization wants (or is able) to achieve, how can you know if you are successfully activating sustainable procurement as a policy? First of all the notion of value is introduced and detailed. Secondly we introduce different available tools that can be utilized to actually measure value. Lastly the changing role of the buyer is identified to collaborate with internal and external customers in determining and measuring a shared set of goals. Two practical tools are briefly introduced that assist the buyer in engaging in such a process.

Goal setting & Multiple Value

It is not always straightforward or easy to understand procurement criteria within the larger context of impact. ISO20400 asks procurement specialists to identify minimum or optional criteria. More often than not these criteria are aimed at minimizing the negative impact of the organizations’ impact. Within the activities around Circular Economy we see an increasing focus on concepts of ‘value’ and ‘capital’. More specifically: the impact of economic activities is expressed in value created, value missed, and value destroyed.

Which value are we referring to? More than 35 years ago the Limits to Growth Report by the Club of Rome[1] outlined a basic understanding. This understanding pivots around the right of all everyone to a human existence, without denying or risking that same right for others (in present nor in future).

Human impact on the natural environment is intensifying as a result of population growth and old-fashioned economic development. Within this context, organizations will only have a long-term outlook if they are successfully (re)directing their economic activities towards the creation of net-positive social and ecological value. This has to be the starting pointAND outcome of developing any economic activities. Social, ecologic and economic value (SE€) creation is inseparable from each other and will need to be designed for in conjunction to each other.

The goal of economic activity would then be to generate as much positive social, ecologic and economic value as possible, given the contextual opportunities and limitations. We will assume the notion of ‘value/capital’ as something that can be ‘stocked’ or accumulated.

Social Capital[2] can be subdivided into human and inter-human capital. Human capital covers qualities like physical & mental healthknowledgeskills and motivations. Inter-human capital talks about the quality of groups & networkstrust & solidaritycollaborative action & cooperation, and social cohesion & inclusivityEcological Capital[3] deals with the nature’s ability to contribute to the well-being of humans in the present and in the future. Nature’s ability depends on the quality of the supporting-, provisioning-regulating- and cultural value it can provide. These are called ecosystem servicesEconomic Capital[4] is firstly the amount of financial capital and seconding the stock of technological capital in the form of products and (technical) infrastructure.

Transitions in Externalities

The definition of Sustainable Development by the Club of Rome implies that in economic activities not only the costs and benefits to the directly involved parties are important. Also the costs and benefits of an economic activity to unrelated, external, parties, will need to carry weight in the decision-making process. We refer to these external cost and benefits as negative or positive externalities of economic activity.

Lodder et al.[5] identify 3 distinct and relevant transition stages of economic activity in organizations, linearefficient circular, and effective circular. In the first ‘linear’ stage economic activity is aimed at individual need fulfillment and profit generation. Negative effects of these activities for indirect stakeholders (including ‘mother earth’) are accepted as a given. These negative effects are also called negative externalities.

Organizations operating within the second transition stage, ‘efficient circular’, are focused on minimizing these negative externalities as a result of their economic activities. McDonnough & Braungart[6] identify this second stage as ‘undesirable’ because:

Relying on eco-efficiency to save the environment will, in fact, achieve the opposite — it will let industry finish off everything quietly, persistently, and completely”.

In the third transition stage, ‘effective circular’, organizations aim for generating positive externalities for humans and nature as a result of their economic activities. Negative externalities are minimized.

This last transition stage and way of acting, effective instead of efficient, seems to be an attractive goal on which there seems to be a broader consensus. The challenge here is to understand your impact as an organization. How do you know that the business model that you have chosen generates social, ecologic and economic value and positive externalities?

Measuring Value

The first step in understanding impact is to recognize that it is profoundly contextual. This context can be viewed as a combination of three variables: (1) the potential of the physical context(s) of an organization, (2) the opportunities and limitations of the organizational (and personal within this) relationship network, and (3) those of the products and services that the organization delivers. Only after being able to describe this combined field of opportunities and limitations of value creation the organization is able to take an informed position within this field and the organization can actually act to generate this value. Based on the specific SE€ value generating potential a choice can be made on which measurement instrument best suits measuring this.

For measuring socialecological and economic impact multiple indicators and instruments have been developed throughout the years. Examples are GRI, B-Corp, SROI, IRIS, and several accounting standards for ecosystem services.

And …. Action!

Because of their position on the border of organizations and their context buyers can work with internal and external stakeholders towards an optimal outcome in SE€ value creation.

Developing economic activity with the goal of SE€ value creation requires a different way of thinking and acting. In order to generate this value internal and external relationships will need to be shaped as partnerships in which collaboration based on transparency, equality, result focus, responsibility and complementarity are central and key. This demands that the buyer acquires new personal skills in order to facilitate these collaborative processes.

Making a first step in finding SE€ value generating potential not only requires new collaborative skills, it also needs new tools and processes. The Value Mapping Canvas by Nancy Bocken[7] and the Circular Business Model Canvas by Urban-Goods[8] are some examples of tools that can support this.

The how of sustainability becomes a central driver for organizations in general and for sustainable procurement and procurement professionals in particular.

Summary

This article pivots around the question which goals organizations want (and need) to be successful in implementing sustainable purchasing. In order to create a world where every human has a right to a human existence, still a lot remains to be won. Economic activities of organizations will need to be reframed in light of their potential to create social and ecological value (SE€ value). Organizations are operating within specific physical and social contexts and are producing products & services with different characteristics. Understanding these boundary conditions is key to understanding which ‘mix’ of SE€ impact would be possible in each specific situation. This opportunity for SE€ value creation functions as the starting point and outcome of the procurement process, where not only products & services are procured but SE€-value generating networks are forged. Selecting appropriate indicators can help organizations measure the effectiveness of it’s activities in generating this net-positive SE€-value. Lastly the importance of long-term partnerships is underlined because SE€ impact can be seen as a systems outcome.

In a next article the new role of the buyer in making Sustainable Procurement effective is further elaborated.

 

date: October 17, 2016

author: Peter de Ruijter

co-authors: Stephan Jackmuth, Tiina Obando

[1] https://nl.wikipedia.org/wiki/Club_van_Rome

[2] World Bank Article on Social Capital (click)

[3] http://www.millenniumassessment.org/en/index.html

[4] https://www.forumforthefuture.org/project/five-capitals/overview

[5] Lodder, M., et. al., Regenerative Sustainable Development: Towards a Triple TopLine approach and Increasing Positive Externalities, Conference Paper for the 5th International Sustainability Transitions Conference, 2014, Utrecht

[6] McDonough, W., & Braungart, M. (1998), The NEXT industrial revolution. October, p3.

[7] http://nancybocken.com/value-mapping-for-sustainable-business-thinking/

[8] http://www.urban-goods.net/portfolio/navigating-circular-economy-as-an-entrepreneur-climate-kic/

 

Link to original article on www.urban-goods.net

 

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