Incorporating Environmental Sustainability Criteria into Procurement Decisions

By:

Craig Carter
Professor & John G. and Barbara A. Bebbling Professor of Supply Chain Management
W.P. Carey School of Business
Arizona State University

Hitendra Chaturvedi
Professor of Practice
W.P. Carey School of Business
Arizona State University

Incorporating Environmental Sustainability Criteria into Procurement Decisions

Global firms face mounting pressure to improve their environmental sustainability from various stakeholders across the ecosystem, including customers, regulators, suppliers, employees, and shareholders.

Regulations implemented last year within the European Union (EU) mandate that EU companies and non-EU companies that meet EU-presence thresholds must disclose their greenhouse gas (GHG) emissions and work toward achieving climate neutrality by 2050.

Pressure Increases

Similar reporting mandates are emerging in the United States at national (e.g., Title 40, Part 98) and state levels (e.g., the California Global Warming Solutions Act). Socially responsible investors are a growing proportion of shareholders and are increasingly expecting improved environmental performance from the firms they invest in (Rogers et al., 2023). Consumers (Leonidou & Skarmeas, 2017) and employees (Wolf, 2013) also expect increasingly higher levels of environmental sustainability by firms.

Enhancing firms' environmental sustainability will necessitate modifications to the sourcing process, likely including the integration of environmental criteria into conventional price, quality, and delivery considerations.

Given the diverse pressures from different ecosystem stakeholders, we were interested in how companies address these expectations, particularly concerning purchasing. We also wondered how firms justify their actions or inaction using business cases or tools.

Research Purpose:

This research sought to gain insights into the sustainable sourcing environment and sourcing tools by broadly addressing the following five questions:

1. How are firms currently incorporating environmental sustainability criteria into their sourcing decisions, including details about how criteria are weighted and to what spend categories criteria are applied?
2. Which part of sustainability criteria (ESG and DEI) is more pronounced and why?
3. What are the key factors/stakeholders that are driving sustainable purchasing decisions?
4. Are there structured business cases/models or tools that are being used to support sustainable purchasing decisions?
5. What barriers have firms encountered in this area, and how are firms trying to overcome these barriers?

CAPS members can read the full report, which also provides a framework that allows CPOs to assess strategic imperatives related to sustainability and chart their courses. CAPS Library

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