Is Sustainable Procurement Relevant to Developing Countries?

Recently I was speaking on leveraging public procurement as a tool to achieve sustainability goal to a group of Indian bureaucrats in a workshop. I was enthused to note that most participants appreciated the concept and enriched the discussion with their active participation. Nevertheless, few were deeply suspicious of the idea and its relevance in countries like India. One of them asked, “Is not this something relevant to western nations?” I think this question is quite naturally in the minds of many people in developing countries, which are challenged by many competing developmental priorities. Brushing aside such questions will only harm the cause of sustainable procurement and delay its implementation. For harnessing the full potential of sustainable procurement policy, we need to educate our policy makers on this critical aspect of policy so that such doubts are removed permanently from the minds of administrators. After all, they are the ones who are heading different municipalities, various state organizations, etc.; leveraging their support would be critical for implementing SPP in these organizations.

                                                                             

To answer the above question, we need to see whether our current production and consumption pattern is sustainable. Although per capita GHG emission of India is way below world average, our aggregate emission is large. With increasing population and disposable income, the burgeoning Indian middle class would constitute the largest block of similarly placed consumers in the world by year 2050. Growing consumption would naturally have repercussions on the quantity of waste generated, land required for waste landfills, GHG emission from these landfills, and so on. 

Now look at our production patterns. Our primary energy intensity i.e., energy required to produce one unit of GDP, is higher than world average by a factor of 2 at exchange rate and also higher at purchase power parity (PPP).  India’s resource intensity i.e., per unit consumption of resources to produce one unit of GDP, is higher than EU average by at least a factor of 2. For a moment, forget about the environment and society!  Simple business sense should force us to think – why do we consume double the resources to produce a unit of GDP as compared to our European counterparts? Does it not make better business sense for industries to think about ways to improve productivity using available technology and provide better returns on investment to shareholders? And what about “Make in India” campaign?  Can this campaign ever be the growth engine for national development with current production efficiency? Should we not then be doing something to make this campaign successful?

Again, I come back to a story narrated by one of the participants in the same workshop. She was once commuting in Delhi Metro. Apparently rural folk, in traditional Indian dress, were travelling in the same coach. One of them was chatting on his mobile to someone and was narrating his Metro travel experiences in native Hindi – “Bahut aaraam hai!” (which means: its so very comfortable).   Is it not our duty to provide the same level of comfort to these people as enjoyed by us for years? I don’t think any government would say NO in response to this question. Therefore, the biggest challenge for Governments in developing countries is how to provide a higher standard of living to million of people residing in the smaller towns and villages without simultaneously increasing their ecological footprint. With current resources availability on the planet and production efficiency, it is simply not possible! Therefore, we need to think about ways to improve our production efficiency and also to reduce our consumptions. It is here that sustainable public procurement policy fits the bill.

The SPP concept not only challenges traditional manufacturers to improve their production efficiency but also forces them to innovate sustainable products, requiring lesser resources and producing minimum waste, on a continuous basis to remain competitive in the market. Can you think of a company investing in India under “Make in India” campaign and remain uncompetitive in the world market? The investor will force the company management to quit! By adopting sustainable procurement principle, industry would not only provide value to shareholders by way of better returns on investment, but also to stakeholders by way of saving resources for future generation. This understanding makes amply clear that SPP policy and programme is relevant to any country irrespective of whether the country is developing or developed. The only precondition for SPP is whether your government wants to unlock the "power of the purse" of public procurement to trigger market for innovative sustainable products.

ZERO DEFECT – ZERO EFFECT

I am sure readers from India and those who take keen interest in the country would be able to recall from where I borrowed this phrase. Yes! You guessed it right. While addressing the nation on occasion of Independence Day, the Prime Minister of India, Sh. Narendra Modi, gave a clarion call to global industries to make India a manufacturing hub. In the same breath, he urged them to imbibe a culture of ‘ZERO DEFECT–ZERO EFFECT’. The emphasis was not only on producing quality products but on producing products that have both high quality and zero impact on environment.  So when one of the participants of the recent webinar I presented, wanted to know outlook for implementation of sustainable procurement policy in India under new government, without a second thought, I replied – I am upbeat! That is because, what could be a better endorsement for sustainable public procurement (SPP) in India than one from the Prime Minister; that too a PM who has just received an overwhelming mandate from the country. Can we not now say that political support for SPP is granted?

Let us try and analyze the phrase in relation to SPP. Based on common knowledge of English, it is not beyond the comprehension of even a layman. By ‘ZERO DEFECT–ZERO EFFECT’, he obviously meant product sustainability; i.e. products that, without compromising the intended quality quotient, have minimum impact on human health, environment and society.  This is precisely what SPP stresses: promoting products, services and works that have minimum impact on human health, environment and society by integrating sustainability criteria into buying decision. At the cost of repeating myself (and it cannot be stressed enough), with government sectors spending about 30% of trillion-dollar GDP of India on procurement of products, works and services, they are perfectly placed to use SPP policy as a tool to achieve the PM’s vision of making India a manufacturing hub that ensures ‘ZERO DEFECT–ZERO EFFECT’.

I am sure someone in the government must be taking note on how to transform the PM’s words into policies and programmes on the ground. So where do you think they should begin? Therefore, I would suggest they brainstorm on a question asked by one of the participants during the webinar I mentioned before – what is the biggest impediment for implementing SPP in India? My answer then and now is the same i.e. comprehensive legal framework for SPP. A company/organisation/country may show good SPP results without a policy in the short run, but for long-term sustainability gains there is no shortcut to having a clear and consistent policy that helps procurers necessarily make good procurement decisions.

At least that is what we learn from the experiences of SPP implementation world over. The EU Directive 2004/18/EC asked Member States to take measures to support the implementation of GPP. The guidelines also gave an indicative EU level target that, by 2010, 50% of all public tendering procedures should be compliant with endorsed common EU GPP criteria. In USA, President Obama, through Executive Order 13514 in 2009, made it mandatory to include sustainability criteria for 95% of all applicable new contracts. Other countries such as Japan, China, South Korea etc. have taken the same route.

Compare this to our draft Public Procurement Bill 2012 (now lapsed) which stated that environmental criteria of a product may be considered in the subject matters of tender. I feel this is like a muzzled guard dog with neither bark nor teeth. By merely allowing and not making it mandatory for pubic authority to include sustainability criteria in procurement decisions, the impact is going to be negligible. With the bill now lapsed, it would make sense to make inclusion of environmental criteria mandatory for at least those products whose market has matured in India. The related challenge would be injecting a fresh life into Eco Mark scheme.

I hear some positive news coming-forth from Ministry of Environment, Forest and Climate Change. United Nations Environment Programme (UNEP) has identified India as a project country for implementing Sustainable Public Procurement and Ecolabelling (SPP-EL) project. The ministry has constituted a multi-stakeholder Project Steering Committee for this project’s implementation. It is an excellent opportunity for the committee to leverage UNEP’s experiences in SPP implementation during the Swiss-led Marrakech process. Putting in place legal framework for SPP will create the clarity, certainty and confidence among stakeholders for long-term sustained actions. It shall show how rhetoric (affixing ‘Climate Change’ to MoEF) and ambition can be turned into robust targets and thus real change towards low-carbon solutions, while still being economically competitive for becoming a manufacturing hub of the world.

For me – environmental sustainability of our economic development – this was the greatest takeaway from the Independence Day speech of our prime minister, evidently a man of great prudence. Jai Ho!!!

Reflections from Two Conferences: Voices are getting louder

Last week, I was looking at the graph showing my monthly carbon foot-prints. It showed spikes for the previous two months. I was not surprise because the increase was mainly on account of my air travel for two conferences: one in Bangkok and the other in Antwerp. As of now, the only fast travel option available is by air. But I hope to travel to these places by high-speed rail in my life time! What has fueled my hope is the insight that I got during one of the conferenes. International Union of Railways (UIC) is going to launch “Train to Paris” campaign in view of Conference of Parties (COP) 21 negotiations on Climate Change scheduled to take place in Paris later next year. The campaign would focus on “Avoid – Shift - Improve” strategies to reduce emission from the transport sector and rail is ready to take its responsibility as the backbone of sustainability mobility. I am sure global climate change leaders travelling to Paris would realize the need to develop smart transport network across the globe, where the sustainability advantageous of each mode is exploited.

In May, I was in Bangkok, Thailand for 11^th Asia-pacific Roundtable on Sustainable Consumption and Production and then in June in Antwerp, Belgium for International Union of Railways (UIC) 5^th Energy Efficiency Conference. Besides building new relationships, exchanging experiences etc., the insight that I got after these two conferences is voices of common citizen for sustainable actions are getting louder, at least in Europe. I am sure, it would be difficult for political leadership in such countries to ignore these voices and postpone action to some future date. I, however, don’t have the same confidence for countries in the Asia-Pacific. Political leaderships in these countries are still debating on how much weightage should be assigned to sustainability and most are settling for softer options like doing some adhoc projects with financial support from international partners. Sustainability for them is not something that came on governance radar organically after citizen discourse and churning of ideas. I think, what is at the core of differences in these two parts of world is citizen awareness about environmental and social sustainability. I feel, we should not ignore the crucial role that public opinion plays in forming policy decisions of a State. Organizations engaged in kick-starting sustainability projects in Asia-Pacific should start to devote a larger part of their energy to bridge the gap in awareness level for meaningful actions on long-term environmental sustainability.

In Bangkok, focus was on ways to decouple economic growth in the region from resource consumptions and why this is important for the region when it’s spending is expected to reach $32 trillion by 2030. In fact, one of speaker even made a case for making Sustainable Consumption and Production (SCP) the core of Sustainable Development Goals (SDGs), which would come into play from 2015 onwards. While there have been quite impressive works on SCP in these region especially in Big4 i.e. Japan, South Korea, China & Australia, much needs to be done at other places. I would say ASEAN countries have picked up fast and are now committed to a common policy on SCP. It is the South Asian countries that are still holding back. Most of them are waiting for some kind of dole out that will incentivize them to integrate SCP dimensions in policy decision. I am sure this approach would not yield the desired result. Dr. Arab Hoballah, Chief, SCP Branch, DTIE, UNEP, hit the nail bang on the head, in my opinion, when he observed that future spread of SCP in the region would depend on whether we can make SCP a business case. Many business leaders have already lapped up this opportunity. One of the most shining examples is, and I think I have mentioned this before, Unilever’s Sustainable Living Planet, which combines corporate and sustainability strategy and is based on the business case for sustainability. I would say, making such transformations is easier for MNC having global pool of talents. The real challenge lies in making this commonplace among SMEs, which are at the bottom of business pyramids.

In Antwerp, as the name of the conference suggests, focus was on energy efficiency to secure environmental sustainability. Over the years, energy efficiency has emerged from its earlier avatar of a research topic in universities and research institutes, and has become manifest in public opinion. Though it’s not a secret, few people realize that rail transport is one of the most energy efficient mobility options till date, its share in global GHG emission being less than 1%. The tragedy for mankind, as one speaker noted, is that while globally, paved roads grew in length by 32%, railway lines decreased by 3% during 2000–2010! Where is the coherence in thought and action? The real challenge for reducing GHG from transport sector is to realize modal shift from road/air to rail. The next challenge would be to retain rail environmental leadership by continuously innovating sustainable solutions. The Chairman of UIC was quite emphatic that energy efficiency is the foundation of the rail sector’s environmental leadership. He emphasized on the need for a global target shift in response to the call from UN Secretary-General Ban Ki-moon to set ambitious goals for reducing carbon emission. What excites me is that this is completely doable provided we develop effective partnership with all stakeholders. UIC is already on the job and is coordinating a research program called Shift2Rail. Way to go!

Back home, got the opportunity to attend the UN Public Lecture on “Climate Change and Sustainable Energy for All” delivered by Dr. R.K. Pachauri, Chairman, IPCC. His message for stakeholders was simple. If we want to avoid the tipping point for climate change, we need to act now! This pretty much sums up the discussions during these conferences. I urge readers of this blog, leaders in their own field, to take this opportunity to inspire, engage and equip people surrounding you to achieve a sustainability-abundant future.

London to Rio – Olympics Leads the Way on Sustainable Procurement

Ever since its modern avatar at Athens, Greece in the summer of 1896, Olympic Games have been a fascinating movement attracting interest of professionals from all walks of life. Countless articles have been written on lessons one can draw from Olympics movement.  And why not; it represents the best! Take first, its motto - Citius, Altius, Fortius — Faster, Higher and Stronger. This could be the motto for every organisations, be it public, private or non-profit! In fact, the Olympics have motivated organising countries to showcase new technologies and industrial progresses, bringing the latest innovations into the global spotlight. Examples of innovations galore, from the groundbreaking worldwide radio broadcasts of Paris Olympics in 1924, to the 1964 Tokyo Olympics which were the first Games broadcast by satellite to television screens around the globe. In more recent times, London Olympics held in 2012, has left a lasting learning legacy on how to deliver a sustainable development project.

In this blog, my intention is to focus specifically on valuable insights that sustainable procurement professionals can draw from the sustainability efforts that recent Olympic Games have made in implementing sustainable practices in procurement of goods, works and services. In my opinion, International Olympics Committee (IOC) made their commitment for environment and sustainable development known for the first time by amending the Olympic Charter in 1994 and subsequently publishing Olympic Movement’s Agenda 21 in 1999. However, sustainable actions in games, specially sustainable procurement, picked up only in Vancouver 2010 and London 2012, which pioneered the first sustainable supply chain programmes. Rio 2016 has committed to continue these excellent initiatives, analysing lessons learnt in each occasion and applying the best practices.

London 2012 sustainability effort began much before its bidding process. The London bid team created an aspirational vision called “Towards a One Planet Olympics” to deliver a sustainable legacy. It addressed environment with objectives on GHG emission, water and waste; social issues like noise, communities, transport and mobility; and economic factors like employment and business. Since the very beginning, Olympics Development Authority (ODA) sent a clear message to industries about delivering sustainability through procurement. The ODA’s Procurement Policy stated that “the ODA would seek to use its purchasing power to support sustainable development in London and the UK and ………., and would aim to ensure that sustainability is integrated into business cases, procurement plans and related contracts”.

The ODA set specific, clear, and challenging sustainability targets from the outset to ensure early consideration of sustainability issues. The design team was tasked to meet core sustainability criteria along with other performance criteria while specifying requirement for products and works. Sustainability criteria formed part of the award criteria and all tenders were evaluated based on the most economically advantageous tender (MEAT). In order that SMEs don’t get discouraged from bidding process, they were supported to make them business ready. The technical evaluation included environmental sustainability assessment too. The technical evaluation criteria scores were weighted as much as 70 per cent with respect to the commercial scores. It was made mandatory to report on sustainability Key Performance Indicators (KPIs). Through all systems in place, sustainability was impregnated into DNA of London 2012, leaving nothing to chance. Thanks to this commitment, the London Games raised the bar and set new standards for sustainability in many areas by saving 400,000 tonnes CO2 equivalent, achieving ‘zero waste’ to landfill target, using 100% sustainability sourced timber etc. and most of all inspiring sustainable living in many Londoners. 

Building on the successes of London Olympics, Rio 2016 is hoping to replicate and surpass London 2012’s stunning sustainability feat. Its intentions are very clear on its website i.e., to adopt new practices of production and use, which are less environmentally aggressive. With a project budget of R$ 3 billion, Sustainable Supply Chain Guide, issued by Rio 2016, aims to convert procurement of goods and services into a tool to promote and encourage the use of sustainable technologies, supplies, processes and services. The document encourages suppliers to adopt sustainability management system, such as ISO 14001, OHSAS 18001, SA 8000 etc., which will be used as competitive differentials in evaluation processes. As per this guide, Rio 2016 aims to minimize and offset emissions of carbon dioxide and other greenhouse gases (GHG). Therefore, efficient emission management by suppliers during production and distribution will be deemed as an important technical and commercial competitive advantage, as emission offsetting costs will be integrated into the total cost of ownership analysis. In nutshell, a simple glance through the guide provides enough hints on what to expect during Olympics on sustainability front.  But, what overwhelmed me most is Rio 2016’s plan to establish and communicate requirements i.e., outlining the sustainability assessment criteria and minimum requirements, well in advance to suppliers. This would provide abundant time and opportunity to vendors to take measures to enhance and make their management systems worthy of the huge business generated by Rio 2016.

Looking beyond just a sporting event, can we draw something from Olympics? The London Olympics provides a proven template on how to approach sustainability in procurement. It has demonstrated that with innovation in design and materials specification, environmental benefits go hand in hand with economic savings. Both London and Rio convey importance of early engagement with vendors while implementing sustainability strategy.

People often confront me – do you have vendors for supplying greener products and services? I see this situation merely as a communication problem. It typically exemplifies chicken and egg situation. Unless you communicate with vendors and sound your intent to purchase greener products and services, they would think – Oh! Where is demand for greener products?  Who is going to buy if I invest in developing sustainable products that save resources and energy at the same time? The only way to get rid of this situation is to proactively communicate your requirements with vendors. The vendors are not dumb and they can read the writing on the wall provided we engage and communicate with them. When Olympics can source products with sustainability criteria, there is no reason why others can’t.

Here is an interesting encounter I had last year with one of our vendors. My organization purchases lots of Carbon copy paper, that use carbon sheet in between papers, for preparing passenger charts, giving details of name, age, sex, berth number etc. While discussing sustainable procurement, one of the vendors asked me – why don’t you use Carbonless copy paper (CCP) or NCR paper for your charting paper requirements? He also explained that the thin carbon sheet used in Carbon copy paper takes many years to biologically decompose. When I asked for the cost comparison between these two types of papers, he gave me a thought provoking reply. He said that though the cost of Carbonless copy paper is currently more than that of Carbon copy paper, the purchase order may be placed on him only when his product is competitive and meets organisation's quality and other requirements, but he should not be denied the opportunity to participate in tender process by limiting the properties or requirements for Carbon copy paper.

This incident made me think how, by just communicating your requirements, public authorities can drive market for innovative sustainable products. Most definitely, Olympics learnt and internilised importance of communication much earlier! I am sure, with the kind of commitment and management support for sustainability, innovation in sustainability will continue to be showcased in Olympic Games. We, purchasing professionals, can expect more revelations and interesting surprises – no matter where in the world the events are held. Let us hope that as the Olympics torch spreads the message of the Games throughout the world, so may the light of knowledge of SPP implementation spread to organizations. Long live the Olympics spirit!

Embedding Sustainable Procurement in Construction Industry

                          (Originally published in Project Vendor, December, 2013)

Since it first pictured on the evolution chart, human race has been in eternal debt - borrowing from nature and future generations. In their attempt towards progress, humans have wrought havoc on the natural environment to suit their various needs. An industry, that deserves accolades for advancing human race the most, is none other than Construction! This industry consumes huge amounts of non-renewable resources, contributes sizeable waste to landfill and is responsible for high levels of water and air pollution. Traditionally, economic impacts of projects have led the discourse on human development relegating their environmental and social impacts to the edges. But no longer!

Stakeholders are already demanding better sustainability performance from construction industry. Public pressure for protection of environment means that, if construction projects were to win widespread stakeholders acceptance, their processes would increasingly come under closer scrutiny. Currently, the construction sector is estimated to contribute 22% of the total CO₂ emissions. In absence of strategic churning, ecological footprint of this industry is going to increase further, as demand for residential building and physical infrastructures soars. It is time this industry reinvents itself, recognizes stakeholder concerns and turns these concerns into business opportunities. Companies that capitalize on this opportunity can gain competitive edge, increase their market share and boost shareholder value.

Construction industry has long been using Environmental Impact Assessment (EIA) as a tool for assessing significant environmental and socio-economic impact of a project. It may further adopt various strategies such as designs generating minimum waste, applying lean construction principles, minimizing energy in construction and use, pollution reduction in the whole process, preservation of biodiversity, conservation of water resources, ensuring health & safety of workers on construction sites etc., to raise its sustainability quotient. However, the strategy I want to advocate in this article is something different and has overarching effect on all phases of projects and covers major areas of concerns. It is about integrating environmental and social issues in product specification while procuring products, in order to effectively minimize negative environmental impacts of these products over their life cycle of manufacturing, transportation, use and recycling or disposal. This approach is called Sustainable or Green Procurement depending on whether or not (respectively) we consider social concerns.

If we look closely, the construction industry is a conspicuous consumer of natural resources. According to 12^th Five Year Plan document, 40–45 per cent of steel, 85 per cent of paint, 65–70 per cent of glass, and significant portions of the output from automotive, mining and excavation equipment industries are used in this industry. With around $1 trillion envisaged to be invested into infrastructure development projects during 12th plan period, industry experts point out that about $500 billion (assuming at least 50 per cent of a project’s cost) is expected to flow into construction material and equipment during the next five years. This is quite a significant amount! That said, let us push the pause button for a moment and explore - how purchasing power can be leveraged to achieve sustainability goal? In supply chain process, procurement acts as a gatekeeper and choice of products and services for projects has significant bearing on overall impact of project on local environment. By demanding greener products and services for construction projects, the company can minimize negative impact of its operations on environment and society. The Sustainable Procurement strategy promotes a close collaboration with contractors/vendors and exploits technological expertise of the contractors by providing functional specifications to achieve optimal sustainable result for the project. Further, the concept could also be applied for procuring services and works for project.

It is sometimes feared that implementing sustainable procurement would result in cost premium for ‘add-on’ sustainable features. However, this fear is typically unfounded where life cycle costing is applied for procurement decisions, even without monetizing all resultant environmental and social benefits. The cheapest products procured based on lowest upfront economic cost criteria may not prove to be most economically advantageous for a company over a project’s life. The greener products with recycled content have potential to reduce waste, improve energy efficiency, limit emission of toxic by-products etc. from the project. Thus, competitive greener product options may turn out to be less costly when subsequent product-related expenses such as operation cost, maintenance cost, disposal cost etc. are considered. Once industry starts taking these costs along with Scope 3 CO₂ emission, recycled content etc. of products as evaluation criteria for awarding tenders, upstream vendors in supply chain would naturally be obliged to look for opportunities to reduce them because not only would they want to remain competitive in market but it would be the good thing to do.

Though, some construction companies have been practicing this concept subconsciously, it is time to internalize this concept in corporate policies. The business leaders in this industry need to demonstrate how responsible decision-making and sustainable practices are embedded across its supply chain to achieve sustainability goal. No one denies that there would be challenges in mainstreaming sustainable procurement because of the complexity of the construction project in terms of regulations and stakeholders involved. However, it would continue to be on the outskirts of strategic policy spectrum if no one makes a beginning. The experiences gained during pilot projects would provide enabling processes and best practices that lead to sustainable outcomes. I am very positive on its potential to stimulate green development within a sector otherwise known as laggard in integrating sustainability. I have no doubt that this strategy would prove to be good both for a company’s bottom line and our planet. Let us make a beginning towards redeeming some of our debt on nature. We owe it to our future generations!