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!