A risk based approach to sustainable procurement

EAUC – EAF Programme

A risk based approach

Background Three year project Reducing negative environmental and social impacts

through purchasing Steering group, partners from Further Education and

Higher Education Training

Train the trainer Policy and strategy development Risk based approach to procurement Supplier engagement Social issues in procurement

A risk based approach

Objectives Develop a shared understanding of what a risk based

approach to sustainable procurement looks like Review good practice of risk based approaches Practice the implementation of a risk based approach Be introduced to the latest guidance available Develop an action plan to take back to your institution

A risk based approach

Agenda

12.00 Lunch

12.30 Introductions and objectives

12.45 What is a risk based approach?

13.15 Why take a risk based approach?

14.00 Break

14.15 Implementing a risk based approach

15.45 Case Study Review

16.15 Action Planning

16.30 Close

A risk based approach

Format and style of workshops Interactive Informal Varied Proactive

What is a risk based approach?

Basic risk management

Identification Analysis Evaluation Control/management

Risk identification and analysis

Identify potential threats that could stop you achieving your business objectives by completing the following sentence: there is a risk of ….. which would result in ……

Impact (low, medium, high) cost time quality

Likelihood (low, medium, high)

Risk evaluation

L/H = M M/H = H H/H = H

L/M = L M/M = M H/M = H

L/L = L M/L = L H/L = MImpact

Likelihood

Low

High

HighLow

Impact

Risk evaluation

Manage Stop Stop

Ignore Manage Stop

Ignore Ignore Manage

Impact

Likelihood

Low

High

HighLow

Impact

Risk to the environment from the organisation (and its supply-chain)

- Pollution Potential- Climate Change - Resource Depletion- Emissions- Waste

Why is the environment a risk? (1)

Reputation

Fines/ prosecutions

Rising costs

Risk to the organisation from the environment

- Reputation - Legal compliance- Supplier failure- Supply failure –

resources!- Environmental taxation- Heath impacts, e.g. air

quality and respiratory disorders

- Quality of working environment

Impacts on cost, time and quality

Business risks

Why is the environment a risk? (2)

Sources of environmental purchasing risks

Risks can arise from three different areas of supplier performance:

1. Supplier performance in their own sites/operations

2. Supplier performance while on your site

3. Supplier-provided components/products/services which flow through into your operations products/services

Slide courtesy of Environment Agency (adapted)

Why take a risk based approach to sustainable procurement?

Why take a risk based approach?

Why take a risk based approach? Every product or service we buy has an

environmental and social impact You buy thousands of products You have limited resources You have limited time You are being asked to demonstrate how the

work you do supports your institution

Why take a risk based approach? We need a way to prioritise our activity Risk as a concept resonates with institutions

and senior management Ensures we are not wasting our efforts – we

are looking to implement sustainable development which is about reducing impact

Tried and tested approach

Why take a risk based approach? Helps focus activity on main impacts Involves stakeholders internal customers –

helps get buy in for implementation Demonstrates that high risks do not only

come from high value purchases

What guidance exists?

What guidance exists?

The approach we are going to use is adapted from Sustainability and Local Government

Procurement – IDeA (November 2003) An approach used by Belfast City Council The Environment Agency

Implementing a risk based approach to sustainable procurement

Exercise

Implementing a risk based approach In groups identify what environmental issues

are of particular concern – try to choose 3.

Implementing a risk based approach In groups identify 20 products / services you

routinely buy as an organisation

Implementing a risk based approach In groups identify 20 products / services you

routinely buy as an organisation Consider the environmental impacts / risks

associated with the products or service

Implementing a risk based approach In groups identify 20 products / services you

routinely buy as an organisation Consider the environmental impacts / risks

associated with the products or service Using the matrix provided identify whether

you perceive the product to be a high, medium or low environmental risk and high, medium or low profile risk

Implementing a risk based approach

Environmental

Risk

Profile

Risk

Procurement High Med Low High Med Low

Item 1 * *Item 2 * *Item 3 * *

Implementing a risk based approach

Low

Low

High

High

En

viro

nm

enta

l R

isk

Profile Risk

Implementing a risk based approach

Priority 2 Priority 1

Priority 4 Priority 3

Low

Low

High

High

En

viro

nm

enta

l R

isk

Profile Risk

Control and management

Priority 4 Reduce consumption Increase awareness and encourage via questionnaire

and referral to policy

Control and management

Priority 3 Reduce consumption Green specifications only on the basis of cost benefit Increase awareness and encourage via questionnaire

and referral to policy Minimal green supplier appraisal

Control and management

Priority 2 Reduce consumption Green options sought Cost / benefit evaluated Green supplier selection Green design Green specifications Whole Life Costing Ensure issues included in consultancy design briefs

Control and management

Priority 1 Reduce consumption Green options sought Cost / benefit evaluated Green supplier selection Green design Green specifications Whole Life Costing Ensure issues included in consultancy design briefs Gain commitment to future action

Summary of the process

Review / Identify environmental and social priorities for your institution

Identify a group of individuals within your institution from different backgrounds and experiences

Compile a list of all the products and services you purchase (as comprehensive as possible)

Spend as long as it takes prioritising using the matrix (1 – 2 days)

Summary of the process

This means you have undertaken an environmental risk analysis of all the products and services you purchase!!

Identify the suppliers related to those products or services

Prioritise management response Communicate it to staff and suppliers

Case study review

The Environment Agency

Identification of Business Need and Assess against Waste Hierarchy

Identification of Business Need and Assess against Waste Hierarchy

Business RiskAssessment

Business RiskAssessment

Sustainability RiskAssessment

Sustainability RiskAssessment

Influence with Supplier

Influence with Supplier

LOW RISKIdentify main issues and

integrate into the contract

LOW RISKIdentify main issues and

integrate into the contract

Summarise risks, Supplier Influence& Map using Boston Matrix

Summarise risks, Supplier Influence& Map using Boston Matrix

HIGH RISKMore detailed risk

assessment, rank, allocate and manage

HIGH RISKMore detailed risk

assessment, rank, allocate and manage

The Environment Agency

The Environment Agency

High level environmental risk assessment Does the purchase or service provider have the

potential for high energy consumption? Is the product made of – or does the service

provider use – unsustainable materials Could the item or service provider cause a

pollution incident in the performance of Agency work?

The Environment Agency

High level environmental risk assessment Are excessive emissions (to land, air or water)

caused during the manufacture of goods used directly or by the service providers?

Is there an environmental public relations risk to the Agency in purchasing the product or service?

The Environment Agency

Agency’s influence with the supply base The agency then looks at the potential influence it

will have with high risk product or service provider Is the Agency a key client? Does the Agency represent more than 0.5% of turnover? Is the Agency an easy customer to work with? Does the Agency pay on time? Is the Agency efficient in its business dealings with us?

The Environment Agency

Detailed risk assessment (answers yes to three questions or more

Management action Determine the method of risk management Allocate responsibility Agree a date for resolution Address though supplier selection, specification,

evaluation, and negotiation Can’t manage it because of lack of influence

Case study review

United Utilities

United Utilities

CSR Policy Environmental Policy Sustainable Procurement policy BITC Index

United Utilities

2003 saw a review of the supplier prioritisation approach, which prioritised commodity groups rather than individual suppliers

Each commodity group was assigned a potential environmental impact ranking, based on an impacts matrix approach developed internally

United Utilities

The resulting commodity prioritised list formed the basis of our engagement programme with our suppliers

The engagement workshop programme also included specific workshops for United Utilities' procurement buyers and internal customers - United Utilities' employees who set contracts and/or procure goods and services as part of their job

United Utilities

While the focus so far has been very much on environmental areas, there have been elements of social sustainability that have started to become incorporated

United Utilities

Examined all of the products they purchased and looked at high spend areas

Produced a prioritised list of suppliers of high risk commodities

Undertook as series of supplier engagement workshops

United Utilities

Reducing energy consumption Reduce the release of greenhouse gases Reduce the use of non-renewable materials Reduce the risk of pollution Reduce waste production Comply with environmental regulations Reduce the impact of transport

Summary

It is a fairly simple approach but will help focus your effort

Risk based approach may appeal to senior managers

Gets buy in and is inclusive

A risk based approach

Objectives Develop a shared understanding of what a risk based

approach to sustainable procurement looks like Review good practice of risk based approaches Practice the implementation of a risk based approach Be introduced to the latest guidance available Develop an action plan to take back to your institution

Many thanks

jbrannigan@esdconsulting.co.uk

www.eauc.org.uk