Adopting sustainable procurement is a $13 trillion opportunity for Asia and the Pacific to achieve its economic and social goals. This will take leadership from governments and development organizations, including multilateral development banks.
Governments around the world spend more than $13 trillion annually, or 15% of global GDP, on the procurement of goods and services, mostly cement and steel, traditionally carbon-intense materials. This contributes significantly to climate change.
Public procurement is the process by which governments purchase goods and services. While it might sound technical, it is one of the most strategic and impactful ways to achieve social, environmental, and economic goals.
This can be achieved by regulating sustainable public procurement to assure purchasing decisions consider the environmental, social, economic, and institutional impacts.
Sustainable procurement isn't just a trend. It is a concept that has existed for some time but hasn't garnered much attention outside of procurement professionals. However, countries and development agencies are now emphasizing sustainable procurement, recognizing its potential to drive significant change.
In particular, multilateral development banks are actively inducing and catalyzing environmental, social, economic, and institutional sustainability outcomes at both the level of national public procurement and within their own operations, according to a recent Joint Statement by the heads of procurement for major multilateral development banks.
The challenge is to scale sustainable procurement beyond agencies and small initiatives to make it the standard approach. This demands knowledge sharing, collaboration, innovation, and a commitment to creating public value.
Several developing countries in Asia and the Pacific are adopting sustainable procurement principles. In Fiji, where public procurement accounts for 13% of GDP, regulations and guidelines promote sustainable public procurement.
"Value for money" principles pave the way for sustainable practices, leading to a growing market for certified green products. These principles involve looking beyond the initial cost to conduct a comprehensive assessment that considers all relevant direct and indirect benefits and costs throughout the procurement cycle.
India provides another crucial example. Public procurement constitutes nearly 30% of India’s GDP, offering a vast opportunity to drive a green and socially inclusive market transformation. While India doesn’t have public procurement legislation and a central procuring unit, sustainable procurement has gained traction across public entities, ministries, and municipalities.
In lieu of legislation, the 2017 General Financial Rules and Manual set the foundation for integrating environmental criteria into tender documents. Thanks to pioneering sustainable procurement initiatives by Indian Railways and efforts to simplify green purchasing, India is now a market leader in green cement and green steel. Given India's massive infrastructure needs, sustainable procurement is pivotal for low-carbon development in Asia's fastest-growing economy.
The challenge is to scale sustainable procurement beyond agencies and small initiatives to make it the standard approach.
Going forward, here are six ways to accelerate the adoption and scaling of sustainable procurement:
- Use sustainable procurement as a primary tool for low-carbon and inclusive growth. This begins with principle-based, value-for-money procurement regulation that incentivizes the market.
- Optimize value for money through market analysis and stakeholder engagement. A thorough market assessment is essential before designating products as sustainable procurement. Without technical standards, eco-labeling schemes, product certifications, and credible product declaration schemes, sustainable procurement would be challenging for developing countries.
- Promote procurement planning and early involvement to easily incorporate low-carbon cement and energy-efficient equipment and identify opportunities to support local capacity building.
- Support capacity development for the public and private sectors. This includes tools like eco and social labels, sustainable procurement criteria, case studies, and guides.
- Provide financial incentives to the private sector to shift towards low-carbon products and socially inclusive labor standards. Intermediary financing via banks should link financing for domestic firms and SMEs to environmental, social, and governance considerations.
- Corporate governance structures should incentivize sustainable practices, with leadership championing initiatives at all organizational levels. While the public sector can drive capacity development, it is vital that industries recognize their role in sustainable procurement as well.
- Use third-party verification and monitoring to prevent greenwashing. This can be achieved through sustainability rating programs and local and international civil society organizations.
Sustainable procurement is imperative. With over $1.7 trillion needed annually for infrastructure development in Asia, embracing sustainable procurement is the only way to reduce carbon footprints and create meaningful employment opportunities. It is a transformation that benefits industries and nations alike.