Sustainable Public Procurement and the Business Environment

March 25, 2021

The article originally appeared on Washington Business Dynamics website.

I. Introduction

The international development community and many national and local governments know that the development approaches of past decades are not sustainable. While millions of people have been lifted out of poverty, poverty reduction has come at a great environmental cost. The increase in demand for resources by a rising population has exploited the earth’s resources on an unprecedented scale, and in the process has altered its climate. Unsustainable development activities in both emerging and developed markets, such as deforestation, land use changes, and burning fossil fuels, have drastically increased greenhouse gasses, trapping heat and raising the Earth’s temperature.

“Amazon biodiversity also plays a critical role as part of global systems, influencing the global carbon cycle and thus climate change, as well as hemispheric hydrological systems, serving as an important anchor for South American climate and rainfall.” - Thomas Lovejoy for World Bank 

The Amazon, for example, makes about half of its own rainfall, delivering rain as far south as Argentina. Destruction of the Amazon rainforest to support industrialized farming, ranching, and mining negatively affects rainfall and agriculture throughout South America. And nearly 400 distinct indigenous peoples of the Amazon depend on the rainforest for their physical and cultural survival.

Thus, changes in biodiversity can disrupt entire ecosystems, resulting in the loss of goods and services that communities and emerging markets depend on to survive – and thrive. The policies and procedures national governments employ for production and consumption play a large role in determining future outcomes. To ensure the security, health, and prosperity of human communities, it is imperative to de-couple economic growth from environmental degradation and natural resource depletion.

The problems may seem intractable, but in fact they are not. There are solutions—and one of them involves public procurement.

In response to their precarious futures, taxpayers around the world are increasingly holding governments accountable to spend public funds for their social and economic benefit in a sustainable manner.  This includes people in both developed and developing countries, and directed toward city, state, and regional government bodies.

In emerging markets, often the most vulnerable to a changing climate, citizens are demanding better value for their money. In response, multinational development banks and international development agencies have adopted sustainable development approaches to achieve better outcomes in their investments with partner countries, with an emphasis on public financial management to ensure spending processes are aligned to meet the UN Sustainable Development Goals (SDG) by 2030.

On their own, donor agencies understand they lack sufficient resources to achieve sustainable development needs around the world. The World Economic Forum states “a persistent $2.5 trillion annual financing gap” to achieve the SDGs by 2030. The focus now is to help national governments in emerging markets to fund their own sustainable development strategies to simultaneously end poverty and protect the environment. Public procurement is key to this endeavor because public institutions and state-enterprises must procure vast amounts of goods, services, and works to do their jobs. How they carry out that duty, therefore, can affect whether they can achieve their sustainable development goals. In addition, a well-governed and well-designed public procurement system generates trust and stability among the citizens it serves.

By harnessing sustainable consumption and production practices, international governments, state-owned enterprises, and cities improve their economy, infrastructure, and other public goods and services while supporting fragile ecosystems and reducing carbon emissions.

What Is Sustainable Public Procurement?

Sustainable public procurement (SPP) is a procurement process where public authorities maintain a balance between what is good for society and the economy while reducing environmental damage. The underlying objective of SPP is to maintain balance among the three pillars of sustainable development: economic, social, and environmental. With each procurement transaction, government officials seek positive social, economic, and environmental impacts throughout the entire lifecycle of the goods and services – well beyond the upfront costs and including relevant financial and non-financial costs and benefits. Desired outcomes include expanding national and local markets for goods and services that support environmentally sustainable development (e.g., solar energy, recycled paper products, fresh local food for school lunches) and model “green” sustainable consumption practices and products for the wider public.

Key SPP principles include promoting transparency and accountability throughout the lifecycle while ensuring sustainable consumption and production patterns in support of national development strategies.

Here are some of the important ways SPP offers greater value for taxpayers’ money.

  • Improves the quality of goods and services for the best value-for-money
  • Reduces additional costs through greater accountability and responsible business practices over the entire lifecycle
  • Ensures fair labor conditions in the manufacture of goods purchased and services provided
  • Supports small and medium size enterprises (SMEs)
  • Reduces carbon emissions and unnecessary waste
  • Encourages innovation
  • Promotes good stewardship of natural resources
  • Decreases the effects of pollution on human health and the environment

Why Is Sustainable Public Procurement Important?

Sustainable public procurement processes engender a more efficient, non-discriminatory, and transparent government spending system. The global average for a government’s public procurement is between 10 to 15 percent of the country’s gross domestic product (GDP). In developing countries, that number can rise up to 30 percent of GDP. National defense, public transportation and infrastructure, and health care services are some of the goods and services that require government spending. Because of the government’s vast purchasing power, it can shape the direction of social progress and environmental protection.

For example, in the United States, three federal statutes require federal agencies to purchase energy efficient products, designated by the “Energy Star” certification, and activate power management settings on government computers and monitors. This saves governments money and helps them meet energy-related goals. In turn, governments on-board with SPP can influence the private sector to produce more sustainable goods and services, causing a multiplying effect for sustainable consumption and production.

However, any time governments spend money, pitfalls also exist. For example, public procurement transactions between public officials and the private sector are susceptible to corruption. A 2014 Organization for Economic Co-operation and Development (OECD) Foreign Bribery report reveals that more than half of foreign bribery cases occurred to obtain a public procurement contract. Government contracts, especially multi-year awards, are lucrative business opportunities for bidders and their vendors. Lower quality and higher cost goods and services are the direct result.

“Those paying the bribes seek to recover their money by inflating prices, billing for work not performed, failing to meet contract standards, reducing quality of work or using inferior materials, in case of public procurement of works.” - OECD, Preventing Corruption in Public Procurement, 2016.

To combat this, SPP transparency – in the form of easily accessible public records – is key. Greater transparency promotes greater accountability, that can lead to cost savings. Open access to records is key to building stable civil societies where citizens can hold their elected officials accountable. SPP also paves the way for small and medium size enterprises (SME) to participate in the bidding process, strengthening the economy by increasing local job opportunities.

Overall, when government procurement policies and procedures emphasize social, economic, and environmental responsibility into their financial and life-cycle calculations, then the risks for corruption decrease while transparency and non-discrimination in transactions increase.

In other words, SPP offers better value for taxpayers’ money while improving the environment.

The Origins of SPP

The roots of sustainable public procurement can be traced to the 1992 United Nations Conference on Environment and Development in Rio de Janerio that called for a “new global partnership for sustainable development” by adopting an international approach to achieving sustainable consumption patterns. The conference, also known as the “Earth Summit,” produced a comprehensive plan of action, Agenda 21, that asked local and national governments to improve the “environment content” of their purchasing policies. Two years later, a roundtable at the 1994 Oslo Symposium came up with a working definition of “sustainable consumption and production” (SCP). The term refers to:

The use of services and related products, which respond to basic needs and bring a better quality of life while minimizing the use of natural resources and toxic materials as well as the emissions of waste and pollutants over the life cycle of the service or product so as not to jeopardize the needs of future generations.” Oslo Symposium, 1994

Improved social and economic outcomes became intrinsically tied to sustainable environmental practices – detaching economic growth from environmental degradation – and has remained foundational to all future SCP policies and programs.

Launched in 2003, the UN-guided Marrakesh Process began implementing SCP projects with active participation from national governments, development agencies, civil society, and the private sector. The Swiss-led Marrakesh Task Force on Sustainable Public Procurement was launched in 2005 and lasted until 2011 as part of the Marrakesh Process to develop practical guidance on the SPP approach, produce research papers, encourage SPP dialogue among countries and stakeholders, and promote SPP training and assistance. The Marrakesh Task Force outlined its definition of and approach to SPP in a final report, attracting the support of a number of countries along the way.

In 2014, the UN Environment Programme (UNEP) supported the establishment of a global, multi-stakeholder platform that supports SPP implementation around the world, called One Planet Network Sustainable Public Procurement. One Planet, as it’s commonly known, co-leads the program to deliver the SPP message in more than 130 partner countries.

At the September 2015 United Nations Summit, all UN member states adopted the 2030 Agenda for Sustainable Development, with a set of 17 Sustainable Development Goals (SDGs) and 169 targets with a plan to achieve them in 15 years. The Agenda is a commitment to eradicate poverty and achieve sustainable development by 2030 worldwide. SDG 12, “Responsible Consumption and Production,” calls for a systemic approach and cooperation among all stakeholders along the supply chain to achieve sustainable production and consumption patterns. One Planet Network works to achieve Goal 12 by engaging consumers through awareness-raising and education on sustainable consumption and lifestyles. Specifically, SDG 12.7 calls for the promotion of “public procurement practices that are sustainable, in accordance with national policies and priorities.”

II. SPP and the Business and Investment Environment

Adopting a long-term vision

All local and national governments procure goods and services – from paper and vehicles to waste management and road building. Making these purchases sustainable does not require more complex processes and procedures, nor does it have to be more expensive. Rather, a government’s move to SPP means adopting a new attitude and embracing a long-term vision, including:

  • Committing to good governance principles, which are inherently sustainability issues.
    • Ensuring transparency and accountability
    • Protecting the environment
    • Maintaining stable macroeconomic conditions
    • Providing and maintaining good standards of public health and safety
    • Mobilizing resources to provide essential public services and infrastructure.
  • Prioritizing long-term value-for-money over short-term, upfront costs. In cases where the upfront price might be higher, these costs can be recovered during the lifecycle of the asset through lower operational, maintenance, or disposal costs.

Overall, SPP considers a broader range of costs such as management operations and maintenance costs as it integrates social and environmental criteria into the overall procurement cycle.

By adopting an SPP process, a government’s entire public procurement mindset shifts toward the total cost of the asset or service over its entire lifecycle rather than the initial purchase price. It might also mean making the decision to not purchase or consume less rather than continue to purchase the same amount but with different products or services.

Sustainable public procurement creates sustainable economies

Governments can use their purchasing power to shape their economies and societies in mutually beneficial ways. By creating increased demand for sustainable goods and services through SPP, governments can support the growth of SMEs through preferential bidding set-asides. Likewise, SPP can scale-up new green industries in national economies with the ability to tap into the ever- increasing global demand for high-quality sustainable products and services.

Adopting SPP can help local, regional, and national governments improve their reputations as a transparent and reliable business partner to foreign investors, multinational development banks and donors, and the private sector. Stable domestic markets attract foreign direct investment. In a recent World Bank report, foreign investors cited “supportive political environments, stable macroeconomic conditions, and conducive regulatory regimes as their top three investment decision factors — even more important than low taxes, low labor and input costs, or access to natural resources.” SPP can also spur private sector investment for green and climate-friendly initiatives. In emerging markets, governments that adopt SPP can secure international financial support through the UN’s Nationally Appropriate Mitigation Actions, which refers to “any action that reduces emissions in developing countries and is prepared under the umbrella of a national governmental initiative.” The Global Environment Facility, administered by the World Bank, also funds projects in “developing countries and countries with economies in transition to meet the objectives of the international environmental conventions and agreements.”

Other financial benefits include providing greater value-for-money for goods, services, and infrastructure. For example, by placing greater emphasis on long-term utility costs – water, heating, and electricity use and maintenance – operational savings are incurred through improved insulation, reduced leakage, and other efficient water and electricity measures. Choosing products and services that are environmentally friendly can reduce operational costs in waste management and public health costs. Selecting higher-quality products with longer lifespans can also provide greater value-for-money.

Success Story from European Commission, February 2020

The Procurement of Green Electricity in Koprivnica, Croatia.

Within the Intelligent Energy Europe project, the city of Koprivnica in Croatia decided to supply seven public buildings and street lighting with green electricity. The city included green public procurement criteria in the tender specifications, indicating a minimum of 20 percent of renewable energy and decided to use the most economically advantageous procedure instead of the lowest price as only award criterion, allowing that 10 percent of the award points would go to the bidder with the greenest electricity offer.

The procedure was more successful than anticipated with a 100 percent green electricity supply by the winning bidder. This resulted in 1,333.85 tonnes of CO2 saved on an annual basis, 385 tonnes of oil equivalent of renewable energy triggered, and an investment of 193,500,00 €. European Commission. Brussels. “Public Procurement of Energy Efficient Works, Supplies, and Services.” 2020.        

Adopting SPP furthers the development of a circular economy – an alternative to the traditional linear economy of “make, use, dispose.” In a circular economy, resources are used as long as possible, their maximum value is extracted while in use, and then they are recycled, remade, and reused as something new at the end of their lifecycle.

The Business Case for Sustainable Public Procurement

But SPP is not just about purchasing in ways that reduce cost and achieve value-for-money. By adopting and implementing a SPP policy, local and national governments can achieve wider social and environmental policy objectives.

Citizens

  • Optimizes value-for-money across the lifecycle of every product, service or infrastructure
  • Greater savings of public funds through
  • Efficient use of energy, waste, water, raw materials, etc.
  • Improves public health by decreasing toxic waste and improving air quality
  • Boost to country’s international standing by the government demonstrating leadership and responsibility
  • Increases the legitimacy of public officials at home and abroad

Suppliers

  • Creates demand for and availability of cost-effective sustainable products goods, services, and infrastructure
  • Increases opportunities for smaller, innovative suppliers with strong product differentiation
  • Drives innovation and green industrial development

Community

  • Reduces adverse environmental impacts such as waste, pollution, and carbon emissions
  • Increases employment and labor skills
  • Encourages better treatment of workers throughout the entire supply chain
  • Creates new business opportunities for a wide range of large and small businesses

Effects of SPP

Purchasing actions have social implications. Adopting SPP can improve the ethical behavior of public officials, suppliers, and contractors. It can advance living standards by improving employment, working conditions, labor standards, air and water quality, and by reducing the harmful effects of pollution and carbon emissions. It can conserve natural resources for future generations. A move to SPP might mean purchasing at the same levels but with a different set of criteria – or to not purchase at all, with a new mindset to consume less.

Past methods of increasing GDP, incomes, or employment levels no longer mean greater resource extraction and pollution. National and local governments are  increasingly striking a better balance in de-coupling economic growth with resource extraction, and SPP is playing a large role in their efforts. The Global Review of Sustainable Public Procurement 2017 from the UNEP confirms that both national and local governments are adopting and successfully implementing and maintaining SPP in ever growing numbers. To date, One Planet Network reports that more than 500 stakeholders, including governments, are engaged in its programs.

Economic Impact

  • Improves business enabling environment
  • Greater value-for-money
  • More FDI and private sector investment

Social Impact

  • Creates employment opportunities
  • Improve labor conditions
  • Decrease public sector corruption
  • Healthy environment –better, cleaner, and safer public goods and services

Environmental Impact

  • Reinforces sustainable supply chains
  • Improves renewable energy
  • Protects and conserves natural resources
  • Reduces carbon emissions

Take action

For national governments, launch a national SPP Policy and Action Plan in alignment with the “SPP Approach” that emerged from the Marrakesh Task Force and which was backed by UNEP. The SPP Approach, co-led by UNEP and One Planet Network, provides governments with vision and language shared by the international community, and offers a tested framework on how to effectively implement SPP based on shared practices and lessons learned from governments that have already done so.

In the United States, create city SPP policy and action plans in close cooperation with the Urban Sustainability Directors Network (USDN). Directed and led by its members, the USDN now represents over 200 communities of nearly 90 million residents across the U.S. and Canada. The USDN primary mission is to connect local government practitioners to accelerate urban sustainability in U.S. and Canadian communities. This uniquely North American SPP community of practice emphasizes peer exchange and collaboration between local government sustainability leaders.

USDN governments are leading the way to a sustainable, low-carbon future by developing, adopting, and sharing practices that create equitable and prosperous communities and a healthy environment. - USDN Vision