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Why climate-smart procurement makes good business sense

With the eyes of the world on the upcoming COP26 summit, sustainability is becoming an important factor for procurement.

Any company’s environmental and sustainability performance is only as good as its supply chain. While two products can be physically, chemically and mechanically identical, there can be a drastic difference in their carbon footprint.

You may find hidden environmental costs due to variations in production technology, raw material supply, energy efficiency and electricity generation. In addition, differences in data recording and reporting can make comparing suppliers more difficult.

The ISO 14040 Environmental Management Standard on Life Cycle Assessment provides a framework to help. It uses a cradle-to-grave approach to cover every step in the life cycle of a product or system, from resource extraction and manufacturing to transportation, use and end-of-life recycling. Vendors affect the earliest stages of the life cycle so you can only evaluate them from cradle to gate. This covers the environmental impact every step of the way until your raw material leaves your suppliers.

Environmental Product Declarations (EPDs) provide the data to compare suppliers and for OEMs to calculate their own carbon footprint by splitting environmental data into three scopes. Scope 1 concerns direct emissions, such as those from fuel burned in heating furnaces in a steel plant. Scope 2 includes indirect emissions, for example from electricity generated to power electric arc furnaces in the steel plant. Scope 3 emissions arise from the production and processing of raw materials and are often the largest source of emissions; they can include energy from mining, ore processing, and scrap collection and preparation.

This breakdown is deceptively simple, so it’s a matter of looking out for the buyer. Different suppliers have their own production techniques and raw material procurement strategies. There can be major differences between the three scopes.

For example, one stainless steel producer would purchase ferrochrome, an essential raw material, and register the emissions under scope 3. Conversely, another supplier would process its own emissions and report them under scope 1 and 2. The best way to avoid this kind of load shift is to include all three scopes in the evaluation.

In addition, the EPD relies on reliable data throughout the supply chain, including scope 3. That means it is essential that an independent third party verifies EPDs. Without this there is no guarantee for the correctness of the data. This may affect your reporting and the reliability of your own EPDs. It is therefore essential to compare the total of all three scopes and insist that EPDs be verified.

Another way to get an idea of ​​a material’s environmental impact is to check its recycled content. Recycling scrap not only promotes the circular economy; it also has the tangible benefit of minimizing carbon dioxide emissions. That’s because recycling uses less energy (and produces fewer emissions) than processing virgin materials such as ores. These energy savings are reflected in Scope 3 of the EPDs.

According to the German Fraunhofer Institute, every tonne of austenitic scrap used in stainless steel reduces carbon dioxide emissions by 4.3 tonnes. However, Yale University found that the global average of recycled content in stainless steel is only 44 percent. This means that OEMs and manufacturers can achieve major emission reductions over the entire life cycle through smart procurement. At Outokumpu, supplying steel that is almost 90 percent recycled is already profitable for us.

If your brand uses sustainability as a selling point, your suppliers’ behavior in their own factories will reflect on you. That’s why it’s essential to ask for details about how they perform in terms of sustainability.

Sustainability is not just about energy and climate change. You should also consider how your suppliers treat wastewater from industrial processes, collect and recycle dust, purify flue gas and how they deal with solid waste products. Last but not least, sustainability has an ethical side: do they respect human rights and do they have decent working conditions? All of these can affect communities, watercourses, agriculture and wildlife habitats around their plants.

Careful design and procurement can also play a role in extending the life of a product or system by decades. This reduces the use of the Earth’s resources, reduces CO2 emissions and saves money.

Stainless steel is known and valued for its long life. An example is the stainless steel pipes in the Tokyo water network. Tokyo Waterworks wanted to switch to a longer-life material on the water pipes, so they specified that stainless steel would last 100 years. In addition to a longer service life, stainless steel has drastically reduced leakage and saves time and downtime as much less repairs are required.

The final way to compare suppliers’ sustainability is to check their membership and involvement in recognized initiatives, including inclusion in sustainability indexes and ratings. For example, if a supplier takes sustainability seriously, it becomes involved in initiatives such as the UN Global Compact and Sustainable Development Goals. Steel suppliers can also be involved in ResponsibleSteel.

It’s also worth checking to see if they’ve signed up for the Science Based Targets initiative, which sets ambitious public carbon reduction targets.

Ultimately, cost, quality and reliability have always been important in purchasing. But environmental performance is now becoming more prominent. It can even be the deciding factor in winning cases.