The Power of Procurement: Tackling the Climate Challenge

Foreword 

By Nancy Gillis,  Senior Advisor, Center for Nature and Climate, World Economic Forum

The option for a company to “do well by doing good” is dead. Yes, you read that correctly. Instead, companies need to “do well by not clinging to outmoded paradigms”—and change corporate behaviors to align with the business realities of our climate-challenged world. Chief procurement officers (CPOs) are increasingly at the heart of that change effort, as this timely report makes clear. 

It used to be assumed that adopting sustainable business behaviors would cause a drag on earnings or add to costs, so many companies preferred to continue doing business as usual. But that option of business as usual is no longer available; in fact, it is now financially irresponsible to fail to respond to our changed climate. 

Scope 3 reporting requirements, core material unavailability, energy cost fluctuations, logistical breakdowns due to drought, storms, or fires—all of these are climate-related impacts that procurement leaders must address to keep their companies viable. More than ever, they must think in systems—inclusive not only of their supply chain and all the suppliers and geographies it encompasses, but also their larger value chain. 

The pioneering CPOs interviewed for this report show that a commitment to sustainability, far from conflicting with quantity, quality, and cost, is essential to deliver on these core requirements of procurement. 

This report is essential reading for every procurement leader and offers ideas and advice on how to rethink their roles to meet the new business reality. Just as important, the report makes the case for CEOs and other executives to recognize and value the power of procurement to lead transformative change, foster innovation, and drive both financial outperformance and decarbonization. 

I’m proud that the First Movers Coalition of the World Economic Forum, which aims to decarbonize economically essential sectors, has partnered with Egon Zehnder to create this report—and that the perspectives of several CPOs of its member companies are included. Procurement professionals are the unsung heroes of the sustainability movement, and this report assures their voices are heard.

Introduction

The fight against climate change has never been more urgent. Between 2011 and 2020, average global temperatures were roughly 1.1°C higher than those between 1850 and 1900—and the Intergovernmental Panel on Climate Change (IPCC) estimates that 1.07°C of this is due to human activities.

This has contributed directly to widespread, rapid changes in the ocean, atmosphere, and biosphere. Without immediate action, the world will not be 
able to avoid warming by 1.5°C above preindustrial levels by 2050—which will be catastrophic for life on the planet. In the words of UN Secretary- General António Guterres, the “climate time bomb is ticking.”

Responding to the urgency, governments are tightening their carbon regulations. While companies are aligning their policies with these regulations, the defining challenge is how to act on them. Research by Boston Consulting Group (BCG) found that only 10% of companies have put in place measures to enable real action on decarbonization, including targets and funding. 

The challenge is massive: it requires making a system-wide transformation—with no time to spare. But, whatever the complexities, companies have no choice: they must fix the system while keeping the business running, and profitable. Pulling it off requires everyone to work together; boards, CEOs, and all members of the C-suite have major roles to play. 

At the heart of this transformation journey, however, stands a group of actors whose potential contribution is often underacknowledged: chief procurement officers (CPOs) and equivalent roles. CPOs will be responsible for executing a greater part of the transition than anyone else. This is because of the prominence of Scope 3 emissions— those incurred along companies’ external activities, in their supply chains. Depending on the industry in question, these can contribute up to about 90% of organizations’ overall emissions.

Tackling these emissions requires bold thinking and a willingness to collaborate across companies and industries. Instead of trying to address only the sustainability of their individual supply chains, companies must work together to reduce emissions across entire value chains. Tackling Scope 3 through such collaboration is a responsibility 

that sits squarely within the CPO’s traditional mandate. But this mandate won’t be fulfilled with traditional approaches; old functional tool kits and mindsets are inadequate to deliver the scale of change required. 

Over three chapters in this report—a collaboration between Egon Zehnder and the First Movers Coalition (FMC)—we lay out the change journey 
that CPOs must lead. The report draws on the insights of 15 leading CPOs and experts across sectors, who are pioneering sustainable procurement transformations in their companies. And it presents data from a survey of 41 CPOs, conducted specifically for this research effort (see Acknowledgments). 

The first chapter of this report takes a systems view, showing how procurement is a critical lever for putting business on a sustainable path. Chapter 2 narrows in on the firm, setting out the transformation needed in and around companies’ procurement function. Chapter 3 considers individual CPOs, exploring what a new approach to procurement means for their leadership mindsets and capabilities. 

The purpose of this report is to present emerging insights on the fundamental redrawing of the CPO’s role that is underway today. We don’t claim to have all the answers, but we hope to spark a conversation among CPOs, CEOs, and their colleagues. What we know is that change is no longer an option; it is an imperative.

Chapter 1: The Power of Procurement To Build Sustainable Businesses

Increasingly, organizations are digesting what climate change means for their operations. Although the broader industry may have a way to go still in driving decarbonization, 51% of the CPOs in our own survey said that net-zero goals are already highly integrated into their companies’ strategic objectives. Only 2% said net zero had no role in the companies’ strategies (Figure 1 in pdf). 

Considering the scale of Scope 3 emissions, companies must find ways to leverage procurement in meeting their climate objectives. CPOs and their teams have access to vast repositories of market and industry data, as well as the attention of in-company decision makers and external suppliers. They need to use this access to promote behavioral change both massive in scale and revolutionary in character. 

The Cascading Effect of Procurement 

In the words of Bertrand Conquéret, CPO of Henkel, “Procurement, by definition, offers scalability.” By including sustainability in its procurement decisions, a company has the power to “cascade” sustainable commitments throughout their supply chain. Martina Buchhauser, former CPO of Volvo Cars, says that this is the change companies must commit to achieve their climate objectives: “Embed sustainability into the decision-making process—and make it a key requirement when engaging with suppliers.” 

Procurement connects suppliers, manufacturers, purchasers, and end-users— even beyond direct supply chains, a shift in procurement principles can ripple through entire value chains. To make full use of this power, businesses must adopt system-conscious attitudes, and use their influence beyond internal boundaries. This requires not only a rethink of procurement strategy—but a system-wide promotion of decarbonization, with an emphasis on procurement as a critical lever for change. 

It is important to be clear here: the change indicated will be difficult, overturning many of companies’ established norms and practices. The fight against climate change has never been more urgent. Between 2011 and 2020, average global temperatures were roughly 1.1°C higher than those between 1850 and 1900—and the Intergovernmental Panel on Climate Change (IPCC) estimates that 1.07°C of this is due to human activities.

This has contributed directly to widespread, rapid changes in the ocean, atmosphere, and biosphere. Without immediate action, the world will not be able to avoid warming by 1.5°C above preindustrial levels by 2050—which will be catastrophic for life on the planet. In the words of UN Secretary- General António Guterres, the “climate time bomb is ticking.”

This is because, even though the science on climate change is established, short-term financial goals still often lead decision-making. Hernan Saenz, a partner at Bain & Company, said: “Even if people are unwilling to say that ESG is a lower priority, they send all the signals that it is. It is easier to hit economic targets with unsustainable brown supply chains than with sustainable green ones. We need a new system.” 

While organizations adjust their scope to include the long-term, proponents of sustainable sourcing must find ways to operate within existing value paradigms. To some extent, they are already doing this, helped by consumers who exert growing economic pressure on industry to respond to the climate crisis. A study conducted by First Insight and the Wharton School found that almost three quarters of retail consumers say sustainability is an important consideration in their purchasing decisions. 

While it may be tempting to view climate change as a challenge for the distant future, companies face an inevitable reckoning with the business case for net zero. Rather than waiting for consumer power to aggregate and transform business, CPOs must recognize this inevitability and act now to avert the worst effects of climate change. 

Some companies, adopting exemplary transition practices, are operationalizing this logic. When one organization embeds sustainable practices to ensure its own long-term viability, it paves the way for others to do so too, as shown in the work of Volvo Group (see case study 1 in pdf). This signals a new way of thinking: along with cost, quality, and quantity (CQQ), sustainability must assume an equally central position in procurement’s priorities, as a key driver of decisions. 

CPOs stand at the intersection of commercial obligations and environmental stewardship. So what exactly can organizations and CPOs do together to put procurement to work for the good of the planet?

Chapter 2: The Organizational Transformation Needed Now

The power to make strategic decisions in response to climate change exists at the top of organizations. For net zero ambitions to have realistic chances of success, there must be strategic alignment on change across boards, CEOs, and the entire C-suite. In particular, without the strategic insight of CPOs at the highest levels of decision making, it may be impossible to give Scope 3 emissions the focus they demand. In this regard, it seems organizations are still lagging: only 30% of the CPOs we surveyed felt that their input (as CPOs) was highly valued in their companies’ strategic decision-making processes (Figure 2). 

This suggests there is an important opportunity for CPOs to initiate a conversation on how their unique business perspective can be leveraged to deliver on climate objectives. In turn, other C-suite leaders can consider how to accommodate a broader remit for procurement in company strategy. If CPOs are to step into a broader role in coordinating the companies’ climate objectives throughout supply chains, they will need to expand their skill sets. Even more than this, however, CPOs will need to make the case for joint ventures and partnerships in procurement—challenging traditional ways of engaging with suppliers and even competitors. 

The Strategy: Value-Creation Through Sustainable Business 

Procurement is a constantly evolving field: over time, it has become less of a functional and more of a strategic role. During the disruptions of the COVID-19 pandemic and recent geopolitical instability, resilience has been elevated to the top of the list of requirements for procurement. Leading on sustainable strategy is the natural next phase in its evolution. To Oliver Hurrey, founding member and Chair of the Scope 3 Peer Group, the question of sustainability-as-business couldn’t be clearer: “If you make products using finite resources, then by its nature it is an ultimately doomed business model."

The implication for CPOs is that they now need to make sustainability a top decision driver for their companies’ long-term commercial viability—alongside the traditional metrics of CQQ that have been the mantra of procurement functions the world over. To Virginie Van de Cotte, CPO of Ørsted, sustainability has a natural part to play within CQQ: “CPOs should convince and educate the different business functions around them of the value proposition of sustainability, short term and long term.” 

The vast majority of CPOs in our survey—73% of them—identified “balancing cost, quality, and quantity with sustainability goals” as 
one of the top two challenges they faced in advancing the sustainability agenda, ahead of “limited technological capabilities” and “lack of consistent support from C-suite colleagues” (Figure 3).

It’s no wonder that adding sustainability to the CQQ equation is a challenge, as traditional business models and reporting metrics prompt companies to hesitate in the face of transition costs. Björn Stenecker, CPO of Vattenfall, underlines the need to be blunt about this: “Top management and the company as a whole needs to be determined that this is the way we’re going to go—and it will come with a cost.” 

This puts CPOs in a crucial position: no-one is better qualified to communicate the fact that failing to transition presents a far greater threat to business than transitioning. A report by the Carbon Disclosure Project forecasts that suppliers will report more than $1 trillion in financial impact from environmental risks such as climate change, deforestation, and water insecurity in the coming years.10 As Mark Davis, CPO of The Body Shop, emphasized: “Our main fear is disruption to the business. But mitigation of the costs and risks to security of supply is firmly a part of procurement’s role.” 

Some CPOs are leading their industries’ realization that delivering on climate objectives is itself a value proposition—lowering emissions throughout their supply chains in the interests of long-term viability and value creation. Daniel Bartel, CPO of Schneider Electric, also sees it this way: “The sustainability approach that we take with our suppliers is a good example of value creation.” 

The CPOs we spoke to also made it clear that companies need consistent, unambiguous regulations to navigate through the change, and to take on the costs of decarbonization towards net zero. Katharina Stenholm, CSO of DSM-Firmenich, remarked that: “If, one day, all carbon emissions have a price, then companies who are moving faster on net zero will be more attractive investments.” 

So, if the science on climate change is clear, along with the contribution of Scope 3 emissions and the inevitable impact of climate change on business, what is holding companies back from conquering the problem? There is a real danger in underestimating the scale of the effort required to deliver on climate objectives: it is an informational and economic mountain. 

Oliver Hurrey points out that the procurement leaders who succeed on Scope 3 will be the ones who can work as partners with their suppliers, “who appreciate that many suppliers lack the capacity, capability, and the finance to make the changes they need to make.” 

Our research confirms that many CPOs are keenly focused on this imperative: 60% of the CPOs we surveyed ranked “strengthening relationships with suppliers to promote sustainable sourcing” as one of the top two ways in which procurement can facilitate sustainable transitions, ahead of “enhancing cross-departmental collaboration” and “integrating circular economy concepts.” This highlights the centrality of relationship skills in successful supply chain transformations. 

Procurement can and must play a crucial enabling role—sharing information among supply partners in a value chain and supporting them in their transitions. The experience of Schneider Electric shows that some of the biggest impact can be made just by demonstrating that sustainable practices are possible and that support is available (see case study 2).

One key aspect of the new economics of climate transformations is the requirement that businesses take a fresh look at competition and collaboration. As Oliver Hurrey said: “The leaders in sustainability, particularly in procurement, are ones that collaborate externally, enthusiastically, and are actively part of industry collaborations in particular.” 

Such collaborations can help overcome the disincentives against taking the first step in technological development. Companies that break ground on new, green technologies typically assume costs and risks that their competitors do not—while providing solutions that their competitors may benefit from. 

This points to the need for joint ventures, where competitors take on costs together. Kazuhiro Takahashi, CPO of Mitsui O.S.K. Lines, argued that changing relationships with competitors is both necessary and challenging: “We used to source conventional fuel with a priority on cost level to maintain our competitiveness. But the shift to alternative fuels requires us to collaborate with other concerned parties, sometimes including our competitors, to achieve overall optimization—this has created a psychological dilemma in our company, especially on the commercial side. It’s no longer just about our company’s success, but finding solutions that benefit everyone.” 

Vattenfall is another example of an organization using procurement partnerships to create systemic change (see case study 3).

The People: Collaboration and Communication 

CPOs occupy a unique position, facing both internally and externally. In the words of Volvo Group’s Andrea Fuder, they are “the spider in the web”, twitching threads that connect them with suppliers and with other in-company functions. This identifies CPOs as potential drivers of meaningful change. 

Their role has already seen a greater reliance on internal collaboration. Now, CPOs need to do more to break down silos. Where previously corporate structures may have been characterized by territoriality within fixed boundaries, CPOs must now help drive a system-wide reorientation. Naturally, in the push for sustainable sourcing, procurement leaders must also work closely with their counterparts in sustainability and, because of its broad mandate, procurement is well-placed to do this. Furthermore, CPOs will have to increase their collaboration with R&D departments. The two functions need to pool knowledge on what is possible both in terms of sustainable materials and how they can be integrated into product designs. 

Talent is a critical enabler of change—CPOs must attract and retain the right talent on their mission, specifically focusing on emerging skills needed in this developing role. Daniel Bartel, CPO of Schneider Electric, reinforces this point: “Talent management can differentiate any procurement function against its competitors.” With a mandate beset by challenges, however, the CPOs we surveyed ranked “a shortage of skilled talent” as only the fourth out of five primary challenges they face in delivering on sustainability. 

The “right talent” is a multifaceted category. For instance, it should include questions around inclusion—addressing the lack of diversity in traditional procurement workforces may be an important enabler of the identity shift the function needs. More obviously, however, people in procurement must become versed in a dynamic, shifting set of skills to balance the complex requirements of the role. 

The Skills: Technology and Digitization 

CPOs need to make the most of innovative technologies to drive sustainability in their companies. Generative AI, for instance, provides not only the opportunity to improve efficiency and reduce human error, but also the chance to overcome ambiguity and uncertainty through the transition. Indeed, risk management is a major area in which digitalization and AI can help. These systems offer hope that it will become easier to identify where issues might emerge, at earlier stages. 

Our interviewees underlined that data strategy is inseparable from sustainability in procurement. Dave Ingram, CPO of Bacardi, offered an example of how this can be useful: “You have to be very data-driven. Known sourcing demands a huge amount of 
data tracking.” 

Fabienne Lesbros, CPO of KONE, agreed, adding that AI is essential: “Sustainability is very data-hungry. You need the digital capabilities to achieve the necessary performance, and AI is one way to do this.” This is especially true when considering the depths of supply chains: new data modeling techniques are needed to give procurement visibility beyond tier one, into tier two suppliers—visibility that’s vital to achieve full de-risking of supply chains. Adopting AI, with all its potential, will require a significant mindset shift from the professionals using it. 

The adoption of AI will also facilitate greater diversity in the CPO role, as well as in procurement functions more broadly. Previously, good forecasting relied on intimate experience in procurement, so CPOs were typically hired based on their track records in procurement. Now, however, there is significant potential for this criterion to be made redundant by machines. 
In short, the ascent of AI signals a broad capabilities shift, which we expand on in the next chapter. The aspects of the procurement role that are based on calculation and computer-like qualities are the ones destined to be made redundant by developments in technology. What remains for CPOs is to hone their human qualities and relationships.

Chapter 3: Leading in a New Way: Purpose Meets Performance

While progress has been made in harnessing the power of procurement for sustainability, much work remains to be done. Further progress will depend on CPOs themselves. Can they adopt and nurture the leadership qualities needed to elevate sustainability in procurement to the highest levels of decision-making? Based on our own work with CPOs and other experts on procurement, four qualities stand out as essential markers of the CPOs who will be successful leaders in systems (Figure 4). 

Be Curious, Be Clear 

Delivering on commitments is a massive challenge, and CPOs will need to embrace significant development to succeed against the new and urgent demands of their role. With their mandate growing in complexity, CPOs need a keen focus on the relationships between stakeholders in their sphere of influence. They must account for what is known and what is unknown in an iterative fashion, continuously updating their mental models. This requires high degrees of processing power and speed, and drives two important development areas for leading within systems:

• Curiosity: The CPOs who have the most success in acquiring and applying new frameworks will be those who find joy in expanding their worldviews. CPOs should cultivate curiosity by seeking knowledge about their systems from diverse sources, including news, reports, and human interactions both inside and outside the company. CPOs must deploy their senses within human systems, being alert to signs of how the system is evolving. This will yield knowledge of the status quo and lays the foundation for strategic foresight. Curiosity includes the will to find flaws in one’s current worldview—CPOs must actively seek counterintuitive information, as well as data that complicates their frameworks. 
• Clarity: In a world of infinite data, however, CPOs cannot afford to be universal absorption engines. They must have a strong sense for relevance, discerning the signal from the noise of the system; they must prioritize stakeholders, interactions, and levers for change. Information must be both acquired and communicated with clarity. CPOs are leaders on the frontier of the climate transition; they must lead with clarity, delegate unambiguously, and leave no room for mixed messaging. 

Deepen Empathy 

Coping with the complexities and risks of net-zero transitions demands a move from transactional supply relations to resilient, long-term partnerships and joint value creation. CPOs will need to accommodate the interests of other stakeholders proactively, while providing for their own companies’ interests. 

The fundamental quality CPOs will need to effect this change is empathy: an ability to understand the needs, capabilities, and challenges of stakeholders outside their own companies. The empathy required is for other stakeholder groups—competitors, partners, regulators—and for the individuals that CPOs engage with. Empathy will be at the heart of the trust-based relationships needed for resilient business; it enables tough commercial conversations. Within these relationships, CPOs will need to deploy influencing and communication skills to deliver innovation and recruit partners on the mission of change. 

Build Active Resilience 

In embedding resilience through a complex transition, CPOs need to be proactive and agile—applying learnings on the fly and 
within the context of an uncharted and uncertain future. 

To get the ball rolling and induce a change in the system, CPOs will need to adopt a “bias to action”, privileging forward momentum over caution and absorbing the increased risks with the greatest degree of control possible. Inevitably, there will be setbacks—and, here, personal resilience will be demanded of CPOs, who must accept that progress is not linear. And that, sometimes, a step back is needed to move forward. 

CPOs will need to cultivate a mindset of initiating multiple nudges in the system, to move it in the right direction. Rather than being reactive, they must sense what happens in the system and respond to it, updating their agenda proactively. This will require CPOs to embrace a set of overarching values or principles which will inform their decisions, steering away from single-issue reactiveness. Personally, they must develop emotional control and the ability to thrive in uncertainty.

Have the Courage to Evolve Your Identity 

It requires courage to advocate and execute this vital business transition while simultaneously evolving from a purely functional to a more holistic leadership role. This evolution can be successful only if CPOs are willing to shift their identities, looking within to find what holds them back. 

CPOs’ new mandate requires that they redefine professional success in procurement, and they face the related personal challenge of shifting their professional identity. A deep, personal transformation is indicated, involving the courage to introspect, pinpoint old beliefs, and unlearn old habits. This will not be easy; it will demand that CPOs change how they view themselves and how they behave within their role, touching on every aspect of the CPO’s identity. But this is the change procurement needs—to advance it into a position of strategic prominence, weaving climate objectives into business practice at every level of organizations.