What does public procurement have to do with sustainability?

LJD

By 
Professor Barbara De Donno, LUISS Guido Carli, Dr Livia Ventura, LUISS Guido Carli, and Andrea De Maio, EPLO 


This blog is part of a special series exploring subjects at the core of the Human-Centred Business Model (HCBM). The HCMB seeks to develop an innovative – human-centred – business model
based on a common, holistic and integrated set of economic, social, environmental and ethical rights-based principles. Read more about the HCBM here, and check out an event about it here
The HCBM project originated in 2015 within the World Bank’s Global Forum on Law, Justice and Development and is now based at the OECD’s Development Centre

Green-cityThe global financial crisis brought significant economic, social and political changes. It fostered the transition from a shareholders’ capitalism model to a new form of stakeholders’ capitalism, moving from maximising shareholders’ wealth to measuring a company’s social responsibility and environmental impact along with its economic value.

The economic, social and environmental dimensions characterise the “triple bottom line” approach, and are at the core of the inclusive and sustainable economic growth promoted by the Sustainable Development Goals (SDGs) and captured, more generally, by the sustainable development concept of the United Nations 2030 Agenda for Sustainable Development. Implementing this ambitious agenda requires strong co-operation amongst governments, the private sector and the civil society. Indeed, the importance of the business sector as a force for social change is, nowadays, undisputed and the role of enterprises in creating equitable and sustainable economic growth has gained traction in recent years. Consequently, governments worldwide have enacted statutes and adopted policies to foster a sustainable business ecosystem. And part of this ecosystem for greater sustainability is different forms of public “preferred procurement.”

Public procurement is when governments and state-owned enterprises purchase goods, services and works. It is a key factor in the economy and represents a strategic policy lever for states to drive innovation and change down through supply chains. Public procurement represents approximately 12% of GDP on average in OECD countries, almost 30% of total government expenditures, and up to 25-30 % of GDP in developing countries. Thus, it has a high impact on a country’s economic development and can play a critical role in promoting the inclusive and sustainable economic growth endorsed by the SDGs. Currently, public procurement – which is generally guided by the principles of fairness, transparency, openness and non-discrimination – is increasingly inspired by several forms of “preferred procurement”, such as “green procurement”, “social procurement” and “sustainable procurement”.

A government’s main priority in procurement is to achieve value for money, but this doesn’t necessarily mean choosing the cheapest option available. Price no longer seems to be the key factor in determining public purchasers’ choices. Instead of basing choices on a (lowest) price-only criterion, the evaluation of tenders increasingly takes the so-called “best value for money” (BVM) approach. Thus, public procurement decisions shift to a multi-criteria approach where various dimensions, such as the environmental and social dimensions, are considered and expressly required in the procurement specifications. Numerous initiatives have been developed at the international, regional and national levels to promote a strategic and holistic use of these “preferred” procurement policies.

Amongst the various forms of “preferred procurement”, the “sustainable procurement” policy seems to be the more comprehensive because it considers all three dimensions – economic, social and environmental – necessary for sustainable development. Therefore, the global challenge should be to develop and implement national public “sustainable procurement” policies in both developed and developing countries, increasing the number of countries that adopt mandatory “sustainable procurement” practices by law. For example, firms adhering to the Human-Centred Business Model (HCBM), which complies with a broad set of environmental and social sustainability principles, seem perfectly suited already to meet the requirements and specifications of “preferred” and, more specifically, “sustainable” procurement policies.

Indeed, in a legal framework based on sustainable procurement, HCBM enterprises have a competitive advantage over traditional enterprises focused only on profit maximisation. This competitive advantage could encourage and incentivise other companies to follow the HCBM, extending social and environmental sustainability down through the supply chain and advancing a business paradigm shift from shareholders’ capitalism to stakeholders’ capitalism. Moreover, to promote the use of the HCBM by enterprises, governments as well as international organisations in their procurement activities could explicitly provide advantages to sustainable enterprises, such as HCBM enterprises, in the procurement technical specifications or award criteria, in compliance with the general principles of fairness, transparency, openness and non-discrimination.

Finally, it is worth noting that not only public, but also private, procurement is increasingly adopting policies that consider the negative or positive social and environmental impact of potential suppliers. Companies, including large multinationals, are setting and enforcing strict supply chain policies, similar to the public sector, which assess social, environmental and integrity performances of prospective suppliers. All these public and private efforts in rethinking and adopting different procurement practices advance the inclusive and sustainable economic growth and development we seek.