Guidelines on Environmental Procurement

Table of Content

1. Introduction.............................................................................................4

2. Background.............................................................................................5

3. Drivers of Environmental Procurement....................................................5

3.1 External Factors............................................................................6

3.2 Internal drivers...............................................................................8

3.3 Misconceptions about Environmental Procurement.......................9

4. How to Introduce Environmental Procurement.........................................10

4.1 Resource consumption..................................................................12

4.2 Pollution and hazard effect.............................................................14

5. How to make Environmental Procurement operational.............................15

5.1 Overcoming the Operational Constraints............................................16

5.2 Reviewing Your Procurement Operations...........................................20

5.3 Refining Procurement Process...........................................................21

6. Summary of Guiding Principles for Environmental Procurement................25

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Acknowledgments

The Environment Protection Authority would like to acknowledge the United

Nations Industrial Development Organization and the Royal Dutch Government
for their assistance under the Ecologically Sustainable Industrial Development
(ESID) Project US/ETH/99/068/Ethiopia in the preparation of these policy
Implementation tools and guidelines.

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1. Introduction

Procurement (purchasing) is one of the basic functions common to all types of

socio-economic activities. By its very nature, procurement forms an interface
between the basic functions of a business and organizational management. The
decisions that are made at various stages of the procurement cycle influence the
overall operational performance of any activity both from economic and
environmental dimensions. In recent years, the role of procurement as a critical
functional link in any socio-economic activity has become a key instrument for
the promotion of sustainable production and consumption practices through out
the society. This can be achieved by reorienting the procurement decision-
making process on the basis of evaluating the economic, technical and
environmental efficiency of the specific goods and services over their lifecycle.

The public sector is the major procurer of products and services from all over the
world. The share of public procurement is particularly large, when the public
sector is the key player in economic development and social service activities.
This makes the public sector in developing countries like Ethiopia the major
player in the supply chain. One could find numerous cases of resource loss and
waste that are caused by inappropriate procurement decisions. Typical example
is the case of the obsolete pesticides accumulated in different parts of the
country. Besides being a direct economic loss, these obsolete pesticide stock
had been causing environmental hazard to the communities living around the
deposit. The disposal of this obsolete stock has required huge amount of
financial and institutional resource that is beyond the country’s capabilities.

Public procurement can influence the behaviour of suppliers and the society at
large. It implies changing behaviors by setting examples that give clear signals to
society. The purpose of this guideline is to help different public and private
organizations to introduce and operationalize Environmental procurement.

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2. Background

There are a number of environmental management tools dealing with different

aspects of environment-related operations that has been developed in the past
few years. One of these tools is environmental procurement. In simple terms,
Environmental Procurement means systematically building environmental
considerations into an organization's day-to-day procurement decision-making
and operations. Its objective is to help the organization to procure the most
suitable and Environmentally Preferable Product that can fully meet your
organization’s needs. An Environmentally Preferable Product is a product that:

 Performs as required to meet the buyer’s needs

 Can be purchased at an efficient price and overall cost
 But has a reduced impact on the environment during production,
distribution, use and disposal, compared to other similar products.

Thus, Environmentally Preferable Products are those products or services that

have a reduced negative effect on human health and the environment when
compared with competing products or services that serve the same purpose. In
this context, Environmental Procurement is a tool that enables an organization to
optimize the benefits of product performance, cost and reduced environmental
impact, by picking an Environmentally Preferable Product.

3. Drivers for Environmental Procurement

The reasons why organizations need to introduce environmental considerations

into their procurement decision- making process can be broadly categorized into
the following two groups:

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  External factors - or “drivers” - that are pressuring organizations to take
account of environmental considerations; and
 Internal drivers that usually lead to benefits to be gained by the
organization by implementing environmental procurement.

3.1 External Factors

Various external factors, or “drivers”, will make Environmental Procurement an

increasingly important issue and decision-making tool for organizations,
operating anywhere in the world. These factors are imposing themselves on
organizations, and are outside of their control. Not paying due attention to these
factors will have a significant impact on the long-term organizational efficiency
and survival of any organization. The following are some of the major external
factors that promote the adoption of environmental procurement.

a) Environmental policies:

The emphasis on environmental performance improvement is increasing in

national and international environmental policies. The enforcement of these
policies will require enterprises and the public sector to re-orient all of their
major operations including the procurement operation. The role of
environmental (green) procurement as a key instrument in promoting national
and international policies within the public sector has been increasing in
recent years. This could be seen by the growing emphasis given to the
greening of public procurement in the developed countries.

b) Phasing-out of products:

International conventions and treaties have banned an increasing number of

products harmful to the environment (especially chemicals). While most
countries are getting rid of these chemicals and their plants, some companies

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are exporting their products and relocating these industries to developing
countries and economies in transition. By doing so, these companies are
transferring the resulting environmental liabilities to these countries’ public
sector and communities. Countries will have to be extremely careful to avoid
the serious long-term risks of importing such harmful products and
technologies. The risks often involve the health of both their environments
and their people. They will also find their competitiveness in the world
marketplace being affected as a result of substantial “hidden” environmental
costs.

c) Product and technology changes:

Products and technology are changing at a faster rate. New generations of

products and technologies are becoming broadly known as “cleaner products”
and “cleaner technologies”. Not only are they more environmentally “friendly”,
they are also usually more efficient and cost-effective. Organizations will thus
need to keep pace with these new developments in order to get the best
value for their money.

d) Funding requirements:

Bilateral and multilateral development financing contributes a significant share

of public sector procurement for most of the developing countries. Following
the global environmental trend, most development agencies have started to
require the incorporation of environmental consideration in public
procurement decision-making.

e) Consumers’ demands:

Due to pressure from consumers, various countries have started to put

forward restrictions to importing certain consumer goods. For instance, the

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 German government has put restrictions on the use of specific chemicals in
processing textiles. This type of constraint will increasingly affect
organizations in countries either exporting directly to these markets or
supplying other organizations that do.

3.2 Internal drivers

Incorporating Environmental Procurement principles in procurement decision-

making process leads to a number of benefits to an organization. The following
benefits can be cited as the most important benefits to be gained from adopting
Environmental Procurement:

a) Efficiency improvement:

Environmental Procurement contributes to improving overall organizational

efficiency, as it promotes proper allocation and utilization of resources within
the organization. The result is a reduction in waste and in losses due to poor
utilization of purchased goods and services.

b) Cost reduction:

Procurement involves a variety of costs to an organization. Some of these

costs are visible, e.g.: price, transport, etc. Others are more difficult to know,
and are thus “invisible”, e.g.: losses due to inefficient use of resources,
product liability and others. Environmental Procurement can help an
organization to reduce the overall costs over the short, medium and long
term.

c. Integration dividends:

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 Public sector procurement plays significant role in most developing countries
national development activities. Environmental procurement facilitates earlier
consideration of procurement operations in development planning. This
allows the procurement officer to have leverage in the decision making
process.

c) Shift to demand-driven:

Supply-driven procurement is significant in most public sectors.

Environmental procurement gives higher considerations for local operational
and environmental conditions. Thus, it enhances the shift from supply-driven
to demand-driven procurement practices.

d) Sectoral leadership:

The public sector is expected to play a leadership role in the global effort of
moving towards sustainable development. The introduction of environmental
procurement in the public sector enhances public institutions' leadership in
environmental performance improvement.

3.3 Misconceptions about Environmental Procurement

As it is the case for most of the proactive environmental management concepts

and tools, there are some basic misconceptions, which are influencing the
acceptance and implementation of Environmental Procurement. The following
are some of the major misconceptions with respect to Environmental
Procurement.

a. “Environmentally Preferable Products are more expensive.”

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Most Environmentally Preferable Products are efficiently priced. In some cases,
the initial purchasing price of the Environmentally Preferable Product might be
higher than for alternative products, as in the case of an energy efficient light
bulb compared to an ordinary bulb. However, if one considers durability and
reduced cost of use, the overall cost of the Environmentally Preferable Product is
often significantly lower than the cost of the alternative product. Don’t be fooled
by the initial price. Look at the total cost of the product, including cost of use and
disposal.

b. “Environmentally Preferable Products are of inferior quality”

Most of the Environmentally Preferable Products are of sufficient quality for the
purpose they are meant to serve. Some are even of a higher quality than
ordinary products. Of course, Environmentally Preferable Products do not give
priority to aesthetic qualities (e.g. color, decorative packaging), which have
nothing to do with performance. For example, paper from recycled material can
be used for many of the same purposes as paper made of virgin material, even if
it may seem visually to be qualitatively inferior. Identify those product quality
features that are relevant to the product’s performance - as opposed to features
that are marginal or purely aesthetic - and focus on those functional qualities.

c. “Environmental evaluation of products is a cumbersome process”

Environmental preferability of most products can be ascertained by simply

looking at their major attributes or features in relation to resource consumption
and health impact. For those products with a higher environmental impact, a
more systematic evaluation can be conducted.

4. How to Introduce Environmental Procurement

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The introduction of Environmental Procurement is based on what is called the
life-cycle approach. This approach looks at the economic and environmental
performance of a product throughout its life cycle. The life cycle of a product has
four major stages: production, distribution, use and end-of life.

Depending on its design characteristics and its level of quality, a product can
have one of the following fates at the end of its useful life:

 Recovery and reuse for the same functional purpose, e.g.: chemicals,
packaging materials, etc.
 Recycling as an input to a production process, e.g.: recycled paper, glass
and scrap metals, etc.
 Disposed as a waste after treatment.

The Product Life-Cycle Chain

Procurement

Resources
& the Production Distribution Use End-of-life
natural
environment
Reuse of products
Recycling of products

Disposal as waste

According to the life-cycle approach, product performance has to be evaluated at

each and all of the above four stages in order to obtain the greatest benefit.
Procurement - as an operation, which links production and use - is thus of

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strategic importance to gaining the maximum out of a given product. The life-
cycle approach can be integrated into procurement operations by looking at two
key aspects of the product:

 Resource consumption, and

 Pollution and hazard effect.

4.1 Resource consumption

Every production and consumption activity requires an input of resources. The

input may be in the form of a raw material or a processed good. The level and
type of resource consumption is a major factor in identifying an Environmentally
Preferable Product. Factors to consider may differ from one product to another.
However, the following are common starting points for all, within the context of
the life-cycle perspective.

a. Resource Consumption Factors

 Production stage:
 Is the product based on resources that are obtained from
endangered species (e.g. rare woods and animals) or from
environmentally sensitive resource bases (e.g. regions with fragile
ecosystem)?

 Is it completely based on virgin materials or does it have a

percentage share of recycled materials?

 Does production of the product require an intensive use of

resources (e.g. water, energy)?

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  Does the production process for the product involve a high level of
wastage?

 Transportation/Distribution stage:

 Does transportation and distribution of the product require any

particularly intensive use of resources (e.g. fuel, protective packing,
etc.)?

 Are the materials used in transportation and distribution (e.g.

packing) reusable or recyclable?

 Use/Consumption stage:

 Does consumption require any input, which is produced using

resources obtained from endangered species or environmentally
sensitive resource bases?

 What is the resource level (raw material, energy, water, etc.)

required to use the product or service?

 End-of-life stage:

 Is the product packaging designed in such a way that it would minimize

waste?

 Is the product designed to facilitate recycling or reuse at end-of-life?

 What resources are required to efficiently dispose of the product?

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In general, products with lower resource consumption, recyclable or reusable
packaging, less packaging waste and lower disposal requirements are preferable
and essentially more economical.

4.2 Pollution and hazard effect

Basically, all products have some degree of effect - however large or small - on
humans and on the environment. This impact can be due to pollution and/or to
posing a direct hazard to human beings. The following guidelines can be used to
evaluate the pollution and hazard impacts of products, as seen from a life-cycle
perspective.

a. Pollution and Hazard Factors

 Production stage:

 Is the product free from internationally banned or restricted

substances, such as chlorinated compounds?

 Is the product composed of other chemically persistent or non-

degradable materials that might cause damage to the environment?

 Is the product made from toxic materials that may pose a hazard to
human health?

 Transportation/Distribution stage:

 Is the product prone to hazardous emissions or leakage in transit?

 Use/Consumption stage:

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  Are non-degradable or toxic emissions and wastes generated during the
use of the product?

 Is the product less polluting during its use than competing products?

 Does the product have sufficiently elaborate and understandable handling

procedures that will help in reducing hazards during storage and use?

 End-of-life stage:

 Is the product recyclable and/or reusable in any form?

 Are the emissions and waste generated during disposal limited - using
existing treatment facilities - to the legally permitted release levels?

 Does the product contain any hazardous substances that require special
disposal measures at its end-of-life?

 In general, products with lower pollution and hazard impact are preferable.

5. How to make Environmental Procurement operational

As it was stated earlier, environmental procurement is, fundamentally, the

refinement of standard procurement practices. Achieving ‘good procurement
practices’ has a significant contribution for the implementation of environmental
procurement. Thus, making Environmental Procurement operational in any
organization involves the following three steps: overcoming operational

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constraints, reviewing procurement operations, and refining the procurement
steps by incorporating Environmental Procurement principles.

5.1 Overcoming the Operational Constraints

For most developing countries, public procurement constitutes a significant

portion of the national procurement operation. Through its considerable
purchasing power, public procurement can influence the behavior of suppliers
and the society at large. This practice is often referred to as affirmative
procurement. It implies changing behaviors by setting examples that give clear
signals to society. However, for public procurement to serve as a tool for societal
change, it needs to overcome some of the major operational constraints that are
observed in current procurement practices.

a) Public procurement planning

Sound procurement planning is lacking in most cases of public sector

procurement. Public sector procurement planning in most developing countries is
highly driven by the desire of securing higher budget allocation from both national
and international sources. As a result:

 There is a higher emphasis on securing maximum budget allocation that

leads to the inflation of material requirement;

 Driven by the desire of full budget utilization, there will be a rush of

procurement activities towards the end of the budget year; and

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  This leads to a significant volume of wastage and disposal caused by
over-procurement of items;

These and other trends are reflections of the dominant supply-driven nature of
the public sector procurement rather than being demand-driven. The key
element for overcoming these constraints is to have a public sector procurement
policy which:
 Emphasizes the importance of transparent and broad-based need
identification as the basis for efficient resource utilization and procurement
decision;
 Institutes a mechanism for encouraging saving on annual procurement
budget utilization, thereby avoid the last-quarter procurement rush.

Furthermore, organizations have to pay particular attention to reviewing

operational constraints in order to improve the economic and environmental
performance of their procurement operations. This includes, carrying out an
analysis of purchased items on the basis of levels of expenditure, volumes,
supply risks and their criticality to the organization’s operations, as a basis for
deciding on supply strategies, stock levels, and allocation of space and
resources.

b) Development planning and procurement

In most cases of project planning, procurement is considered as a final add-on to

the actual project implementation. This lack of earlier consideration of
procurement planning in development operations is the major source of
operational problems during project implementation causing:

 A significant delay in delivery of the required inputs that results in the

extension of the implementation time-frame; and,

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  A considerable inflation in the overall project budget at the end of the
project completion.

These constraints could be overcome through a public procurement and

development policy, which encourages the earlier consideration of procurement
operations in development planning. This enables to reconcile the development
need with public procurement activities and enhance resource efficiency.

c) Insufficient Information and records

Any decision is only as good as the information on which it is based. Many

organizations make procurement decisions in the absence of sufficient
information. Often, suppliers encourage this situation by withholding information
under the guise of “business secret”. Environmental Procurement requires having
sufficient information on the performance of the product to make the best
possible decision. Suppliers should be required by the buyer to give this
information when needed.

Remember:

Try to know, from your suppliers, as much as possible about the performance
characteristics of your purchased items, and keep records of this information.
Additional sources of information can be other buyers, chambers of commerce,
industry associations, standards organizations, specialized trade and industry
journals and commercial sections of embassies in your own country. If you have
the possibility of connecting to the Internet, search for suppliers’ catalogues or for
Websites on “green purchasing”.

d) Institutional gap

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Most public sectors in developing countries are suffering from institutional gaps,
which manifests themselves at different level of procurement operation. These
are:

 Gaps between the end-users and the procurement officer that leads to the
procurement of items incompatible with the users’ requirement;

 Gaps between the procurement and inventory management unit that leads
to stockpiles and waste of unused materials, which are either disposed or
auctioned at a lower price;
 Gaps between procurement and the inspection and audit unit that leads to
different ways of evaluating suppliers’ offer.

Overcoming these and other institutional gaps through a higher transparency and
co-operation amongst the different sections is an essential element for having an
efficient environmental procurement practice.

e) Rigid attitudes

Ingrained attitudes can be one of the main constraints to improvement in

organizations. Many managers are not comfortable with making changes to
established (“tried and proven”) procedures. In the field of procurement, for
example, this can lead to extreme dependency on a single supplier. Some
managers perceive Environmental Procurement to be a complicated operation
which requires complex skills and know-how, and thus as not practicable. To
overcome these and other attitudes:

 Recognize that Environmental Procurement simply involves the

refinement of what can be considered to be good procurement practice.
By understanding the essence of the “life-cycle approach”, and by using a

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 little common sense, you can apply Environmental Procurement with
relative ease.

 Look for the best supply option and avoid being blinded into single
supplier dependency. In the increasingly efficient world market, there is
always a chance of getting a better product and a better offer. This does
not mean, however, that for all products you should be continuously
“shopping around” and changing suppliers regularly.

The secret of being successful in an increasingly efficient market is to adopt a

system of continuous improvement. Environmental Procurement is one of the
tools for continuous improvement that can be applied both by your own
organization and by your suppliers.

5.2 Reviewing Your Procurement Operations

As we have seen, the way organizations are organized and operate influences
how they carry out their procurement operations. Public sector procurement is
often characterized by:

 Insufficient needs identification and analysis

Centralized purchasing is beneficial in terms of bulk purchasing. But, in some

cases, the analysis and formulation of the need may be bureaucratically
dissociated from the ultimate end-user of the procured item. This result in a
mismatch between the procured item and the operational need both in terms of
quantity and quality.

 Detailed specification

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There is a tendency to make the specification too detailed. This may go to the
extent of taking a specific brand specification. Such action closes the door to new
possibilities that could lead to improved procurement.

 Skewed supplier sourcing

While there may be a relatively wider net of sourcing, it is to a large extent

influenced by personal and institutional prerogatives at the time of the
procurement decision. In some cases, the source of funding can have a
significant influence in determining the suppliers to be considered.

 Price-based bid evaluation

Driven by their financial constraints, organizations often have the tendency of

falling into the trap of going for the lowest price, instead of looking at the most
advantageous offer taking account of product performance and life-cycle cost.

 Weak inspection and expediting

Most countries have a set of procurement guidelines, which ensure that public
procurement is conducted in accordance with national regulations and
internationally accepted norms and standards. However, the institutional
capacities for inspection and enforcement are comparatively weak.

5.3 Refining Procurement Process

Constructive refinement of the procurement functions in an organization occurs

almost inevitably when environmental considerations are built into procurement
decisions. Considering the following points with respect to the major functions of
procurement operations will enhance the ability of effectively introducing
Environmental Procurement.

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a) Needs analysis and verification

What the organization really needs may be quite different from what it thinks it
needs. Needs analysis and verification should, therefore, aim at determining the
actual need - and not the perceived need - for the purchase of an item.
Furthermore, it should create sufficient knowledge about the item to be procured.
Suppliers often speculate on the fact that “the customer does not know what he
is asking for”. Careful needs analysis and verification is thus the basis for
effective procurement in general and Environmental Procurement in particular. It
should serve to analyze issues such as:

 Who are the actual users? Who will be in contact with the product in one
way or another (e.g., in handling and transportation, use, maintenance,
etc)?

 What are the actual needs? Users must be able to define their functional
or performance requirements without committing to specific product
solutions or suppliers.

 Can the need be satisfied without procuring new supplies? Have you
checked for comparable surplus products already available within your
organization?

 Can the need be satisfied with a reconditioned, refurbished, or recycled

product instead of going for a new item?

 How frequently does such a need arise? What are the most economic
purchase order size and how much safety stock is really needed?

b) Defining specifications

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Defining specifications is the means to communicate the verified needs(s) to
potential suppliers. One should consider the following issues when formulating
specifications:

Adopt performance-based specifications wherever possible. These are based on

the desirable performance of the product, rather than on its characteristics, and
leave the door open for new and more cost-effective ways of satisfying the need.
Avoid specifications, which are based on a specific brand. They create limitation
to only one source of supply.

Use internationally recognized standards wherever possible. This will generally

help to broaden the range of supply options and assure an acceptable level of
quality. Internationally recognized standards will also tend to incorporate relevant
environmental considerations.

If the item to be procured requires special features or performance testing

procedures by environmental regulation (such as protective devices), build these
into the specification.

c) Supplier sourcing

One of the major challenges for organizations is to have access to information on

suppliers and new sourcing options. Here are some suggestions on how to
improve your supplier sourcing through better access to information:

 Try to develop a network for information exchange with similar

organizations in the locality and region. This kind of co-operation can lead
to pooling of requirements and resources for bulk purchasing and,
consequently, to improve supply options.

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  Any condition of limitations on the supplier sourcing process either from
the source of funding or from the end-users of the procurement item
should be avoided.

 Define the qualitative requirement of the item and look for an alternative
source of supplier within the sector or other related sector. Sometimes,
what is considered to be of sub-standard quality by one company may be
perfect for another.

 When sourcing for supplies, ask suppliers to give information on their

environmental performance, including conformance to relevant
environmental regulations. Whenever feasible, check this information with
independent sources (e.g. environmental protection and certification
authorities). Such simple practices can help to gradually build up a broad-
based culture of environmental awareness, in addition to meeting one’s
organization environmental concerns and priorities.

d) Bid evaluation
Evaluation of suppliers’ bids should cover three major areas: an economic
evaluation focusing on the cost-effectiveness of each offer; a technical evaluation
focusing on the technical acceptability of the offered product; and an
environmental evaluation focusing on its environmental soundness.

 Economic evaluation:

This should be based - as we have seen already - on the net cost based on a life
cycle cost analysis in order to reduce hidden losses and maximize benefits. The
three major cost categories to be considered are:
 The unit purchase price;
 Operating and maintenance costs; and
 end-of-life costs (disposal, resale, etc.).

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  Technical evaluation:

This should be conducted on the basis of the following criteria:

 Fitness to the required performance;
 Ease of operation and maintenance; and
 Possibility of upgrading and reuse.

 Environmental evaluation:

This should be based on the comparative analysis of the major environmental

attributes of the product. The three major areas of analysis are:
 Resource consumption;
 Pollution and hazard effects; and
 End-of-life management.

As it was discussed earlier, just building these environmental considerations into

the bid appraisal process often leads to economic advantages for an
organization, in addition to the resulting environmental benefits.

6. Summary of Guiding Principles for Environmental Procurement

Following, is a summary list of ten principles that you can apply in order to make
Environmental Procurement operational:

One: Ensure complimentarity between environmental preferability and your

organization’s operational and business priorities.

Two: Make Environmental Procurement a journey to be taken in incremental

stages, not as a one-time measure.

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Three: Take environmental considerations into account early in the procurement
process, and take a proactive approach. This will eliminate or reduce, up front,
potential risks to human health and the environment.

Four: Ensure that environmental preferability reflects life-cycle considerations

for products and services, covering the production, distribution, use, and end-of-
life stages as much as possible.
Five: Whenever appropriate, consider the environmental performance of
products and services as a factor for evaluating offers from suppliers.

Six: You can determine the environmental preferability of most of your procured
items on the basis of the key parameters discussed earlier (resource
consumption, pollution and hazard effect, and end-of-life management).
Generally, only few procured items require a more detailed environmental
evaluation.

Seven: Identify your local environmental concerns, and base your determination
of what is environmentally preferable primarily on the basis of these concerns.
They usually vary from one place to another.

Eight: Understand that environmental preferability is a function of multiple

attributes of a product or service. Give comparative weights to each attribute on
the basis of the local environmental concerns that you have identified.

Nine: Ensure the accuracy of suppliers’ product information and product

attribute claims.

Ten: Relate Environmental Procurement wherever possible to other system-

based environmental improvement efforts such as Cleaner Production and
Environmental Management Systems.

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