As the federal government extends sustainability reporting to its supply chain, it needs to adopt more standardized frameworks for reporting than those now in place
The US federal government is poised to extend its sustainability reporting to its supply chain, giving further impetus to a best practice already encouraged by competition in the marketplace. Large government procurers, including the General Services Administration (GSA) and the Department of Defense, are inserting questions and requirements about sustainability into contracts with their largest vendors as they renew them.
‘We just renewed contracts with our two biggest packaging vendors,’ says Jed Ela, sustainability co-ordinator at GSA’s Federal Acquisition Service, which buys products and services not only for GSA’s own needs but also for those of many other federal agencies. ‘They had the ability to report carbon footprint at the customer level.’
GSA has thousands of vendors through 11 regional procurement centers, but is focusing on the largest vendors in its drive to get more transparency on sustainability. Things have not yet reached the point where minimum sustainability standards are an absolute requirement, and GSA has yet to ‘de-select’ a vendor for this reason – but that day may not be far off.
‘If you have a key supplier that isn’t doing as much as you like,’ says Ela, referring to GSA’s informal suggestions on transparency about sustainability, ‘you ask how much progress it makes in a year.’ Ultimately, lack of progress might result in it losing out on a contract renewal.
For the US Postal Service (USPS), a government- owned entity that is not a federal agency, demands on the supply chain run in both directions because the agency buys services from vendors but is also a supplier of services to corporations, says chief sustainability officer Tom Day. FedEx is the biggest provider of services to the USPS and recently had its contract renewed with a requirement for sustainability reporting included. At the same time, the USPS competes with FedEx for corporate contracts, and sustainability reporting is a factor in the competition. ‘It’s become a business requirement when it comes to package delivery,’ Day says.
New requirements
A blanket requirement for federal agencies to engage in sustainability targeting was formalized in a 2007 executive order and became effective in 2009, though many agencies had already been setting targets for reducing greenhouse gas emissions as well as water and energy use.
A second executive order in 2009 required federal agencies to develop a Strategic Sustainability Performance Plan (SSPP), setting targets for environmental impact, and to report on it each year. The executive order also mentions focusing on supply chains, particularly for greenhouse gas emissions but also for environmental impact in general.
‘Any organization that examines its own sustainability performance quickly realizes that supplier choices can significantly influence that performance,’ says Mike Wallace, managing director at BrownFlynn, a consulting firm specializing in sustainability and CSR reporting. ‘This makes the organization realize that some sort of engagement with suppliers will be needed.’
Ela says GSA’s efforts to consider environmental impact date back to the early 1990s, if not earlier. The US Army, for its part, had already started sustainability reporting based on the Global Reporting Initiative (GRI) framework in 2007.
‘We wanted to talk to the public about what we were doing,’ explains Wanda Johnsen of the Office of the Deputy Assistant Secretary of the Army for Energy and Sustainability. ‘We picked GRI because we didn’t have an existing format, so we asked what industry was doing.’
GRI is a nonprofit based in Amsterdam that has produced successive versions of a reporting framework. The latest, G4, places emphasis on prioritizing sustainability measures according to the individual business, rather than just checking the boxes on a standard form. With the 2009 executive order on sustainability, the Army joined this effort with the overall SSPP of the Department of Defense – ‘but we still wanted to report publicly,’ Johnsen says, and the Army has continued its GRI reports on a biennial basis. The report, due out in late 2014, will still be based on the previous version of GRI, G3.1, and the Army is currently evaluating the new G4 framework for possible use in its next report.
GSA has also used GRI guidelines, but it and other agencies are focused on meeting the requirements of the executive order and their SSPPs. ‘We are too early in our process,’ acknowledges Ela, ‘though there is a lot of interest in harmonization.
Other frameworks
In addition to GRI, many companies base their reporting on the Carbon Disclosure Project (CDP), another nonprofit that offers a somewhat more restricted reporting framework. Builders and construction firms may rely on guidelines for buildings provided by Smart and Sustainable Built Environment, an international journal whose publisher also organizes conferences on the topic.
‘The marketplace is going in the right direction,’ says Day. ‘The growth in sustainability reporting is largely driven by voluntary compliance, but what’s lacking is standardization.’ Day notes that this has become a competitive issue, adding that companies’ use of different metrics results in bids that compare apples with oranges.
He cites the example of two European postal services, which proudly reported that they had reduced carbon emissions by half, when in fact all they had done was outsource much of their transportation and exclude those supply chain emissions – the so-called Scope 3 category in the Greenhouse Gas Protocol – from their reporting.
Wallace, who was director of GRI’s offices in North America before joining BrownFlynn, is helping government procurement agencies understand how to adopt GRI’s international guidelines as they develop their own criteria for sustainability reporting from their suppliers.
‘There’s no need to reinvent the wheel or create additional paperwork for you or your suppliers,’ he says, echoing what he tells procurement officers at the government agencies. ‘Questionnaires or surveys create a tremendous amount of work that could be avoided by asking suppliers to report publicly on their sustainability performance according to the GRI guidelines.’
One way of mitigating confusion from lack of standardization is to seek third-party verification of reporting, and numerous services have sprung up to provide that. Lockheed Martin, a major defense supplier and a leader in sustainability reporting, is moving in that direction, says Leo Mackay, vice president for ethics and sustainability. He is, however, cautious about any evolution in the direction of full-scale auditing of sustainability measures.
‘Sustainability reporting is in a wildly creative and entrepreneurial stage right now,’ he says. ‘These are not auditable standards but best practices. It is an area where companies can compete.’
Sustainability reporting not only fosters resource efficiency and information security but also engages employees and is good for morale, argues Mackay. Day agrees that there is added value in sustainability measures: ‘Everything we do focusing on the environment has a positive financial impact.
Post haste
This added value is driving the move to extend sustainability reporting further into the USPS supply chain. The USPS has a system for aggregating its orders for supplies for the 33,000 post offices around the country, giving preference to products that minimize generation of toxic waste. ‘It’s an urban myth that environmentally sound cleaning products don’t clean as well,’ says Day. The USPS has even conducted its own tests to demonstrate that products with fewer chemicals are no less effective.
For its massive procurement needs, the Army, too, gives preference to environmentally sound products. ‘What it’s really trying to do is influence the supply chain with the power of federal procurement,’ says Johnsen. One of its big successes is exceeding targets for reducing petroleum fuel usage in its fleet of non-tactical vehicles. ‘We have exceeded that metric by far,’ Johnsen notes, citing a cumulative effect each year against the 2007 baseline.
For USPS, however, reducing vehicle emissions and fuel consumption is one of the biggest challenges, according to Day. The agency has about 160,000 vehicles, most of which are nearly 25 years old.
‘We understand that we have to get this aging fleet off the road,’ Day says. ‘You have to realize this will be only the third fleet purchase in the 45-year history of the US Postal Service.’ The fleet purchase, which could be worth about $5 billion, is expected to be completed by the end of the decade and will have the biggest impact of any of USPS’ procurement initiatives. Sustainability will be one of the deciding factors, with the aim of cutting fuel consumption in half, Day says.
Best defense
The Army’s biggest challenge is bringing its buildings up to sustainable standards. With roughly 300,000 buildings, it has more structures than any other federal agency. Still, it is proud of its achievements, such as the elimination of chromium-based paint in its helicopter maintenance and PCE (tetrachloroethylene) in its degreasing operations. Johnsen acknowledges a ‘good-natured competition’ among the armed services as the Army, Navy and Air Force focus on their sustainability targets. ‘We also collaborate on lessons learned,' she adds.
For defense contractors, the impact of this federal drive for sustainability is reflected in contracts. The government's guidance about sustainability requirements is ‘not always labeled as such, but certain aspects of procurement lean on sustainability parameters – mileage specs, life-cycle calculations, overall cost of ownership of major weapons systems,’ says Mackay.
With all the moving parts in the federal government and different chains of command, federal agencies aren’t likely to adopt uniform standards anytime soon, but it’s clear they will continue to advance toward increasing sustainability requirements that extend further along the supply chain. A new executive order looking farther ahead than the 2020 date set in the last one is expected to be more aggressive, says Johnsen.
For Lockheed Martin, sustainability is an evolutionary process that really has no end, says Mackay. ‘It’s not like nirvana,’ he explains. ‘You don’t simply enter into a state of sustainability. It’s a process of continuous improvement.’
