Executives around the world are vowing to woo customers by going green – embarking on a trail that companies like paper giant Domtar blazed a decade ago. But it’s consumers whose choices will ripple up the production chain, through procurement to finance. Here’s how that process works – and why good intentions will come to naught if consumers don’t step up.
1 October 2014 | Dunkin’ Donuts and Krispy Kreme recently vowed to stop buying palm oil from companies that clear-cut forests – a clear bid to reach consumers who reward green behavior with open wallets.
For such pledges to have an impact, however, two things must happen: first, the companies have to prove they’re keeping their word; and second, consumers have to put their money where their mouths are.
Historically, the second part of the equation has proven elusive, as paper giant Domtar found when it went through the arduous process of becoming the first manufacturer to offer Forest Stewardship Council (FSC)-certified paper products ten years ago. Today, Domtar’s FSC-certified products make up more than 20% of its total paper sales, and the company recently announced the sale of its five millionth ton of certified paper.
“FSC certification is celebrating its 20-year anniversary, and I’m very happy to say that Domtar has been a part of that from the beginning,” said Paige Goff, the company’s Vice President of Sustainability and Business Communications. “When you think about five million tons, when stacked in pallets, it equals the height of over 12,000 Empire State (New York) buildings. It’s a great way to demonstrate the impact of FSC certification.”
But that pile of pallets didn’t come cheap. Domtar had to hire additional staff to help meet FSC’s requirements and fulfill internal and external audits, which was not only a financial cost, but a huge time investment. Did it pay off?
“Maybe a few years back, you could get a price premium,” says Goff. “But the price premium is not really there any longer.”
She adds that Domtar’s early adoption gave it a competitive advantage in the early days, and the company benefited from positive recognition as a pioneer, which helped the company gain new clientele, but the simple fact is that the price premium is gone, and the question is why.
Goff says one reason is that the rest of the industry caught on, and now most companies offer at least some FSC-certified products. So, for those consumers who look at labels, there’s more competition. But a recent study by the International Institute for Sustainable Development (IISD) found that green consumers are few and far between. Their research says that two-thirds to one-half of products that meet certification standards are actually sold on the open market as conventional, rather than being sold as certified, primarily due to oversupply and weak demand.
That means consumers aren’t differentiating between the certified products that companies have spent a fortune developing and the cheap products that are driving deforestation around the world. If consumers aren’t differentiating, companies won’t respond – and that failure will ripple up the supply chain.
Procurement Officers on the Front Lines
Who has primary responsibility for all those purchases of certified paper and other sustainable products? None other than thousands of number-crunching procurement officers charged with buying everything from toilet paper to produce to automobiles for large institutional clients such as businesses, local governments, and academic institutions. Procurement officers spend a whopping $10.1 trillion in goods and services each year, according to 2011 data from the United States Department of Commerce.
“Institutional purchasers, whose spending drives an estimated 50-65% of the economy, are uniquely positioned to send economic signals to advance a sustainable future,” Jason Pearson, Executive Director of the Sustainable Purchasing Leadership Council (SPLC ), said at its annual meeting this summer.
This purchasing heft makes procurement officers incredibly important allies to suppliers of certified products such as Domtar. However, as the company discovered, it is not always easy for procurement officers to balance their institution’s needs and budgets while also contracting the most socially and environmentally responsible products. Even when their institution’s leadership is committed to sustainability, that message often does not trickle down to their direct managers, meaning that procurement officers still face pressure to deliver cost savings rather than reward businesses that manage natural resources more sustainably, pay fair wages, or minimize pollution.
Procurement officers must also navigate the often-confusing “ecolabel jungle” when making purchasing decisions. Ecolabels such as FSC aim to help by offering a seal of approval for certain products, which ideally would secure additional sales and higher price premiums. But there are a staggering 448 ecolabels to sort through, according to the
Ecolabel Index, some of which overlap or differ in subtle ways, and others that are not independently verified as having any environmental benefits.
SPLC to the Rescue (Sort of)
The SPLC was launched to help procurement officers better understand and reduce the social and environmental impacts of their purchasing. The council develops guidance to help procurement officers understand areas of their purchasing with the highest impacts, prioritize actions to reduce these impacts, benchmark their progress compared to their peers, and receive recognition for advancement.
At its annual meeting, the organization released a set of broad principles that it hopes will help the purchasing community use its immense buying power to advance sustainability. One of the principles, for example, encourages members to use “credible standards that meaningfully address relevant environmental, social, and economic impacts.” The broad principles will be followed with more specific guidance on improving performance in the highest categories of institutional spending, such as electricity, transportation, and wood and fibers use. But as of now, the principles do not specifically entreat purchasers to pay premiums for sustainable products.
Domtar was a founding member of the SPLC. The company uses the forum to share experiences with other suppliers, and to hear directly from procurement officers about the challenges they face to sustainable purchasing.
“One of the things I like about the SPLC is that there are a lot of educational components,” Goff said. “I really felt like it would be beneficial to Domtar to have a seat at the table, to educate on what is viable and doable in our industry.”
So what will it take for Domtar to get to 10 million tons of certified paper? Paige Goff sees a bottleneck of certified pulp in a market hungry for more FSC products, primarily from small landholders of 500 to 1,000 acres.
“We have a struggle to get small landholders to understand the FSC certification and why it is good for them. Why would they want to incur the logistical procedures and monetary costs?” she asked. “FSC and businesses need to do more education and bring them together to become certified. It will not be successful without collaboration.”