Using data to improve buying decisions from a net zero carbon perspective

Out-Law Analysis | 09 Nov 2021 | 1:03 pm | 6 min. read

Businesses are increasingly looking for solutions to meet carbon reduction commitments, and IT procurement processes could be one way to maximise the value of data in search of these aims.

The data that is of most value when seeking to improve IT buying decisions can be split into four types: historical data relating to current and past suppliers, focusing on price, but where possible, also considering items such as service scope and service quality; the direction of technology change and practice in the relevant sector; performance information published by independent third parties; and information published by regulators entrusted with the investigation of regulatory breaches and associated enforcement action.

The relative novelty of net zero carbon reduction targets in the supply chain, and the rapid development of the type of commitment that suppliers are willing to give, means that the depth and granularity of data in some of the above areas is thin.

However, those limitations are more than compensated for by the emphasis that suppliers are willing to put on their carbon credentials, matched by the importance that procuring customers are also placing on this area.

Despite that sprint for greener credentials, a major step change is required to move IT suppliers from the current situation, where suppliers seek to make a virtue of their carbon reduction initiatives and their willingness to work with any given customer to support that customer in delivering its targets and policy commitments.

The ultimate aim should be a state where suppliers are willing and able to commit to contractual terms under which they are obliged to meet robust carbon reduction targets, and suffer financial or other sanctions if they fail to do so.

Both the procuring entity and the prospective supplier will have to invest time and resources in order to bring about that future state. In order to help understand the level of that investment it is worth considering two example projects: one relating to the procurement of the hardware associated with a desktop refresh project; and the other involving the operation of a new cloud-based platform.

Classification of target emissions

As with everything associated with net zero carbon, the first step is understanding the source and types of emissions that are being generated. Taking the two examples above, the customer’s primary focus should be on the carbon emissions generated by the supplier or its supply chain, in the manufacture and delivery of the hardware to be used in the proposed desktop refresh, and by the data centre operator in running its cloud data centres.

Godfrey-Faussett Matthew

Matthew Godfrey-Faussett

Partner

The ultimate aim should be a state where suppliers are willing and able to commit to contractual terms under which they are obliged to meet robust carbon reduction targets, and suffer financial or other sanctions if they fail to do so

Applying the classification regime laid down in the Greenhouse Gas Protocol Corporate Value Chain Accounting and Reporting Standard, the core emissions in both examples are likely to be classed as scope 3 – upstream and indirect – reflecting the fact that the emissions are a consequence of the activities of the procuring customer, but are generated by an unrelated supplier entity.

Once identified, the procuring customer can allocate the emissions alongside its existing and projected inventory of scope 3 emissions, spread over relevant annual reporting periods. In doing so, the procuring customer can then accommodate the increased carbon burden within its broader emission or off set action plans.

Correct procurement focus

Prior to procurement documentation being issued, an important preparatory step is to understand the market and the way in which individual suppliers are responding to the net zero carbon challenge.

The relative simplicity of the emissions associated with the operation of a data centre – primarily the generation and use of electricity – means that opportunities and market trends are more easily identified in that example than would be the case in the complex supply chain arrangement applicable to a desktop refresh.

In either case, a limited amount of research using the four sources of data referred to previously should pay dividends in allowing the proposed procurement to be structured and then run effectively from a carbon emissions management perspective.

As part of the above process, it is vital that the pack of procurement documentation confirms that carbon efficiency and reduction milestones will be an important element of any award. Achieving clarity in that regard and supporting that message throughout the steps that follow, could make all the difference between prospective suppliers either paying lip service to the carbon agenda or making genuine commitments that will rightly influence any eventual buying decision.

Effective evaluation

Having invested the time and effort required to identify and categorise potential emissions, the procuring customer must focus on the evaluation criteria and associated scoring methodology that will be applied to the tenders submitted in response to the procurer’s published requirements.

If those mechanisms are light in relation to carbon emissions and the customer’s broader carbon strategy is similarly lacking in direction, then prospective suppliers cannot be blamed for responding accordingly.

Data is again key in sending the right messages in this area. Procuring customers need to understand the category of emissions that are likely to arise, be confident in the mechanism through which such emissions will be declared and be resolute in their commitment to have such declarations verified. It is only once that background work has been done that it will be possible to structure procurement evaluation criteria capable of providing a differentiating score.

Contractual negotiations

With a preferred supplier identified, the next stage is to ensure that the commitments made in the procurement process are captured contractually, ensuring that the buying decision that was influenced by those commitments is given legal force. Without that step, there is a real risk that the data analysis and hard work carried out in the conduct of the procurement so far is simply buried in long forgotten correspondence.

To secure binding commitments, the contracting team must again turn to the data that it received from its chosen supplier and pair those inputs up with relevant external data sets or published benchmarks in order to create:

  • emission reduction or offset milestones that will apply, along with associated timelines;
  • metrics, reporting obligations and verification procedures that will be used in order to assess progress against targets; and
  • remedies or sanctions that will apply if particular targets are missed.

Once the contract is signed and each side’s procurement team gives way to their operational colleagues, it is essential that the agreed carbon reduction strategy is enforced and that the data required to feed the contractual mechanisms is both submitted and verified. If that process is not running at the outset of the project, it will be almost impossible to create the momentum required to pick the agenda up at a later stage.

Strategies and approach

All of the above steps share the same fundamental need for a clear strategy and the ability to use data to support the buying and service delivery process. Prospective customers must have a clear carbon reduction strategy in order to frame requirements and prospective suppliers must similarly reflect their own strategy when developing their response.

However, those efforts will be wasted if the parties are unable to generate the data needed to categorise, evaluate, audit and verify progress made against the commitments that are ultimately agreed.

Against that background, there is no better time for procurers and suppliers alike to recognise the opportunities that are associated with the net zero carbon agenda.

For those who purchase IT services and equipment, that means giving full recognition to the way in which suppliers can make a real contribution to their customers’ carbon emission reduction targets. However, before securing any such benefits, those involved in the procurement process must accept that carbon-related commitments need to be properly factored into any decision regarding the most economically advantageous bid, and that may mean that the purely financial cost of a winning bid is higher than might previously have been anticipated.

Conversely, for those on the supply side, there is a real opportunity to differentiate relevant commercial offerings by adopting a range of achievable and contractually enforceable commitments, packaged in an ‘oven-ready’ framework that a prospective customer can easily understand, effectively evaluate and contractually enforce.

The biggest challenge is the speed at which change needs to happen. Both prospective customers and suppliers have to understand the landscape in which they are now working, appreciate the pivotal importance of data, and develop appropriate strategies, all at a pace which in a procurement context is almost unprecedented.