Philip Ideson: Hi there, my name is Philip Ideson. I want to welcome you to the Art of Procurement podcast, the podcast that helps you, a forward-thinking procurement professional, position yourself and your team to proactively take advantage of the revolution that's taking place in procurement today. By interviewing industry trailblazers and sharing insights from our own experiences, my team and I pull back the curtain and shine a light on the strategies, tactics and tools that procurement teams are using to elevate their impact.

And today on the show, I'm delighted to welcome Nicole Darnall, who's Professor and Kogod Eminent Scholar Chair in Sustainability at American University, where she holds the university's first joint endowed chair across its business school and School of Public Affairs. Nicole has spent more than two decades studying sustainability and the last 10 focused squarely on procurement. She makes the case that procurement is one of the most underused and least researched levers an organization has for real environmental and social impact. So with that welcome and introduction, thank you for joining me on the show today.

Nicole Darnall: Thank you so much, Phil.

Philip Ideson: Well, I'll ask the question that regular listeners will know I always start with, and that is, did you find procurement or did procurement find you?

Nicole Darnall: You know, that's a trickier question than you might believe it to be. I was not interested in procurement. I was interested in sustainability, and I'd say first and foremost, I study sustainability.

It was about 10 years ago, some colleagues and I came into a room and we said, you know, we like each other. We want to do work together. We have that luxury at a university. So what are we going to study? We knew it had to be sustainability. We knew that it needed to be a complex problem that engaged every one of us and our talents. We could see ourselves in it. And we knew that it needed to be something important that had huge societal consequence, but was getting so little attention at that time. And we kept coming back to sustainable procurement. And the more we dug in, the more statistics we read. It was a two-day brainstorming session that we settled on sustainable procurement. That was it.

Philip Ideson: What were all the arrows that were pointing to procurement? You know, what were those signals which made you feel that procurement was kind of the place where you could have the biggest impact, or your work could have the biggest impact?

Nicole Darnall: Yeah. So you hear a lot of companies talk about sustainability and the importance of sustainability. And you hear companies talk about the fact that they're carbon neutral. But the reality is most of those organizations are only looking at one tiny sliver of their impact. It's what happens within the boundaries of their organization, completely ignoring what's outside. And up to 96% of a company's carbon emissions are in the supply chain.

Philip Ideson: Yeah.

Nicole Darnall: If you're not thinking about what you inherit through your procurement decisions, then you're not truly serious about managing your climate impacts. And then that's just one sliver. There's the social side and many others as well.

Philip Ideson: I think when you study this, you look at it from both the buyer side, the supplier side, but also a consumer side. When you look at all those three together, where are the overlaps? And perhaps where is there no overlap where perhaps there should be?

Nicole Darnall: I'd say most of it is no overlap.

Philip Ideson: Yeah.

Nicole Darnall: The overlap exists at the ultimate decision to purchase. And everything else seems to be separate. Not always. It just requires, I'd say, more thoughtful engagement in order to have a conversation that information comes into decision-making pathways in different ways. And it's that ultimate decision where the buyer decides, am I going to select this product or not?

I'll give you an example, because this feels a little bit abstract. It could be that an organization has a sustainable procurement policy, but it's not getting implemented. And it's because that procurement officer isn't considering sustainability as a criterion in the purchasing process. It really is that ultimate decision where everything comes together.

Philip Ideson: I feel like a lot of organizations will talk publicly about sustainability goals. Do you often find disconnects between those published goals and the reality of how those are implemented within organizations? Maybe it's a loaded question, or a leading question, because I know that I've had experience feeling that. But you obviously see a lot more organizations than I do when it comes to sustainability. Is that something you see consistently?

Nicole Darnall: Consistently.

Philip Ideson: Yeah.

Nicole Darnall: It's rare that I find an organization that truly is the whole package. I'm surprised when I do. I'm asking critical questions to learn more, because it's difficult for me to imagine that they're truly thinking holistically. Those companies exist. Those are the leaders that we should be learning lessons from. I think at the ethos, they have changed their culture, the entire culture. And that is what's allowing them to realize the outcomes that they're hoping for within this space. But more often than not, companies, again, they put together policies of one sort or another, willing to recognize there's a huge gap between expectation and implementation.

Philip Ideson: Yeah. And that you can have policy in place, but it's the culture that drives behavior. To actually, you know, have a desire to even have that front of mind, as opposed to going through a checkbox exercise.

Nicole Darnall: And that's what a lot of organizations default to. They know they have to adhere to a policy. And so what's the minimum effort that they need to undertake to check that box and say that they met certain expectations? That's a very different starting point than approaching sustainability with a really sincere, value-based proposition that I am creating greater value to my organization and to society if I take this seriously.

Philip Ideson: Yeah. And I think you've spoken before about an example of suppliers who receive many, many, many sustainability surveys through a year from organizations, some of which may be passionately trying to understand how to buy sustainably across their supply chains, and others that may be checking the box. But they receive 100-plus surveys a year from their buyers. Is this all very disconnected in terms of how companies are thinking about understanding the opportunities that exist within their supply bases?

Nicole Darnall: It's ridiculously complicated. I'm surprised that we haven't seen a solution emerge, because there's enormous opportunity in finding that solution. Listen, we've got buyers who are increasingly interested in sustainability. We have suppliers that are increasingly interested in telling their story. But there's a lot of mistrust on both sides related to information that they're receiving. And how do you approach it with a degree of confidence? How do you deem that information to be legitimate? And this is the complexity that needs to be disentangled. There is no centralizing mechanism...

Philip Ideson: Yeah.

Nicole Darnall: ...across all companies, all sectors, that helps increase that confidence and legitimacy. And so what it means is that we have a lot of noise in the marketplace. A lot of different buyers submitting their own surveys because they believe them to be better than other sorts of information mechanisms that are out there. And that creates enormous burden on suppliers, many of whom want to do the right thing, but are feeling overwhelmed by a lot of questions that they know aren't framed well. Right. There are suppliers that are saying, wait a minute. OK, I'm going to give you some sustainability information based on this question. But if you asked it differently, you'd get better information. So when I say it's a noisy place, it's really noisy.

Philip Ideson: Are there any bodies that are trying to standardize that process, or anywhere that a procurement leader can look to become more informed on what kind of questions they should be asking?

Nicole Darnall: Yeah, there are industry-specific best practices that are moving forward. Those can cut both ways, right? Because industries are often incentivized in ways in which they may not be asking the most robust questions.

Philip Ideson: Yeah.

Nicole Darnall: Here too, a level of skepticism is needed. That said, there are also independent third parties that have come forward, certification institutions or consultancies that have developed their own surveys. That comes at a price to the companies that are really looking to remove the mystery from this process.

Philip Ideson: Yeah, because it sounds eerily similar to the management of third-party risk. Back in the day, I was involved in setting up a third-party risk management program for a financial services company. We were federally regulated. And the only set of standards that existed really for us to learn from was an 800-page, 800-question questionnaire. Obviously those are so overwhelming that you're not going to send out 800 questions. And so you're making up your own questions as well, and sending out all these different questionnaires that everybody else would be sending on risk assessments, of which we would get all types of different answers across, and kind of technology was part of the solution because you could start to ask questions in the same ways. You could have best practices, you could have technology solutions kind of recommend the questions to ask because they see. And you start to have standard portals that suppliers can enter into rather than everyone having, you know, their own version of an Excel spreadsheet that they send out, and asking for questions or asking for answers on. Do you see anything like that on the horizon when it comes to gathering or becoming more efficient in the gathering sustainability-related questions from suppliers?

Nicole Darnall: Oh, I absolutely do. It requires some level of coordination, right? Behind the scenes, to make decisions about what sort of sustainability information really matters.

I'll give you an example. We often look at the ISO standards as being really great places to start. But based on which standard you use, energy is measured differently. So in your survey itself, you could ask for your ISO-standardized energy consumption information. But if you don't ask which standard they use, you're comparing apples to oranges within this space. So even when you have enough information to make better questions or to understand more about this space, you may have just enough information to be dangerous and compare things that you shouldn't be comparing.

What's on the horizon? I expect to see more consolidation within this space. And we're seeing a little bit of it happen now. There's a word that I think is really poignant here, and that's risk. Because that same term is being applied to the sustainability space. Many companies are viewing this as a risk management issue. And I think that's an interesting starting point. Sustainability, in my mind, is much bigger than risk management. But if that's what gets you to the table, let's start with that. That's okay. And then hopefully, the more you learn, the more you realize actually there's a much greater value proposition in managing for sustainability.

Philip Ideson: And that makes sense.

Nicole Darnall: Related to information and information provision, because that's what your question was really getting at, there are opportunities for multidimensional labels that come forward. Now I'm talking about the consumer side, because admittedly I do bounce back and forth. On the consumer side, you might see, like on a food label, the product's organic and it's fair trade. And it might be GMO-free and nut-free and goodness knows what else, right? Multidimensional labels that are required for all products to adhere to can provide all that information in one space. It's similar to a nutrition label, right? So we've seen these things come forward in different places. That's one example. We talked about the industry associations coming together, and then these third parties.

But then additionally, when we talk about technology specifically, AI has a real opportunity to help streamline this process as well. How that gets implemented, I think, remains to be seen. There's a lot of interest within the industry right now, a lot of advocacy for the fact that this is one mechanism to help manage the massive amount of information that swirls around the sustainability space. But there are some downsides to that approach, too.

Philip Ideson: As you think about AI usage, where do you think it has the biggest opportunity? Is it in the data gathering, the reporting, things that were not possible before that can be done at scale? Are there any particular use cases you have in mind where the use of AI, appropriately, could be a game changer?

Nicole Darnall: Yeah. It's actually throughout the procurement cycle. At every touch point within the procurement cycle, there's an opportunity to think more broadly about sustainability impact. So, for instance, in the RFP process, figuring out what sustainability criteria might be embedded to have the biggest impact. You could use AI to draw on experiences in many, many, many different places to think about those criteria in a way that the organization, left to its own devices, may never arrive at.

Philip Ideson: Yeah. Just going back to the label idea, when you were talking about the label, I was thinking, can there be a similar kind of standard for B2B products and even services? Something that basically certifies that certain practices have taken place from a sustainability perspective, whether it's a component that goes in a vehicle or services that are managed by a third-party outsourcing company. I know that there are B Corp standards that you can have on a corporation. But I'm thinking specifically of somebody who could attest to the fact that all the inputs into their output are actually certified, in a similar way to what you do with consumer labeling. Is that something that's even possible, or is the complexity too great, and we're kind of too far ahead of our time to be thinking about that?

Nicole Darnall: No, I think it is possible. I mean, listen, it's going to be complex for sure. But this is where the real opportunity exists to start unpacking that. There's a tremendous business opportunity for organizations that are part of that solution. We are seeing some consultancies pop forward that are using surveys, surveys they constructed with industry experts. And they are becoming clearinghouses for information. So it's their survey that gets submitted. And it's the consultancy that then vets the responses that come from the survey, because they're oftentimes incomplete or there's ambiguity about the information that's being provided. It's the consultancy that goes through the process of vetting this. And then the firm that's using that consultancy can say that it's achieved the expectations that consultancy has set forward.

Philip Ideson: Right. I want to bring this forward to procurement and what we can do about it within procurement departments. Before I do that, what should the North Star be? If we're a procurement leader, how should we be thinking about building a future vision for embedding sustainability and sustainable practices into our procurement operating model? I want to start there with a vision, and then we can work around what some of the leaders are doing today to take them on that journey.

Nicole Darnall: So we're talking about the company that's just getting started? Is that what you're saying?

Philip Ideson: Let's talk about the company that's already there. What do they look like? Because then we're giving the North Star. And then, because I know a lot of listeners will be in organizations that are certainly not there, how can we start thinking about getting there?

Nicole Darnall: Well, I have one example of an organization that uses QR coding to provide full transparency for the entire supply chain. You can use the QR code, and it lists all of the suppliers and the impacts related to that single product that you're purchasing. It is full transparency. And that, I would say, is an example of a North Star.

Philip Ideson: Yeah. So we're starting from the beginning now, and we understand that this is something that our organization either believes is important or has an initiative for us to embed sustainable practices into our procurement teams. And we're not necessarily getting started; we've kind of been bouncing around for the last five or 10 years, understanding this is important without truly having it be impactful. Where are some of the places you would recommend an organization like that starts?

Nicole Darnall: So I mentioned a huge pain point at the very beginning, and it's that gap between policy and implementation. I've learned this through the research that we've been undertaking in many, many different places. I think it's more than 10 different countries where we've run surveys to understand how organizations are functioning. If leadership isn't on board, you're never going to have the impact that you hope. Procurement teams need discretion to experiment, stumble, and sometimes fail, to learn. There's this real learning process that needs to take place. And you need to have leadership support in order to create that discretionary environment. So I would say that's the first starting point. You need leaders on board.

But then beyond that, procurement teams need to think really systematically about what they're buying, how much they're spending, and where the largest opportunities to reduce environmental impact or social impact come forward. And so that requires a lot of knowledge sharing, teams coming together, brainstorming. It's easy to skip over that step. It's really easy to skip over that step. But that's where you determine where your biggest impact is. So you have to understand your spend, and you have to identify the highest-impact purchasing categories. And then you focus your efforts there.

Philip Ideson: Yeah. Are there typical categories that you see as being the starting point? Or is this really company by company, depending on where the spend is, where the stakeholder engagement is, where the relationships are that procurement teams hold within the business? I'd love to understand. Is it, if you're not doing it, you should absolutely go category one, two, and three as a starting point? Or is there a little bit more nuance than that?

Nicole Darnall: Yeah. I think it's a little bit more nuanced. I mean, you really have to step into this with a sustainability lens. And you might identify energy consumption as the biggest focal point, right? And then you back into the spend that maps into there. There are organizations that have come forward, carbon assessment organizations, that are helping companies think about this, where they go in and do spend analyses and assign sustainability impact based on those spend analyses.

I'd say even before you begin there, though, procurement teams need to come together to really look at the procurement process itself, to have conversations about the opportunities within that space. What I've come to learn through engaging with different organizations is that a lot of arrows point right back to the RFP process, and thinking about the big contracts that are coming through that are locking companies into long-term or mid-range decisions, because sustainability then gets baked into those decisions.

Philip Ideson: As you're going through the RFP process, I think the pushback from stakeholders is often, is this going to cost me more money? I think about a lot of initiatives; that's always the question. How do we push back on that? By measuring, tracking, and potentially making business awards contingent upon sustainability best practices, does that lead to increased cost? Or should we be telling a different story to appease any stakeholders who think, why are you asking all these things? And why are you recommending that we don't go with my preferred supplier because of what we found in terms of their sustainability practices?

Nicole Darnall: Yeah. There's a lot in that question, right? And I'm going to unpack it a little bit.

Philip Ideson: Yeah.

Nicole Darnall: Where things become challenging here is that procurement teams, rightfully so, are saying, wait a minute, we are sourcing inputs that have served us well.

Philip Ideson: Yeah.

Nicole Darnall: Right? So we're essentially challenging decisions in the past that seem to have worked well for the company, that have made the company money. And we're now saying that they're wrong.

Philip Ideson: Yeah.

Nicole Darnall: And so you inherently get friction at that very beginning starting point. And we just need to acknowledge that friction. The reality is that we have valued purchase price as one of the most important criteria in the procurement decision. I would say that's not entirely wrong, but I challenge the assumption that price and cost are the same thing. Because they're not.

Philip Ideson: Yeah.

Nicole Darnall: They're not. The cheapest product at the point of purchase could be considerably more expensive when you account for water use, energy use, maintenance, durability, disposal costs, all of this. So we need to start thinking about cost more broadly over the product's lifetime, and how we use it, and what impacts it has on society. Because those impacts could end up costing the company way more than that initial purchase price. Right. And that's what gets left out of the decision.

Philip Ideson: Yeah. So definitely taking a total cost of ownership approach, with inputs around sustainability as some of the elements that go beyond piece price or purchase price.

Nicole Darnall: That's exactly right.

Philip Ideson: I think one of the paradoxes of AI, and we talked about AI earlier, and we've done content on this at Art of Procurement and at Art of Supply, our sister podcast, is the cost of the infrastructure that supports AI and its sustainability impact, when you look at electricity usage specifically. How do we start to think about balancing that? Does sustainability become a question we should be answering when we're thinking about AI usage, whether it's buying tokens or buying software that's AI-embedded, or however we're accessing AI? There are so many different ways I could go with it, but I'll just stop there. What are ways we could be thinking about AI usage and balancing that with the sustainability impact of AI usage?

Nicole Darnall: It's a really great question. And it's one that we absolutely need to confront when we talk about procurement. I think the great irony is that it's a procurement decision, which data service provider we use. Right. So that's the starting point. Start asking questions of data service providers, because they are not all equal. A company that is answering those more than 100 surveys that you spoke of is actually a data service provider.

So it's no surprise, given all of those negative impacts that we see associated with AI usage. And you mentioned water and energy usage. I'm going to throw a third one in the hopper, and that's the community impacts associated with environmental justice concerns, noise concerns, quality concerns. There are many, many downsides to this technology. I am inherently an optimist; I believe that we will resolve those issues. I believe that fundamentally. But in the meantime, we need to make better decisions to reduce our impact. So it is a procurement decision, which AI company we're going to utilize. And companies that are making decisions about what their preferred provider ought to be should be engaging in those conversations with their suppliers.

Philip Ideson: What kind of questions should we be asking to try and ascertain how to make that decision?

Nicole Darnall: Yeah. So we talked about water and energy consumption. Make sure that you're using standards you can compare, because it's measured differently based on the standard that these data service providers are using. The big area which is not receiving the attention that it needs is the community impacts. That has devolved into a checkbox exercise. Are you engaging your community? Yes or no? That's not very meaningful. That could be its own survey.

Philip Ideson: Yeah.

Nicole Darnall: And based on the pushback that communities are delivering to data service providers, this could eclipse so many other concerns. Northern Virginia, which is just outside of Washington, D.C., is the world's hub for data services. Most people don't recognize that. Most of the world's internet comes through Northern Virginia before it gets routed through any other place. And it's also the same for AI usage. The communities are starting to push back, and they're getting traction. And so, back to the question of risk and resilience: organizations that aren't asking these questions about community impacts could be managing huge, risky decisions that they had not thought through, because they were not asking the right questions.

Philip Ideson: Yeah. I think of this as reputational risk. I am sure that if there isn't one already, there could be some kind of proxy for data service providers and how they engage with their community. I don't know if the right word is friendly or considered or whatever the right terminology is. But then your certified use of those data service providers, from a reputation perspective, as we get more societal pushback to the building of these data centers, could actually be a competitive advantage. I don't think we'll get a company that says, I'm not going to use AI because of these concerns, because they don't want to get left behind. But the ethical use of AI, using quote-unquote ethical data service providers, could potentially become a competitive advantage.

Nicole Darnall: I agree a hundred percent. I'm going to add one additional layer to it. When we're procuring data services, we're thinking about the horizon and what our needs are going to be. But when local governments are putting moratoriums on the expansion of those data services, that could impact the ability of your organization to receive the services it's looking for as well. So it's like this double-edged sword that needs to be managed.

Philip Ideson: So there's an operational risk in there as well as a reputational one.

Nicole Darnall: Yep.

Philip Ideson: Well, Nicole, it's about time to wrap up. So I want to thank you so much for joining me on the podcast today. For anyone who'd like to reach out directly, I'll put a link to your LinkedIn profile in the show notes for today's episode. That's going to be at artofprocurement.com/podcast. That's artofprocurement.com/podcast. I really appreciate you joining me and sharing some of your experiences around sustainability. It's also fascinating to think about the direction of travel. This obviously isn't a topic that is getting any quieter or less important as the days go by. So I appreciate your time today.

Nicole Darnall: Thank you so much. It was my pleasure.

Philip Ideson: If this episode struck a chord with you, please do send it to somebody. We grow here at Art of Procurement through word of mouth, and that would be really appreciated. You can also support us by giving us a thumbs up, a star rating, or a review wherever you listen to your podcasts. Since 2015, we've built the world's largest free resource for procurement professionals looking to elevate their impact. Our resources span podcasts like this, videos, blog posts, papers, and events. To join us on the inside, and to ensure you never miss an episode, a webinar, an event, or a post, please do subscribe to our weekly newsletter, This Week in Procurement. You can do that at artofprocurement.com/subscribe. That's artofprocurement.com/subscribe. Thank you for joining us today, and I look forward to seeing you again soon