SIMON: Hello! Welcome to the Officio Spotlight on Procurement Podcast. My name is Simon Lipscomb and thank you very much for listening. Today I'm delighted to say that my guest is Nicole Darnall. Nicole is a Professor of Sustainability at the American University in Washington DC, where she's worked for the last couple of years. Previously, she was a professor at Arizona State University, also a fellow at the National Academy of Public Administration, and has held many other academic positions in her esteemed career. So Nicole, thank you so much for joining me today for this conversation. We should probably start by, from my somewhat ill-informed UK-based eyes, it does feel like the topic of sustainability has perhaps dropped down the list of importance a little bit under the present US administration. As someone that's worked in this space for a long time, I'd love to get your perspective on that. And where do you see sustainability within the US and within the global market at this point in time?

NICOLE: It's interesting that you say that. I would say that sustainable procurement is not on the top of most people's mind. I say it's one of the least sexy sustainability topics you can imagine, but my hope is by the end of this conversation, you're going to understand why it is so important. That if organizations procure sustainably, you could radically change supply chains across the globe, whether those regulations are in place requiring organizations to do it or not. It is just this massive lever for social and sustainable change across the globe.

SIMON: Yeah, I would completely agree, by the way. I think we are both at least aligned on that topic. And actually, a lot of our listeners are very passionate about this topic. I'm really passionate, I think, about the impact that procurement professionals can have if they think about sustainability in their day job, which I'm sure we'll come on to. But on a serious question, I guess, you know, within the US politically, under the Biden administration, this was very clearly an agenda, right? And there was a lot of energy and time invested in it. That position has changed dramatically. Have you seen that change at a company level or kind of on a day to day level? And if so, what can we all do about that to bring sustainability back to the top of the agenda, if we believe it's important and can be impactful?

NICOLE: Yeah, I mean, there's – there are many aspects of what you just pointed out that are worth poking at. Under the Biden administration, sustainable supply chains was top of mind. President Biden was asking the General Services Administration, which is the US agency that purchases the vast majority of products across all of the federal government accounts for $700 billion worth of annual spend to embed sustainability into decision making. And that really would change supply chains globally, because the GSA is the largest buyer of goods and services anywhere on this planet. All of that got rolled back. I was part of the federal advisory committee that was helping GSA think about how they do this. And we worked for two years diligently considering the various steps that the agency should be undertaking to embed sustainability into decision making. This would have had implications for how U.S. companies function, but also companies globally. All of that was walked back within the first few months. How has that changed what's happening on the ground? Well, we know the federal government has gone silent on this front, and that has had huge impacts. Within the corporate realm, another really important factor happened about the same time. The current administration has walked back, focused on ESG reporting. What that has meant, how that has been executed here in the United States is we've seen 20% fewer companies that are actually reporting publicly their sustainability impacts. Because they're not required to do this anymore. It is a nice to have. It's not a must-have. As a sustainability scholar, I'm a bit aghast by the fact that 20% fewer companies are reporting their sustainability impacts, which would include procurement, of course. On one hand, I’m troubled by it. On the other hand, we still have 80% that are doing this without being required by the SEC to have them do this. This is the federal agency requiring the reporting. 80% are still doing it. My sneaking suspicion is that for the 20% that no longer do it, they were never really sincere about doing this from the start. Because those that have made the cultural shift, that see the value in their organization to pursuing sustainability, it's becoming embedded as part of their culture. How this ultimately connects to sustainability, I think, or to sustainable procurement, I think we're still trying to figure out. Because even among those companies that report their sustainability impacts, on the environment side, they tend to focus on what we refer to as scope one and two emissions. These are emissions that take place within the organization's boundaries or through the energy that they procure. So small procurement connectivity. But the vast majority of an organization's sustainability impacts are embedded deep in their supply chain. And that's where the sustainability impact really takes hold. 96%. So for organizations that are reporting these in their very glossy, lovely produced and published sustainability reports, if they're only reporting their scope one and two emissions, they're not really looking in the spaces that are going to have the biggest impact or consequences globally.

SIMON: Yeah. And Nicole, I would love to come back to talk to you about scope three, because I think that's really interesting, and indeed, the 80% of companies that are still. Just to roll it back a little bit, I mean, you talked about the fact you were advising the GSA on the Biden administration. I'd love to just unpack that a little bit, actually, because actually, there are plenty of governments all around the world that are still thinking – or government organizations are generally thinking really hard about this topic and how they – how they could do it. So it'd be great to just get your view of what you thought that advice was, right? To an administration that cares about this. What should they be thinking? What should they be doing?

NICOLE: Yeah. I would say the biggest consequences of this is it's insufficient to – and this is the case for any organization that's serious about sustainable procurement. It's not enough to have a policy. You need to have an implementation plan. And you need to think about how you're going to change the organization internally. This fundamentally is a change management problem in how organizations function. So you need leadership buy-in. You need points of responsibility. You need mechanisms to measure progress over time. You need to communicate success, not just once and call it done. You need to constantly communicate your successes to maintain momentum. And as a last point in there, you need to align your incentives much more readily because sustainability typically isn't part of an individual's performance reviews. And if we're serious about sustainable procurement, sustainability needs to become a component in those performance reviews. And these were the very conversations we were having within GSA. That if they're serious about really shifting that $700 billion worth of annual spend, they need to think about how the workforce engages in procurement systems and to meet them at their level. And we interviewed, goodness, I think it was close to 100 different procurement professionals during that time to get a sense of where those real touch points are to fundamentally shift the organization culture so that sustainable procurement becomes part of the daily decision-making process.

SIMON: Amazing. Nicole, again, going back to your point about the present administration, 20% of companies have not reported, but that does mean 80% are, as you say. I'd love to explore that a little bit in terms of how much you think that is driven by these companies seeing sustainability as an advantage, be that a competitive advantage. You know, our consumers, how important are consumers in driving the 80%? Again, as an academic working in the field, I'd love to get your view because companies are self-interested in lots of places. They're there to generate profit. So if the 80% that are doing this, why are they still doing it?

NICOLE: It's a really good question. It's a complex question. I would say that for the vast majority of the companies that are doing this, they're doing it because they're motivated by the landscape around them. And by that, I'm pointing towards international publicly traded companies who are required to report to their shareholders that operate in places like the UK, like Europe, like Singapore, that is requiring certain reporting within this space and expectations to adhere to sustainability requirements. The 80%, so let's think about that 80%. Those that were being required here in the United States were the large publicly traded companies, right? That are responsible to their shareholders to report. The vast majority of companies on this planet are not publicly traded companies. It's on the order of 98% of companies on the globe are not publicly traded. So it's really easy to be romanced by what's happening with the big giants that are out there failing to recognize the cumulative impact that these smaller companies have. To your point, what's motivating the smaller companies, it tends to be actually very different. So especially those mid-range companies, those medium-sized companies that tend to have families deeply involved in decision-making, they're thinking about their grandchildren, their children, their grandchildren, the legacy they leave behind. These are companies that are much more likely to think about their embeddedness in the community and how their reputation connects with those in the community. They want to think about their community. They want to think about their legacy in the company, but just what their responsibility is in the community itself. Each type of company tends to think about procurement differently. The really small company is more likely to be thinking about the consumer because those are the people they see day-to-day walking in the door. This is where their repeat relationships are with the consumer. With a big publicly traded company, they don't see the consumer. They're influenced by a different type of force. So there are many dimensions here. And how companies engage largely depends on the type of company that we're talking about. Size matters. But also whether they're manufacturing or whether they're retail-facing as well.

SIMON: Yeah. Nicole, that idea of kind of closeness to a community or closeness to being a driver for interest in the topic, that when we were having the pre-call for the podcast, you mentioned to a degree that's also true within government organizations within the U.S. Because I think you were saying at a state level or a city level, there's still real interest in this topic, right? And it's still being progressed and pushed on. It would be, again, great to get you to talk through that a little bit.

NICOLE: Yeah, I can provide at least some data in the U.S. what that looks like. It is about – we're looking – we're ebbing towards about a third of U.S. cities that have implemented some sort of sustainable procurement policy, even though it's not required by the federal government or state government. Local governments have a lot of discretion in how they think about sustainability more broadly. They're not driven in the same way as the federal government or state government. And a third, see value and connectivity with their own communities. Local governments tend to be much more closely linked to the stakeholders in their community. Those stakeholders attend city council meetings, right? They get to know the critical stakeholders in the small NGOs in their community that are trying to create change. This is also a place, at least in the United States, where we tend to see a lot more innovation happening in government because they have discretion to experiment more and to pivot. They can pivot a lot more quickly when they realize, oh, that's not working. Let's try this. Our stakeholders say that's important. Let's just do it. Let's give it a try. And we have learned that if we give local governments enough lead, then states and the federal government can actually learn from the experimentation that's happening at the local level. It's very easy for states and the feds to say, oh, wait a minute. Those local governments, they're just, they're too different. Their scale is different. You know, their purchasing is just different. But the reality is the dimensions in which they're experimenting, we can learn from.

SIMON: Yeah, really interesting. We must touch on scope three. I mean, for our audience, it's often talked about thing. As an academic in the field, I'd love to get your views as to how should this, how should topic of scope three emissions be considered, like potentially even legislated? Like how can be, given it is such an important part of the mix, as you said before, how can change be impacted so that scope three does become part of a discussion rather than scope one and two, which as you say in certain industries is minuscule in comparison to the scope three?

NICOLE: Yeah, if we're not considering scope three, it often becomes an exercise of greenwashing. It's very, very easy to control how much electricity you're using within your organization. We have the technologies to manage that. We have technologies that allow us to offset and we can talk about, you know, the legitimacy of the offsetting. There's good reason to question what's happening within this space, although we're getting better at it. When it comes to the deep supply chain emissions, that's when things get very thorny very quickly. Organizations are grappling with how to manage this. I have never professed to be a procurement professional. I'm a sustainability professional, so I do want to distinguish between that. I see a lot of confusion within this space, and I'll give you an example. I was talking with an individual who's working in a data center, and she said that we are receiving more than 100 surveys a year asking us about our impacts related to water, energy, community impacts. And we're being overrun by the surveys themselves. They are not standardized, right? They're asking questions that are similar, but they're not asking necessarily the right questions. So procurement professionals are on the right path, but they don't necessarily have enough sustainability background to help them really drill down to make that more specific question. And her example was, we are romanced by ISO standards. They're very good. They help us compare energy usage and water usage. But based on what ISO standard a data center is using, you're going to have radically different output measures that the procurement professional, our buyer, is going to be trying to compare. And they're not comparable. So there's just enough information out there to create a lot of chaos. From her side, she would love this to be standardized so that there's much more transparency in the data center world, so that procurement professionals can begin asking the right questions and comparing the right numbers. That where we purchase our AI and store our data in the cloud, that's fundamentally a procurement decision. And the consequences of those decisions are becoming more and more important. During our pre-interview, I mentioned that in the D.C. area, Northern Virginia, which is just on the other side of our beltway here, we have more data centers than any other spot on this planet right now. Than any other spot. So this is a hotbed for considering these issues. But on the flip side, from the procurement professionals' point of view, when we think about sustainability, we are radically increasing the complexity of decision making, right? And it necessarily requires more data to come together that affect the way we undergo contracts, the way we assess suppliers, the way we think about our own sustainability. And AI could be helping us within this space. But at the same time, there are gigantic impacts. And that's a procurement conversation we should be having.

SIMON: That was a great lead into my next question, Nicole. And again, in our prep call, the topic of AI comes up because the topic of AI always comes up in everything at the moment. My head immediately went to AI, sustainability, data centers, energy uses, water uses, environmental impact, negative, negative, negative. Which is all true. And I'd love to get your perspective on. But you made a point, which I hadn't really considered before, which is that AI also presents a tremendous opportunity in sustainability. And I'd love to get your view on that seesaw because I hadn't actually thought about the opportunity of AI in sustainability terms. I'd only focused on the negatives of data center and energy uses and stuff.

NICOLE: Those negatives should not be ignored. We are just, I will say, specific to procurement. We're in this very strange paradoxical space where there are all these impacts associated with data management and AI that the procurement professional needs to consider. Because as they formulate their contracts, they should be asking very rigorous questions about what's happening within that space. But on the other side, when we think about the sustainability solutions, procurement professionals have limited time. The resources are not growing for the work that they're doing. They have incomplete sustainability information. They have competing objectives, right? So on one hand, you were talking about scope three. But we also, within this space, consider issues related to local business and small business and minority-owned business and women-owned business and broadening the market space and creating opportunities for more individuals to compete. And we also worry about human rights in the supply chain. This is a massive amount of information that we're asking procurement professionals to consider simultaneously against more traditional procurement values related to cost, time to delivery, quality, etc., etc. And AI can absolutely help us think through this process more expeditiously, oftentimes more accurately. But we need to have humans really questioning and pushing on this because it's not necessarily more accurate, right? We need informed individuals who are in there guiding those conversations in order to reach a more trustworthy solution. I say we need a human in the bot, most definitely. But in the absence of having technological assistance, my worry is, Simon, that procurement professionals would say, this is just too much for us to deal with. Okay. Scope three is a challenge. We get that. But, you know, it's just, it's too much. I'm getting all of this non-comparable information coming at me. What do I do with it? How do I reconcile it? I don't have time to deal with this. And so we have to start thinking about tools that are out there to manage this, recognizing still we have this paradox that we're juggling ahead of us.

SIMON: Nicole, fascinating conversation. I remain, I'm sure you do too, very positive about the impact we can have on this agenda going forward in fighting times. And, you know, say your perspective on AI is not one I've considered, but it's really interesting.

NICOLE: Yeah, I think that it remains to be seen how much of a silver bullet it's going to be. I don't think it's a silver bullet, but I think we would be foolish not to be considering aspects in how it can facilitate this very thorny process ahead of us. And with that, Simon, I want to thank you for the opportunity to join you. It's been great fun.

SIMON: Thank you, Nicole.

NICOLE: Bye.

SIMON: Thanks for listening to today's episode. If you've enjoyed this podcast, please give us a click on the follow button on your chosen podcast platform. We'd also love to hear your views on either future topics or indeed if you've got any thoughts on future guests that we should look to get into the podcast. Thanks again. See you next time.