Environmental, social and governance (ESG) regulations are becoming increasingly stringent, and organizations are under pressure to demonstrate tangible progress toward decarbonization. Indirect emissions (Scope 3) include supply chain components and tend to be the largest part of a company’s carbon footprint.
The attention to ESG initiatives creates an opportunity for FM procurement leaders to demonstrate leadership on achieving emissions reductions and supplier diversity targets. Scope 3 emissions reporting, greener sourcing, and vetted supplier networks that align with ESG criteria are just a few of the ways FM procurement teams can deliver desired outcomes for their organization.
Supplier Management
The majority of respondents use multiple supplier management tools to hold suppliers accountable for their performance, the most common being KPI scorecards that illustrate historical performance trends and identify opportunities for improvement. Many companies are adopting performance-based incentives (contracts with economic incentives or penalties) to ensure a high level of quality and service.
Exceptional performance of suppliers in areas such as cost, quality, service and safety are critical. Using effective Supplier Relationship Management (SRM) programs, leading organizations will have their procurement teams proactively manage their most important supplier partners to ensure they are not only maintaining but improving the supply base performance, ensuring delivery of superior and differentiated value to clients.
Through successful SRM, procurement organizations can develop a world-class supply chain, providing mutual value and growth opportunities to partners that meet or exceed expectations, combined with a continuous improvement and development approach for those that need stronger performance. Where partners continue to underperform, procurement teams must make decisions on whether to continue those relationships.
Measuring partners in other areas such as innovation, sustainability and diversity will rise in importance and will increasingly be built into procurement teams’ sourcing decisions as clients expect sustainable supply chains as a means of achieving their ESG goals. A more integrated approach, including closer alignment with client expectations, will also become standard practice. Technology will allow procurement teams to measure and assess the impact of supplier performance against these KPIs.
Figure 10: What are some of the approaches you are using to hold suppliers accountable for their performance? Please select all that apply.
Source: CBRE Econometric Advisors, CBRE Strategic Investment Consulting, April 2022.
Environmental Sustainability
The past several years have seen a marked increase in mandates around corporate responsibility and sustainability. As a result, ESG issues are top of mind for commercial real estate leaders. A majority of respondents feel their company’s real estate portfolio and related facilities management operations are major contributing factors to the company emissions.
The vast majority of FM procurement teams are engaged in meeting greenhouse gas (GHG) emissions reduction commitments—with seven out of 10 respondents engaged in at least one aspect of GHG emission reduction commitments.
Nearly three-quarters (72%) of companies surveyed have defined sustainability commitments (Figure 12). Among those companies, almost all have publicly stated their commitments, with many targeting 2030 as their goal for achieving net zero.
Figure 11: In your opinion, how much of a contributing factor to your company’s emissions is your real estate portfolio and related facilities management operations?
![facilities-management-Figure-11](https://mediaassets.cbre.com/-/media/project/cbre/shared-site/insights/reports/facilities-management-procurement-perspectives/facilities-management-figure-11.jpg?h=462&w=3817&rev=87ffb4c8ee474b91989791a4580408ae)
Source: CBRE Facilities Management Procurement Survey, 2022.
Figure 12: Has your FM procurement team been engaged in meeting GHG emissions reduction commitments?
![facilities-management-Figure-12](https://mediaassets.cbre.com/-/media/project/cbre/shared-site/insights/reports/facilities-management-procurement-perspectives/facilities-management-figure-12.jpg?h=1567&w=4070&rev=4430f4e81b884bc3b290851f58f72a23)
Source: CBRE Facilities Management Procurement Survey, 2022.
Public zero-carbon commitments are increasingly common: More than 30% of global Fortune 500 companies now say they have either achieved a climate goal or are publicly committed to doing so by 2030—a significant increase from just 6% in 2016.2
A few of the respondents’ publicly stated commitments include:
![p22-table-v4](https://mediaassets.cbre.com/-/media/project/cbre/shared-site/insights/reports/facilities-management-procurement-perspectives/p22-table-v4.jpg?rev=2b05cfea7d484d0ca3700e2dc2cbc89e)
Most clients include sustainability as a part of their supplier selection and management, thereby ensuring their corporate sustainability extends to relationships with suppliers and subcontractors.
Figure 13: Do you include sustainability factors in your supplier selection, screening and management?
![facilities-management-Figure-13](https://mediaassets.cbre.com/-/media/project/cbre/shared-site/insights/reports/facilities-management-procurement-perspectives/facilities-management-figure-13.jpg?h=527&w=4166&rev=3c4cd5c1e6724419a6639070747f08df)
Source: CBRE Facilities Management Procurement Survey, 2022.
CBRE has observed three trends driving this increased commitment to sustainability:
- Pressure from employees who expect employers to be sustainable3
- Tightening regulations, such as the European Union’s Corporate Sustainability Reporting Directive (CSRD)
- Pressure from investors seeking to safeguard their returns against climate risks4
These trends are compelling FM procurement teams to proactively build supply chains that are resilient to climate change. Failure to do so could create downstream risk from customers who expect higher sustainability performance.
2 Source: Real Estate's Role in the Environmental, Social and Governance (ESG) Agenda, CBRE, September 2021.
3 Source: CBRE Core Talks, https://www.cbre.nl/en-gb/insights/core-talks.
4 Source: Panel discussion, U.S. Sustainable Investment Forum Sep 2022.
Implications
Recognition of these trends and risks is driving further adoption of climate goals for real estate occupiers5 and investors6. Each new commitment will require FM procurement teams to adapt policies, processes, technologies and supplier selections to align with those goals.
Actions
Procurement teams are typically the natural “owners” of suppliers’ emissions data, and therefore are responsible for many of a company’s decarbonizing commitments. Procurement teams will need to harness technology to more accurately identify emissions hot spots in the supply chain, driving the Scope 3 strategy. Overcoming challenges on data, transparency, engagements, and changing procurement processes and tools are required to meet net-zero commitments.
Beyond emissions reductions, FM procurement teams will increase focus on integrating physical climate risks (e.g. disruptions caused by extreme weather), transition risks (e.g. energy scarcity), and social risks (e.g. living wage) into the overall sustainable supply chain strategy. In addition, FM procurement has a role to play in addressing non-climate-related sustainability risks, such as biodiversity, water conservation and illegal logging.
Figure 14: Compared to other purchasing spend categories within your company (e.g., direct materials, indirect materials, indirect services), how much progress have you made in growing diverse-supplier spend within your FM supply chain?
![facilities-management-Figure-14](https://mediaassets.cbre.com/-/media/project/cbre/shared-site/insights/reports/facilities-management-procurement-perspectives/facilities-management-figure-14.jpg?h=449&w=4161&rev=e5c161a83aa944b58d869da8fbf50815)
Source: CBRE Facilities Management Procurement Survey, 2022.
5 Source: Spring 2022 U.S. Office Occupier Sentiment Survey | CBRE.
6 Source Importance of ESG in real estate investment worldwide 2022 | Statista.
Supplier Diversity
An important component of ESG, diversity, equity and inclusion (DE&I) is also a growing focus for many companies.
Asked to rate progress on DE&I goals, respondents indicated making slightly more progress in FM compared to other categories. This aligns with CBRE’s experience as some of the most essential categories (e.g., cleaning, landscaping, repairs & maintenance) have well-established diverse supply markets.
Nearly all respondents have supplier-diversity targets in place, with the most common diversity spend target in the 5-10% range (Figure 15).
Figure 15: Based on total or addressable spend, what level of supplier-diversity targets do you have for your FM supply chain in 2022?
![facilities-management-Figure-15](https://mediaassets.cbre.com/-/media/project/cbre/shared-site/insights/reports/facilities-management-procurement-perspectives/facilities-management-figure-15.jpg?h=2360&w=4180&rev=2cde8f67918d4cca81983c23708da08e)
Source: CBRE Facilities Management Procurement Survey, 2022.
Companies have been employing various strategies to increase supplier diversity, with the most common being monitoring Request for X (RFX) events to ensure diverse supplier inclusion (Figure 16). In addition, many companies are expanding their diversity goals each year to provide a new baseline for reaching and surpassing supplier-diversity objectives.