ESG, Public Procurement and the SME
Are you aware of ESG, and the profound impact it makes on your organisation’s chances of success in any bid which falls under the UK’s public procurement regulations?
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The overwhelming majority of SMEs and, reportedly, 30% of the public corporations, have remained blissfully unaware of the UK government’s continued development of the Public Contracts Regulations 2015. For any entity bidding for public funds, it’s time to wake up and implement the critical ESG reporting measures demanded, or face being all but excluded from the bidding process.
The importance of PPN 09/16 and PPN 06/20
PPN 09/16 was ground-breaking. Issued as part of the government’s drive towards carbon reduction and Net Zero, it applies to all UK central government construction, infrastructure and capital investment procurement valued over £10m. Importantly, this encourages participation by SMEs and (so-called) Voluntary, Community and Social Enterprise Organisations (“VCSEs”).
The effect is to force contracting authorities to assess strategic themes and critical success factors, (CSF) and these include the costs associated with environmental impacts, including the cost of emissions. By direct referencing of the Public Services (Social Value) Act 2012, it re-iterates the requirement for public procurers at the pre-procurement stage to consider procurements covered by the Act might improve the social, economic, and environmental well-being of the relevant area.
With the publication of PPN 06/20 (Taking account of social value), we saw the social component of ESG come to the fore. Suddenly, government procurement was required to demonstrate ESG considerations as part of a ‘social value model’. As with PPN 09/16. A minimum weighting of 10% must be given to ESG objectives in each procurement endeavour.
The ESG Procurement Sea Change
The most radical change to date has come from PPN 06/21. As Mayer Brown LLP put it, ‘this revision ‘seems therefore to blur the distinction between selection and evaluation stages, promoting environmental concerns throughout the whole procurement.’ More over, it became effective on October 1st, 2021.
How will your organisation manage with the requirement of PPN 06/21 for all organisations bidding on public contracts of £5m or more to produce a Carbon Reduction Plan (CRP)? This necessitates stringent measurement, data collection, and documentation to show how the bidder intends to achieve ‘net zero’ carbon emissions by the year 2050.
How to Publish your Carbon Reduction Plan
The guidance sets out the standards to which carbon footprint data must adhere to be included with a Carbon Reduction Plan, how and where it must be approved, signed-off, and published.
A CRP must be published annually and reviewed and updated within 6 months of your organisation’s financial year-end, with the results published prominently on your website.
Your carbon footprint should be completed in accordance with best industry practice, using the best and latest data you have available. Your carbon footprint should adhere to the Greenhouse Gas Protocol’s Corporate Accounting and Reporting Standard and should be conducted to a reasonable level of assurance. ISO 14064-3 and ISAE 3410 are widely-used standards for the verification of GHG emissions reports, however it should be noted that there is no requirement to have your carbon footprint audited.
Crucially, bidders must present their environmental management policies and measures in support of environmental emissions, such as certification schemes or specific carbon reduction measures. For example, here is the report published by Babcock International
ESG: Report or Fail: the Bell has Rung.
The shift from ESG as an investment concept to one of environmental and societal importance is absolute, and it affects not only those corporations which are ‘in scope’. Unlike the E.U. approach, the United Kingdom government has so far taken a lighter touch, expecting supply chain imperatives to do the heavy lifting.
Supply chain monitoring has proven a robust tool to drive across areas a diverse as cyber resiliency, data protection, and corporate governance in general. We will see greatly increased demands across all sectors, and even SMEs with turnovers of as little as £10m will discover that their bids to supply will lose critical points in initial supplier validation checks.
It is ‘last orders’ for ESG reporting, and to ignore the topic now is to create a risk factor which could surpass even the impact of the pandemic.
Leads the daily operations at ESG PRO, he specialises in matters of corporate governance. Humperdinck hails from Bermuda, has twice sailed the Atlantic solo, and recently devoted a few years to fighting poachers in Kenya. Writing about business matters, he’s a published author, and his articles have been published in The Times, The Telegraph and various business journals.
