This article first appeared in Forum, The Edge Malaysia Weekly on April 4, 2022 - April 10, 2022

Public procurement is responsible for around 7.5 billion tonnes of direct and indirect greenhouse gas (GHG) emissions, representing roughly 15% of total global emissions. The US$11 trillion (RM14.9 trillion) spent on public procurement globally offers a remarkable opportunity to supercharge a more sustainable economic system and put governments at the forefront of spearheading a true net-zero future.

Malaysia has made a strong commitment to achieving net-zero emissions by 2050 at the earliest, putting its ambitions ahead of regional peers such as Singapore, Thailand and Indonesia. Green public procurement will be critical in achieving that goal.

New research by Boston Consulting Group (BCG) in partnership with the World Economic Forum (WEF) reveals the critical need to transition public procurement practice. The “Green Public Procurement: Catalysing the Net-Zero Economy” white paper highlights not only the essential nature of this transition, but the potential value it could unlock. Private investment and new jobs triggered by greener public procurement could boost global GDP by around US$6 trillion by 2050. We believe there are substantial long-term opportunities to boost Malaysia’s sustainable economy through the public sector’s playing a catalytic role through procurement.

At least 92 countries that collectively account for about 85% of GHG emissions have made net-zero emissions commitments. This includes the world’s two largest economies: The US — net-zero by 2050 at the latest — and China — before 2060. Public procurement is a vital piece of the puzzle in achieving these net-zero aims.

A sustainable solution must address both direct and indirect emissions. Direct emissions (Scope 1) are reflected in the emissions produced by direct activities, such as the use of public agency vehicles. Indirect emissions (Scope 2 and 3) offer a holistic view of the end-to-end energy footprint, including sources of energy, as well as purchased goods and services, waste and downstream use of services. Only by capturing this end-to-end ecosystem can public sector operations truly be deemed to be “green”.

Most emissions associated with public procurement stem from just six industries — defence and security, transportation, waste management services, construction, industrial projects and utilities. These six sectors account for up to 70% of total direct and indirect emissions generated by public procurement. Burning fossil fuels for public transport and defence and security activities makes up by far the greatest share of this burden.

Public spending accounts for a large proportion of revenues in defence and security, waste management services, and construction industries in particular. This provides public bodies with a powerful negotiating platform to inspire more sustainable solutions with these industries.

We should not ignore the initial challenges — a green transition in public procurement is not a simple task. These are complex and often heavily bureaucratic processes. Embracing green procurement strategies are also likely to result in short-term cost increases during the transition. Yet, this is not an impossible hurdle. The WEF report makes it clear that about 40% of all emissions related to public procurement can be abated for less than US$15 a tonne of carbon dioxide equivalent (CO2e), with the share being even higher (55%) in waste management services and utilities.

It is estimated that efforts to reach net-zero emissions in public procurement will increase procurement costs by between 3% and 6%. This expected cost rise is not a permanent “green premium”, but will be reduced over time, as new technologies emerge and are scaled up, creating more efficient and cost-effective net-zero products and services.

Greener public procurement does not only offer a path to reducing the emissions intensity of public bodies themselves. It also provides the template and inspiration to drive deeper penetration of net-zero practices in private organisations, setting a crucial example for companies and constituents about the urgent need for sustainable solutions.

Malaysia has taken progressive steps towards a future of green public procurement. The 11th Malaysia Plan (11MP) set out the goal of achieving 20% green public procurement by 2020, with implementation reducing cumulative CO2 emissions by 100.431 kilotonnes in 2016 alone. Analysis indicates that Malaysia achieved this ambition with a rate of 20.7%.

The 12th Malaysia Plan (12MP) aims to take these ambitions further, achieving 25% green public procurement by 2025. This will unlock economic opportunities in areas such as demand for high-value-added green construction materials in the key construction industry, and catalyse green transitions in a wide range of sectors.

The 12MP also introduced the early seeds of a carbon tax in Malaysia, which will add to pressure for more sustainable operations. This will run alongside Malaysia’s emerging voluntary Emissions Trading System (ETS) and Domestic Emission Trading Systems (DETS), with enterprises now facing a need to demonstrate greener operations to stay competitive in the global marketplace.

Green public procurement offers an important catalyst for wider economic benefits. It can promote innovation and investment in greener supply chains, while unlocking new job opportunities. It is also fundamental to remaining an attractive global investment destination, and aligning with the increasingly stringent demands of major markets such as the European Union. The report estimates that three million net new jobs were created from green procurement-driven investment activity while boosting global GDP by up to US$6 trillion.

Many of these measures align with BCG and WEF’s recommendations for a green procurement framework, across five key strategic priorities for public procurement:

•     Create transparency in baseline targets. This requires establishing an understanding of direct and indirect emissions, incorporating both internal and supplier data. This should be used to measure impact and costs of changing procurement strategies;

•     Optimise products for GHG abatement across their lifecycle. Develop a clear roadmap that sets out abatement steps that suppliers should take, including cost, impact and feasibility;

•     Define product and supplier standards and work with suppliers. Set procurement standards for all products, services and project activities, inclusive of sustainability targets. Assess and prioritise suppliers based on this strategy;

•     Develop the wider ecosystem and create buying groups. Work with industry coalitions to promote decarbonisation across key industries, with certifications to accredit top performers; and

•     Transform the procurement organisation and align across agencies. Realign the organisation’s governance model to ensure clear decision rights, responsibilities and accountability. Consider a central green-procurement hub to champion and support green transition efforts, while boosting topic understanding through education and learning support processes.

These measures can provide a powerful framework to accelerate green public procurement efforts and deliver real long-term economic value. Malaysian suppliers will need to be prepared for this green transformation. They should be supported through a multi-year roadmap advising them on how to reduce their emissions and by what date. The suggested framework highlighted in the 12MP for the rollout of sustainable procurement in the construction sector could provide a valuable pilot template for these efforts.

Malaysia has positioned itself as a potential regional leader in net-zero and public procurement targets in recent years, offering an important view of a more sustainable future. Green public procurement offers an opportunity to supercharge these efforts, and drive forward a greener future for the nation and the region.

Dave Sivaprasad is managing director and partner and Southeast Asia leader for climate and sustainability and Nurlin Salleh is a partner at the Boston Consulting Group

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