Structure negotiations so that the responsibilities, risks, and rewards of achieving sustainability outcomes are shared. While in many cases terms will have been decided and fixed at the planning and RFx stages, gain the supplier’s perspective on which cost factors could stretch them financially, such as paying living wages or sourcing sustainable materials.1 Avoid high-pressure negotiation strategies designed to maximise cost efficiency such as promoting cost competition, or imposing short deadlines, as these can compromise a supplier’s ability to meet social and environmental terms. Consider gain share models2 to create incentives to bring up innovative ideas during the contract. For example, if a supplier innovation creates savings through energy efficiency, negotiate how much of the benefit would be shared. Risk-sharing related to foreign exchange or commodity price fluctuations is also important, especially for smaller suppliers without hedging capacity.
EXAMPLE: Etsy elevates ambitions during negotiations
Etsy employed a focused negotiation strategy for its cloud services procurement. They required providers to source at least 35% renewable energy for their data centers and assessed their sustainability policies and performance. Google Cloud Platform was selected, surpassing Etsy's minimum by committing to 100% renewable energy and providing comprehensive reports on their sustainability efforts.3
EXAMPLE: Marks and Spencer (UK) ringfences labour costs to exclude them from price negotiations
Marks and Spencer (United Kingdom) developed a “Cost Price Model tool” to separate or “ringfence” labour costs from price negotiations to allow suppliers to pay living wages.4
EXAMPLE: Undercompensated suppliers unable to meet compliance requirements
In the fashion industry, more than 20% of suppliers indicate that less than 80% of the orders received from retailers or brands were priced to cover the cost of social, environmental, quality, and other compliance requirements.5