One way CPOs can deliver significant strategic impact to their organisation is by rolling out internal carbon pricing (ICP), a mechanism that can help drive decarbonisation across the supply chain.
In the context of procurement, ICP assigns a specific cost to the emissions associated with purchased goods and services, with buying companies factoring this “carbon cost” into supplier selection, contract decisions and total cost of ownership calculations.
It can help shift purchasing decisions towards lower-emission suppliers, support decarbonisation efforts and prepare the business for future carbon-related regulations or fees.
So, why is this of relevance now? Well, from 1 January, the European Union’s Carbon Border Adjustment Mechanism (CBAM) comes into effect, introducing additional duties on carbon intensive imports. Similar legislation in the UK will take effect in 2027.
For CPOs, carbon pricing has evolved from a theoretical regulatory concept into a potent instrument for strategic sourcing. Leading organisations are proactively using “shadow” carbon pricing to fundamentally reshape supplier selection and internal investment.
This approach integrates a monetary value for carbon directly into total cost of ownership models. Implementing it, however, requires an additional level of “carbon fluency” within procurement teams.
Back in the summer, I wrote a piece on how Haleon CPO Richard Crane has been pushing the ICP needle, successfully building the cost of carbon into tenders and supplier selection. A similar session in the Sustainability Leaders community last week focused on how truck and van manufacturer Iveco is doing the same.
So, as CBAM rolls out, CPOs – regardless of sector and exposure to the implications of the regulation – should revisit the impact that carbon pricing can have on their sourcing strategies. First, by redefining what best value looks like with “shadow pricing”.
Procurement teams should work with the supply base to capture the emissions data needed to make informed sourcing decisions. This means carbon-data transparency, penalties for those suppliers that don’t provide the data and – crucially – training and support for those that need it.
That support demands deeper relationships and a focus on collaborative – rather than transactional – supplier relationships, which sounds great but is notoriously difficult to get right at scale.
This demands CPOs to step up and bridge the gap between procurement, finance and sustainability. By treating carbon as a financial liability, procurement and finance can alter the economic competitiveness of high-carbon goods versus low-carbon alternatives.
And with that, real, they can deliver lasting impact.
Image: Fabrizio Maffei / Shutterstock.com
