When organisations start measuring performance beyond the balance sheet, we can make real progress on our most pressing social issues. The UK Government's new procurement policy could provide a model for other countries to move closer to a more sustainable and equitable world.
Sustainable investments had a bumper year in 2020. In Europe, flows into ESG funds nearly doubled — from €126 billion in 2019 to €233 billion in 2020. These funds include companies with a strong commitment to ethical environmental, social and governance (ESG) practices. People invest in these firms because they want to put their money into companies that adhere to their own values.
Research shows that organisations with good ratings on ESG issues often outperform those with poor ratings, and most consumers want brands to help them be more environmentally friendly and ethical in their daily life.
This diversion of investment into companies that are committed to sustainable practices is a game-changer — and it’s not just a private-sector phenomenon. In January 2021, the UK government bolstered the way it measures and incorporates social value into its procurement process in the form of the Procurement Policy Note (PPN) 06/20.
The PPN’s impact should not be underestimated: The new model ensures that social value plays a part in how almost every taxpayer pound is spent — last year, the UK Government spent £280bn on contracts for public services; so, the potential is huge.
How is social value evaluated within procurement?
While social value has been a factor in the UK’s public sector decisions since 2015, the PPN ensures that it is ‘explicitly evaluated.’ Under the new model, at least 10 percent of every procurement decision is based on the scoring of a social-value proposal attached to a procurement bid — often enough to separate winning and losing bids.
This social value can take different forms depending on the project, so the Government created a Green Book policy document which offers guidance: Social-value proposals are activities that ‘improve the economic, social and environmental wellbeing of the relevant area’ that are bundled with a procurement bid.
Put simply, making procurement decisions using only market economics ignores ‘externalities’ — the third-party effects that result from the production and consumption of their goods and services. For instance, an IT firm selling software and services could provide good financial value but fly in all its consultants or use data centres with a large carbon footprint. The new rules tip the scales in favour of a supplier that is committed to reducing its carbon footprint, encouraging its polluting peers to up their game.
Classifying social value
The PPN identifies five specific areas that are considered in the Government's procurement process:
COVID-19 recovery. These activities help local communities manage and recover from the impact of COVID-19 through employment opportunities, re-training the unemployed, or improving workplace conditions to accommodate social distancing, remote working and sustainable travel solutions.
Tackling economic inequality. This covers activities that support the creation of new businesses, jobs and new skills, or increase supply chain resilience and capacity. This may involve supporting small business entrepreneurship, creating employment opportunities, or supporting the use of innovative technologies such as AI within the supply chain.
Fighting climate change. Social value can also include activities that show firms leading effective stewardship of the environment. Examples include net-zero emission targets or reducing plastic waste.
Equal opportunity. Activities that reduce the disability employment gap and tackle workforce inequality are also considered. For instance, a firm could implement better monitoring for modern slavery in production lines and supply chains.
Finally, firms can also propose activities that improve health, wellbeing and community integration within the workforce.
Within these five areas, there are several sub-themes and criteria that mean the guidelines cover a massive array of projects and programmes — all of which have an element that benefits society. Companies must identify one of the umbrella areas for their proposal and build out a project that meets the criteria. Critically, the social-value proposal must be relevant and proportionate to the overall tender.
Some examples of recent successful proposals include a software company that made its proprietary software freely available to thousands of organisations and citizens across the UK, to aid with COVID-19 recovery; while another proposal involved reducing the carbon impact of the UK Government’s IT estate by transferring capabilities to data centres that use 100 percent renewable energy.
All proposals are also subject to rigorous reporting metrics that judge the success of the project over time.
Ensuring the success of social value programmes across the country
The new social-value measures have the potential to make a tremendously positive impact on society. Forward-thinking private companies are on board with the new measures and are eager to comply, so success will come down to public-sector decision-makers.
To ensure the success of the programme, they must continue to ensure there is no one-size-fits-all approach. Public sector decision-makers should be open to creative responses — social value can vary from reducing carbon to retraining and educating ex-offenders, depending on the bid. Secondly, contracting authorities must provide ready-to-use model questions, promote consistency, and set out clear standards. Finally, public-sector officials must prevent discrimination against suppliers based on their size or location.
The Government wisely prioritised quality over quantity when outlining requirements, but every department will need to practice its usual rigour in the procurement process to prevent undue favouritism.
The public sector as a driver of positive change
The new social-value measures are a leap forward. Their success will require all stakeholders to contribute — whether in the private sector, the public sector, the not-for-profit sector, or within the communities they serve.
When organisations start measuring performance beyond the balance sheet, we can make real progress on our most pressing social issues. The UK Government's new procurement policy could provide a model to other Governments as a way to move step closer to a more sustainable and equitable world.