Sustainability and outsourcing

Outsourcing Advisory

Sustainability concerns have become top of mind for most business. The pressure to be sustainability conscious is, as a result, flowing onto purchased goods and services and to outsourcing service providers.

Service providers, for their part, are stepping up their sustainability efforts and proactively disclosing their outcomes to gain a competitive advantage.

To better understand sustainability in the context of outsourcing, KPMG LLP embarked on a series of conversations with service providers and clients. The insights gained from these conversations lay the foundational groundwork for making sustainability a critical selection criterion when organizations review, renew, renegotiate, or replace their outsourcing relationships.

The service provider lens:	The client's lens:
Almost all of the service providers we surveyed have committed sustainability goals as part of their corporate mantra and have invested significantly in capabilities, talent, and governance to achieve these goals. However, accomplishments on sustainability haven’t yet resulted in improved quality of services. But this delay may be because tracking sustainability-influenced service quality is still in its infancy. On the environmental front, service providers have focused on reducing greenhouse gas emissions, reducing energy consumption, and enhancing water and waste management. On the social diversity front, significant effort is being applied to reskilling workers and investments in under-privileged communities in the areas of education, skills training, and hiring to build an equitable talent portfolio. To improve transparency and accountability, service providers are implementing technologies to further showcase sustainability alignment with those of their clients, but contracts (terms or service levels) remain silent on any major sustainability commitments.	Almost all organizations see outsourcing service providers as falling into Scope 3 of the Greenhouse Gas Protocol (that is emissions that are the result of activities from assets not owned or controlled by the reporting organization but that the organization indirectly impacts in its value chain). Nevertheless, they also believe services providers have the potential to be influenced with respect to their sustainability activities. Company heads of sustainability haven’t found a regular seat with their organization’s selection committee, but they expect to be increasingly influential in the selection process as sustainability goals get embedded into the company culture. Most organizations we surveyed indicated that they would pay more for a service provider that better aligned with their own sustainability goals and further showcased their own commitment to sustainability. On the topic of termination, all organizations agreed that a service provider’s failure to achieve sustainability goals was insufficient grounds to sever the relationship.

The service provider lens:

The client's lens:

Almost all of the service providers we surveyed have committed sustainability goals as part of their corporate mantra and have invested significantly in capabilities, talent, and governance to achieve these goals.
However, accomplishments on sustainability haven’t yet resulted in improved quality of services. But this delay may be because tracking sustainability-influenced service quality is still in its infancy.
On the environmental front, service providers have focused on reducing greenhouse gas emissions, reducing energy consumption, and enhancing water and waste management.
On the social diversity front, significant effort is being applied to reskilling workers and investments in under-privileged communities in the areas of education, skills training, and hiring to build an equitable talent portfolio.
To improve transparency and accountability, service providers are implementing technologies to further showcase sustainability alignment with those of their clients, but contracts (terms or service levels) remain silent on any major sustainability commitments.

Almost all organizations see outsourcing service providers as falling into Scope 3 of the Greenhouse Gas Protocol (that is emissions that are the result of activities from assets not owned or controlled by the reporting organization but that the organization indirectly impacts in its value chain). Nevertheless, they also believe services providers have the potential to be influenced with respect to their sustainability activities.
Company heads of sustainability haven’t found a regular seat with their organization’s selection committee, but they expect to be increasingly influential in the selection process as sustainability goals get embedded into the company culture.
Most organizations we surveyed indicated that they would pay more for a service provider that better aligned with their own sustainability goals and further showcased their own commitment to sustainability.
On the topic of termination, all organizations agreed that a service provider’s failure to achieve sustainability goals was insufficient grounds to sever the relationship.

Final thoughts

Organizations looking to outsource or review their current outsourcing relationships should consider alignment of sustainability goals across their portfolio of service providers to further extend the sphere of influenceable change. In addition, organizations should demand service providers to continue to provide transparency of sustainability achievements as it relates to the services scope. Service providers on the other hand should realize that sustainability is a competitive differentiator, and significant investments should be made to further align to client goals.

Megh Desai

Managing Director, Advisory, Procurement & Outsourcing, KPMG US

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Ravi Krishnappa

Manager, Advisory, Outsourcing, KPMG US

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Megh Desai

Managing Director, Advisory, Procurement & Outsourcing, KPMG US

Read bio

Ravi Krishnappa

Manager, Advisory, Outsourcing, KPMG US

Read bio

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