The Sustainable Market Actors for Responsible Trade (SMART) project, led by Prof Beate Sjåfjell (University of Oslo) and with the participation of many dear friends and colleagues from the University of Bristol and beyond, has published a first report presenting its reform proposals aimed to support the transition to sustainability and is encouraging feedback.
Following that invitation to engage with their proposals, in this post, I reflect on the SMART projects’ transition to sustainability reform proposals (the ‘SMART proposals’), in particular those concerned with public procurement. Everyone is invited to contribute further thoughts and to engage in the debate with the SMART project, which you can do through this online form or by e-mail to smart-admin@jus.uio.no. Engagement at this stage can influence the more detailed proposals that SMART will publish in the first quarter of 2020, on which they announce a further round of public consultation.
General framework
It should be stressed that the SMART proposals, as the project more generally, 'employ the broadly recognised definition of sustainability as securing the social foundation for humanity now and in the future within planetary boundaries – encapsulated in the goal of a safe and just space for humanity' (at 6). This is broader than alternative approaches to sustainability that conceptualise it as the ability of satisfying current needs without jeopardising the ability of future generations to satisfy their own, and the concept is explored in detail in another SMART document (see here).
The SMART proposals have the ‘aim to make it possible and easy for business and finance to create value in a sustainable manner, and for products to be produced and consumed in a way that contributes to securing a safe and just space for humanity within planetary boundaries. As such, [their] reform proposals concern the EU as a global actor, and the EU as a legislator and policymaker’ (at 5, emphases in the original). Moreover, it is stressed that the SMART ‘reform proposals are interconnected. The proposals concerning business are prerequisites for the proposals concerning finance and products, forming the basis also for more sustainable investments and lending, and more sustainable private and public consumption. In turn, the proposals concerning finance and products may act as enforcers and drivers for the timely and successful implementation of the changes we suggest in the way business operates’ (at 8).
The set of recommendations is thus mainly oriented at changing, but not substituting or significantly re-regulating, existing markets through a shift in incentives for economic and socio-political actors. The proposals are indeed conceived as a set of interlinked alternative incentives to what is seen as the main cause of unsustainable business practices: shareholder primacy, and the fact that ‘this norm results in pressure on decision-makers in those companies to maximise returns for investors, especially shareholders’ (at 7).
This evidences the strong influence of corporate governance scholarship and approaches on the project as a whole, with the relative exception of the international trade-related aspects, which follow a different logic of inter-governmental and multilateral negotiations. It also clearly signals that the SMART proposals cannot be seen as radical or disruptive, but rather incremental and sometimes rather modestly incremental. While this has a clear rationale in trying to facilitate adoption by policy-makers, and in particular the European Commission, the general approach could also limit the potential upside of the much needed transition to sustainability by not including more radical proposals—eg such as enacting new legislation prohibiting specific types of products or activities, or introducing heavy environmental corporate and consumer taxes, as well as sanctions for specific unsustanaible behaviour—which perhaps fall outwith the remit of the project, with the exception of the chapter on finance, which discusses ‘brown’ penalising charges against specific non-sustainable investments (at 17).
Somehow, despite framing the proposals in terms of incentives, it seems like most of the proposals concentrate on non-economic incentives, with the relative exception of trying to boost market demand for sustainable products, in particular in the context of procurement (see below). To my mind, this is a significant limitation of the ensemble of proposals, as they still largely hinge on soft incentives and do not seem to put the necessary focus on much more intense public intervention in a manner that can create effective short-term changes in consumption and production patterns. For a project that is normatively premised on market failure—in particular, in the context of the market for corporate control—such an approach is perhaps surprising. Given the repeated indications that some of the existing problems derive from limited or non-enforcement of current rules, there is surprisingly little in the SMART proposals by way of institutional development and capacity building for national enforcement agencies.
The other main shortcoming of the project is perhaps the absence of proposals in terms of public education. Most of the proposals are addressed to regulating the behaviour of corporate entities. However, and this does not make things any easier, the behaviour of those entities (particularly large ones) will only really change if their stakeholders, either in their role as (sustainable) consumers or civil society, have a strong transition to sustainability drive. More thought seems necessary around how to inform, educate and mobilise stakeholders. The SMART project seems to presume that such knowledge and activism not only exist, but are the majoritarian position. Daily events show that, quite the contrary, this is not the case and that there continue to be many a disconnect between expressed opinions and actual (private) unsustainable behaviour. This is a major challenge. Until we are not sustainability-minded consumers and citizens, we will not be able to act as sustainability-minded stakeholders able to maximise the effect of the type of soft incentives on which the proposals rely.
Public procurement related SMART proposals
The proposals concerning public procurement are mainly focused on the ‘products’ element of their triad of priorities. They are premised on the starting point that ‘products sold in the EU must be produced in manner that supports sustainable circular production and consumption. Products are the objects of the linear business models based on overconsumption, and sold to private consumers and public procurers. [Their] proposals aim firstly to broaden and strengthen the EU’s Circular Economy initiative, secondly to make it easier to be a sustainability- oriented consumer, and thirdly to reinforce sustainable public procurement’ (at 5). Therefore, there seems to be a dual lever for the transition to sustainability in procurement. First, a more general promotion of circular economy. Second, a more specific boost of sustainable procurement (on which the SMART project is working more generally).
Accelerated transition to circular economy
This first subset of proposals has the ‘aim to increase efficiencies in production systems, extends the lifetime of products, and promote sustainable consumption. To this end, regulation should enable access to repair, promote the right to repair, and ensure the internalization of the social and environmental risks prevalent in global value chains’ (at 19). The specific instruments that would be deployed to this effect are listed, although in not much detail. One that bears some attention is the proposal to extend ‘eco-design and labelling requirements to include durability, reparability, reusability and recoverability, and also to cover more product types (e.g. textiles)’ (ibid).
Along the same lines already discussed above, this proposal seems to also go down the voluntary/soft incentive road. Labelling and eco-design will only generate a significant impact if there is a significant shift in demand. And although the proposals seek to bolster that demand, both from private consumers (at 20) and public buyers (see below), the question is left unaddressed as to why would those requirements not be made mandatory? Having the opportunity of formulating ambitious proposals to significantly shift the policy-making approach would surely support a bolder take and a recommendation to ban products that do not meet specific requirements of durability, reparability, reusability and recoverability. I would have very much preferred for the SMART proposals to take that more ambitious stance.
Sustainable public procurement
The thrust of the procurement aspects of the SMART proposals has a strong environmental component, in particular in relation to (non)circular consumption, and thus closely corresponds to the formulation of the UN Sustainable Development Goal (SDG) more closely related to public procurement, which establishes as part of the goal to ensure sustainable consumption and production patterns (SDG 12), the aim to ‘promote public procurement practices that are sustainable, in accordance with national policies and priorities’ (SDG 12.7).
The SMART proposals related to public procurement concern three main areas: (1) professionalisation and facilitation of knowledge exchange; (2) supply chain monitoring; and (3) making the legislative environment more 'SPP friendly'. Both (2) and (3) would, in the SMART project’s view, ‘require amendments to Directives 2014/23/EU, 2014/24/EU and 2014/25/EU. Ad hoc regulations need to be adopted to enact further sectoral mandatory legislation’ (at 22). It is worth looking at each of the three proposals in turn.
(1) Professionalisation and facilitation of knowledge exchange
The SMART proposal is for ‘the EU [to] invest significantly in the capacity of contracting officials, procurement strategists and financial auditors by (a) encouraging the institution of Sustainable Public Procurement (SPP) knowledge centres at EU, national and regional levels following the model already provided by virtuous Central Purchasing Bodies; (b) creating a network of knowledge centres working closely together in developing and disseminating best practices on SPP, including through training materials, and in collecting information and data on the uptake of SPP and the difficulties encountered in applying the relevant EU rules, and (c) providing financial and technical assistance targeted to specific SPP formation for ground-level contracting officials' (at 21).
The thrust of this recommendation can but be shared. There is a clear need for environmental sustainability in particular to become a core focus of public sector consumption, and that requires an investment in skills and the development of a more effective knowledge-management system. However, whether this is something that the European Commission is primarily in a good place to do remains dubious. The clear fiasco (whether temporary or permanent) of the Commission’s initiative on large infrastructure procurement evidences that such a centralised but devolved approach to the collection and dissemination of best practices can hardly work. The important barrier of language needs to be addressed in a different manner. Moreover, the initiative on procurement professionalisation also makes it clear that the Commission can only develop a relatively marginal facilitative role, but that the main changes need to be developed and implemented at national level. From that perspective, it would perhaps be preferable to address the recommendations to Member States.
There is, for example, a clear need to promote the domestic adoption and use of the already developed European Green Procurement criteria, as well as a need to educate the domestic procurement workforce and review bodies on the very significant flexibility of the current EU rules (see (3) below). Once more, then, the focus should in my view be on more specific and differently targeted education and continuous professional development proposals, rather than on proposals addressed to the Commission, which may not have the budget or be in the best position to implement them.
(2) Supply chain monitoring
The SMART proposal is that ‘the EU make it mandatory for contracting authorities to map and monitor their supply chains for risks of breaches of environmental and social rules, including those protecting human rights. That the EU takes those breaches seriously, mandating the exclusion from award procedures of those found in violation and the taking of appropriate remedial actions in case of violations during contract performance. That the EU makes it easier for contracting authorities to know about the economic operators having breached environmental and social rules, including those protecting human rights' (at 21-22).
This proposal seems to reflect frustration with the way in which compliance with environmental, social and labour (and human rights) standards is regulated in the current EU rules and, perhaps, in particular in Arts 18(2), 56(1) in fine, 57(4)(a), 69(2)(d) and 69(3), and 71(1) and 71(6) of Directive 2014/24/EU. However, the proposal is, in my view, targeting the wrong governance level.
Reading such rules and taking them into account as a whole—in particular Art 69(3)—makes it plain that the EU rules create an enabling framework for contracting authorities to engage in oversight of their supply chains for risks of breaches of environmental and social rules, including those protecting human rights. Therefore, shortcomings in this area are not a result of regulatory constraints at EU level, but rather of either a lack of political will at domestic level or, more probably, the complexity of such endeavour and the limited resources contracting authorities can dedicate to it. This seems implicit in the final part of the recommendation, which calls for the EU to make ‘it easier for contracting authorities to know about the economic operators having breached environmental and social rules, including those protecting human rights’.
I will be very interested to see how the proposal is further developed at the next stage. I think that this is setting the EU up to fail because the issue of ensuring global compliance within supply chains poses fiendish challenges and, as I have argued elsewhere, both assumes too much capability in the public procurement function and is bound to diminish its effectiveness [see A Sanchez-Graells, ‘Regulatory Substitution Between Labour and Public Procurement Law: The EU’s Shifting Approach to Enforcing Labour Standards in Public Contracts’ (2018) 24(2) European Public Law 229–254].
Related to earlier comments, I think that the extent to which procurement can be used to monitor supply chains will in part hinge on expanded skills and capabilities (as already addressed at (1) above) and, in a much larger part, depend on the development or reinforcement of other mechanisms of public intervention of horizontal application. Just like private consumption, public consumption needs to rely on a broader regulatory framework fostering sustainability and preventing illegal behaviour, rather than be tasked with those goals itself.
(3) Making the legislative environment more 'SPP friendly'
The SMART proposal is that ‘the EU makes the legislative environment more 'SPP friendly'. Contracting authorities must be allowed to require suppliers to have effective sustainability policies in place. A shift is needed from enabling the Member States to pursue SPP to requiring them to buy sustainably by increasing the number of mandatory sectoral legislation and by requiring contracting authorit[ies] to take into account the life-cycle costs associated with their purchases.’
Again, this reflects a double frustration with the regulation of sustainability-enabling mechanisms in the current EU rules and, in my view, in particular with the requirement of the ‘link to the subject matter’ in Arts 42(1) and 67(3), and in relation to the limited uptake of the possibility to rely on life-cycle costing under Art 68 of Directive 2014/24/EU; as well as in the voluntary nature of most sustainability-oriented rules, eg on technical specifications (Art 42), eco-labels (Art 43), or environmental management standards (Art 62).
Once again, this seems to me unfocused. First, because it reflects an obsession with getting rid of the link to the subject matter of the contract that risks throwing the baby out with the bath water. It seems to me indisputable that the 2014 EU public procurement rules have significantly expanded the discretionary scope for the inclusion of sustainability-oriented requirements, in particular concerning environmental sustainability through green procurement. This may not unlock maximum or unlimited room for sustainability considerations (which is debatable), but this does not constitute a main regulatory barrier to a large uptake of more sustainable procurement practices. It could be argued that it is perceived as a major barrier but, in that case, what is necessary is an effort in debunking that myth and in fostering a better understanding of the current rules, which once again goes back to (1) above.
Second, and by the same token, making those provisions mandatory at EU level would not necessarily generate practical changes. Where current structures have not moved despite increased flexibility and discretion, imposing the behaviour as mandatory without addressing the root causes of the immobility would simply result in extended non-compliance or, worse, window-dressing. Thus, in order to generate a practical effect, focusing on enabling further exercises of discretion seems to me preferable to imposing compliance.
Relatedly, advocating for more sectoral legislation imposing sustainability requirements for public purchases only (which is what I understand by the reference to ‘increasing the number of mandatory sectoral legislation’) is undesirable. First, because it generates a ‘feel good’ factor for the public sector without addressing the broader social distortions of allowing for private consumption of the unsustainable goods or services. However large procurement expenditure, sectoral legislation will only cover the smaller part of the economy. If procurement represented 20% of GDP, imposing sectoral product or service-related sustainability requirements would still leave 80% of the economy free from such constraint. Second, and also very important, the creation of such sectoral requirements will fracture (or perpetuate the fracture) between ‘public and private’ markets for equivalent goods and services. This would only result in a reduction of competition for public contracts, a shrinking of the supplier base and worse conditions (in terms of value for money) for the public buyer. Therefore, where sustainability considerations need to reduce or exclude the availability of specific types of goods or services, this needs to be addressed at an economy-wide level, as suggested above re acceleration of the transition to the circular economy.
All in all, any limitations in the uptake of more sustainable procurement seem to me mainly related to issues of procurement workforce skills, public sector dimensioning and knowledge-management. There is significant space for a much larger uptake of sustainable considerations in procurement if recommendations along the lines of (1) above are seriously implemented. In my view, this should be the focus of action in the short to medium term. Advocating for legislative change in a context where there are significant difficulties in consolidating the changes of the 2014 revision and where digitalisation is already driving regulatory and practice changes over the next three years seems to me self-defeating. As does advocating for ‘procurement-only’ interventions.
(4) Excursus: the need to include digital technologies in the scope of the recommendations
One of the aspects I have found missing in the chapter on procurement in the SMART recommendations concerns digital technologies and their potential contribution to more sustainable procurement. As things stand, improving the generation and collection of procurement data, including of the outcomes of earlier procurement exercises, in order to create an evidence base that can then enable the deployment of machine learning and other artificial intelligence techniques to promote more sustainable procurement should be a priority. These are issues I discuss in detail in a recent working paper: A Sanchez-Graells, ‘Digital Technologies, Public Procurement and Sustainability: Some Exploratory Thoughts’ (November 7, 2019). I would be happy to engage with the SMART team if the inclusion of this dimension in their final report was of interest.