Sustainable Procurement with Founder & CEO of Kloopify

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In this episode, Daniela Osio, CEO and Founder of Kloopify, speaks with Lauren Puffer, Cowen’s Director of Sustainability Banking, about enabling organizations with CSR initiatives to achieve their ESG goals.

They discuss the global supply chain’s current inflection point and how CPOs and other C-suite leaders can take the opportunity to get ahead on their organization’s ESG goals.

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Transcript

Speaker 1:

Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Lauren Puffer:

Hello everyone. I’m Lauren Puffer. My pronouns are she, her and hers, and I’m the director of sustainability banking at Cowen. Today I’m joined by Daniela Osio, CEO and founder of Kloopify, a tech platform designed to track, report and reduce emissions in value chains. Daniela, thanks so much for joining me today. Can we start off with you telling us a little bit about yourself and Kloopify?

Daniela Osio:

Absolutely. Thank you, Lauren, for having me. It’s an honor and I’m really excited about this conversation. So, my name is Daniela Osio, and I am the co-founder of Kloopify. Kloopify’s mission is simple. We’re here to integrate sustainability into every procurement process. And so, we are a software solution that enables procurement professionals to have the data, analytics and visibility into the environmental impact of all of their purchases, so that they can integrate it into their procurement processes and procedures, and more importantly, operationalize sustainability inside of procurement. So, a little bit about myself. I come from the world of manufacturing, chemicals, et cetera. I spent almost a decade at Fortune 100 companies leading procurement categories through mergers and acquisitions, divestitures. You name it, I saw it within procurement. And after my role in procurement, I actually spent some time in risk management, where I implemented a risk management organization for the electronics and imaging business, where I saw how important it is for organizations to not only understand what’s happening in their supply chain, but be able to take action to drive and continue to deliver goods to their customers.

One of the big things that I saw with my role in procurement and in risk management is that sustainability is going to disrupt the way that we do business. When you think about how procurement, the role that procurement has historically played inside of these organizations, they’ve really been looked as a cost-cutting function. But the pandemic really changed and pivoted the way that we think about procurement. There was a huge emphasis both from regulatory, customer and investor pressure to deliver on these sustainability goals, and it quickly became clear the role that procurement played, and how important it is for procurement professionals in particular to not only have the data, but to have the tools in order to enable organizations to meet their sustainability goals, but more importantly, to continue to operate in the shifting landscape.

Lauren Puffer:

That’s great, thanks for that. And so, just to set the stage, Daniela and I, we first met on a rare, very rare sunny day in Pittsburgh, and had an amazing nerd-out session around all things supply chain, value chain, procurement. But just to set the stage for the audience here, can you give us just a general baseline view of how procurement decisions are usually made, what considerations are taken into account for those decisions and what that ecosystem usually looks like from a procurement decision-making process?

Daniela Osio:

Absolutely. And just to say, those sessions with Lauren where I get to geek out over sustainability and supply chain are by far my favorite ways to spend time. The role that procurement plays in how they’ve historically evaluated suppliers is using two factors, cost and quality. And we have used cost and quality to negotiate with suppliers, and really, those are the only two that we’ve considered when we are looking at procurement in the past. But procurement has kind of gone through a lot of iterations, let’s call it.

So, before cost and quality, then we moved into supplier relationship management, and that’s a new thing that we introduced into procurement where we realized that our partners are our greatest assets, and so we need to be able to manage those relationships. And so, still only using cost and quality, but we were now incorporating the need to have better communication with our suppliers, to set KPIs with our suppliers, and then to start creating a strategy on identifying and fostering more strategic relationships. And so, not every supplier is transactional in the way that we had historically looked at, but more and more we realized that we need to empower and enable our suppliers to work with us and to get us to where we really want to go, and help us achieve our business objectives.

Lauren Puffer:

So, that’s a great point that you make around business objectives and these enhanced relationships with suppliers. But just on that, do you see environmental or emissions factors being taken into account in conjunction with cost and quality at the current moment, in general?

Daniela Osio:

Today, and the way that procurement is today, I would say no. But big part of it is not because they don’t want to, but because organizations still don’t have the tool sets and the data and the understanding internally to be able to balance cost, quality and sustainability. So, the reason why we’re talking about sustainability inside of procurement is because up to 80% of a company’s footprint can come from their procurement organization.

So Lauren, a good way that I like to think about it is that, the same way that you and I, there’s a saying, you are what you eat, it’s you are what you buy. And so, you and I get access to nutritional value sheets to really understand what’s the food doing to our body. But as procurement professionals, we don’t have access to that type of data to understand, well, what’s buying from one supplier versus another doing to my ability to meet my sustainability goals? So, I want to say we’re moving in the right direction. Organizations are realizing that they need to get that data, that they need to be able to balance sustainability with cost and quality, and they need to be able to understand, what are the trade-offs that they’re making when they’re picking suppliers and when they’re evaluating different commodities and purchase goods and services?

Lauren Puffer:

That’s great. And part of those needs, I’m assuming, are being driven by some of the commitments that large corporations and even smaller corporations are making around ESG goals. So, as you’ve mentioned and we’ve talked about before, the vast majority of, for example, S&P 500 companies, have set some semblance of ESG goals, most of which include emissions reductions commitments, net zero commitments, et cetera. But, as you mention on your website, as little as 2% of those companies are on the path to achieving emissions goals. So, how do you see the movement or progression of these enterprise level commitments either directly or indirectly making their way into procurement decisions?

Daniela Osio:

That’s a great point, and I want to say, there’s just been an increase in regulatory pressure during the pandemic to deliver on these sustainability goals. Many times, like you see in Europe, the disclosure of scope one and two emissions is required, right? But here in the US what we’re hearing, actually on the new, recent President Biden announcement around SEC disclosures is that we are actually focusing on scope three. And scope three is where you find the majority of your emissions. So, a good example of this. For example, at Unilever and at Coca-Cola, scope three was 10 times the size of scope one and two.

So, for those that are listening that don’t know what scope one, two and three is, scope one is the emissions related to your four walls, right? To your brick and mortar. Scope two is the emissions related to the energy that you use in order to operate your organization. And scope three is the emissions related with all upstream and downstream value chain. And so, when you actually start digging into scope three, you realize that the biggest factor that’s driving your scope three emissions is your procurement. So, your purchase goods and services. And so, when you understand that the majority of your emissions are happening outside of your four walls, or you’re responsible for the emissions that are happening outside your four walls, you start to realize very clearly that it’s important for you to understand what you’re feeding into your value chain.

And the new SEC announcements by President Biden actually said that, I want to say it’s if you deliver over $50 million of goods or service, or if you have a contract value of over 50 million, you have to disclose your environmental footprint, which means that, as a country, we’re saying that we are doubling down on understanding what’s happening for suppliers in your value chain, and it’s going to drive the most amount of emissions reduction. Lauren, one of the things that you asked me was, how are enterprise level commitments directly tied to procurement decisions? Well, if you understand where the majority of your footprint is coming from, which is your scope three and your procurement footprint, it becomes imperative for organizations to understand their environmental footprint that their suppliers are driving for them. Because if any of these companies want to meet their impact reduction goals, they have to start where the majority of their emissions are being created, which is inside of their procurement organization.

Lauren Puffer:

So, just touching on that point around understanding the emissions and scope three from a company perspective, from an enterprise level perspective. Some pushback that we’ve seen, and this has come in some of the commentary from the SEC proposed disclosure regulation, but we’ve seen some pushback around scope three due to lack of quality in the data. Where do you think we currently stand with data quality? What gaps need to be filled, and how do you see that progressing or evolving over time? We don’t have a finalized proposal yet or a finalized rule yet, but where do you see this going? I

Daniela Osio:

I have a maybe some would call controversial view on data. And I think that data quality and data in general should be a journey. So, I would encourage organizations, just because you don’t have perfect data doesn’t mean that you shouldn’t get started. Directionally correct data is way better than having no data. And data quality is going to be a journey. So, as we continue to understand, what are the metrics that we need to be capturing, what’s the real finite understanding, what’s the life cycle assessment data maybe that we need to be capturing from our commodities? We can start by setting directionally correct data baselines, and then start identifying and working towards improving our data quality and improving the way that we capture data, that we are sharing data, so that we can improve our decision-making and improve the quality of the data that we have along the way.

But, I understand, gathering data from your suppliers and understanding your scope three is a herculean task. And so, if you can even just start by establishing a directly directionally correct baseline, you are leapfrogging and improving your decision-making by 10x, by 100x. And as you identify where you should dig down and double down on getting better data quality, you will then be able to make smarter and better decisions, and your data will naturally improve. So, don’t think of, “Oh, I need to start with having perfect data.” No. Think that you need to start by having directionally correct data, and then you will go on the journey to then get more specific and accurate data. And so, I would caution people to not think about this as a final stop, but more as a journey that organizations are going to start going into.

Lauren Puffer:

Yeah, I love the phrase that I hear a lot in the world of sustainability, especially around information and data, but don’t let perfection be the enemy of the good. Starting somewhere is better than not starting at all due to fear of not having it perfect. A lot of the feedback that we get both from companies and from the investment and stakeholder community is that starting with something is better than not giving anything. And so, I think that that’s a great point that you hit on. And also, going to the stakeholder model and also from a shareholder perspective, we’ve seen a lot of demand around just supply chain transparency in general. So, whether it’s a consumer wanting to understand where cotton is sourced from, or what every ingredient is in the products that they’re buying, but just supply chain transparency has become much more relevant these days than it had been even five, 10 years ago. So, what do you think is driving that demand for more transparency, and how does that relate to and translate into positive environmental impacts that you see within procurement decision-making?

Daniela Osio:

Yeah, Lauren, that’s a great question. Supply chain transparency is being driven, from the way that I see it, is mostly by consumers. We want to understand, because we know that where we spend our money is a vote in the things that we support. And so, we want to know and make sure that we are supporting organizations that are aligned with our value system. And not only is that important from a consumer perspective, but transparency is also becoming clear because when you don’t know and when you can’t understand your supply chain, you are exposing your organization to an incredible amount of risk, whether that’s supply chain risk, delivery risk, risk to your brand. Because if you are buying from a supplier that is using slave labor, for example, and you don’t understand your own supply chain, you’re still responsible for the things that you purchase.

And so, you are realizing that not having that transparency is actually just a huge risk to your operations, to your ability to meet demand. And now, as we mentioned earlier, the regulatory pressures are increasing around environmental sustainability. We’re realizing that if your supply chain is not sustainable, and is causing environmental degradation, then you are at a huge risk to your brand. Your competitors will increase and get increased market share, and you will fail to compete in the way that the business world is transitioning. And so, having transparency is almost like, it’s no longer a nice-to-have, but a required-to-play. And having that transparency allows you to continue to deliver on goods and services to your customers, and in a way that’s aligned with how all of us are saying, “This is how we do business, and this is how it’s required for us to do business here in the future.” And without it, you run the risk of becoming obsolete.

Lauren Puffer:

Yeah. Can we just dig in on this risk management point a little bit? Because it’s really fascinating, and in our prep for this, we talked a lot about it just in terms of, many people who are outside of the world of sustainability look at ESG factors as an either/or, or as something separate from business strategies or value drivers. And so, in our prep for this, we were talking a lot about risk management and how, looking at these environmental factors and emissions is akin or a proxy to waste, and improving operational efficiencies. And I thought it was just such a great point that you made, and I was wondering if you could just dig into that a little bit in terms of looking at including these emissions decisions and emissions factors into the procurement decision-making process as a way to actually increase value for a company on the bottom line?

Daniela Osio:

Yeah, that’s a great point, Lauren. I would say that, as we’re moving into the new way of doing business, we’re recognizing that carbon is actually a proxy for waste. And so, by measuring your carbon, you’re also finding opportunities to improve your efficiency. And we’re starting to scrutinize what we buy for the associated carbon emissions. And so, when we understand where those carbon’s emissions are, we’re also being able to understand where we have waste in our supply chains. Because the time for polluting for free is over. There are negative externalities for wasteful practices that must and will end. So, a recent article at Nature found that the social cost, so, damage to the economy, human wellbeing and infrastructure, is about $185 per ton of CO2.

When we start to understand and we understand the magnitude of what these organizations, the amount of carbon that they’re producing, and if you multiply that by the cost of carbon that they’re emitting, you’re actually realizing that climate risk is a financial risk. So, when we’re talking about climate risk, it includes both the risk of unmitigated climate risk and the risk to the businesses’ bottom line that’s posed by these new climate policies. And so, diversifying risk is impossible when it almost affects the entire planet. And so, there’s an insurer, Aon, that tallied that over $343 billion in weather and climate risk-related economic losses happened in 2021 alone. And so, that means that this climate risk and not doing anything around our emissions for climate is not only affecting the planet, but it’s affecting our bottom line. And when we can see how it affects our bottom line, that will force organizations to take action.

Lauren Puffer:

So hopefully going forward, procurement decisions will be based on cost, quality and emissions in order to be value drivers and waste reducers, to increase operational efficiencies for companies going forward, which sounds like a win-win in our books, I think.

Daniela Osio:

Absolutely. And I would say that this net zero journey is ultimately about creating value. It’s not just about mitigating risk, but it’s about creating value. And so, when organizations pivot their strategy to embrace that it’s about creating value, those first movers, the first people that are going to integrate sustainability into their procurement processes, they’re going to have the upper hand. They’re going to be able to outperform and be able to scale these low-cost, green financing to be able to build out carbon-free or carbon-neutral production for these goods and services. So, for example, these scarce goods like green steel or recycled plastics, the ones that move to create a system where they can increase their production capacity for those goods and services will be able to meet the demand of consumers that is coming, where others will not be able to.

Lauren Puffer:

So, we spent this whole time really talking about risk management within supply chains, emissions, and I always love geeking out with you about all of these things. But can you talk a little bit, just to wrap up, around the technology that you’re developing at Kloopify, and how that helps with these decision-making processes, whether that’s bringing that emissions into the cost quality procurement decision-making processes, and how you think it’ll help drive forward in terms of reducing emissions for companies?

Daniela Osio:

Yeah, that’s a great question, Lauren. I would say the one thing about Kloopify that differentiates ourselves is that we don’t believe in visibility for the sake of visibility. We believe in visibility and data for the sake of operationalizing sustainability inside of procurement. So, what do I mean by that, right? So, having clear and concise data, or having the most perfect data of your suppliers, does nothing if you do not understand how to balance sustainability with other business objectives. Because while we all understand that sustainability is required and is becoming pivotal to the success of organizations, it is not the only thing that is driving value and is not the only business consideration when you’re talking to organizations. So, the key to Kloopify is that we operationalize sustainability inside of procurement.

So, we’re not saying, “Here’s the sustainability performance, and you’re always going to pick the most sustainable option.” What we’re telling you is we want to give you the data and present it in a way that allows you to understand, what are the trade-offs that we’re making here between these different commodities and suppliers? And when I look at the total cost of picking one supplier over the other, I’m not just considering cost as in contract costs. I’m thinking about operational costs. I’m thinking about business costs. I’m thinking about, what is the cost of picking a supplier that is maybe marginally more expensive than their competitor, but has significantly better sustainability ratings?

And when you understand the role that each supplier has inside of an organization, so, who are your most emitting suppliers, you understand where you can have these trade-offs in cost versus sustainability, because you understand the role that these suppliers play inside of your organization. Long story short, we aren’t a reporting tool. We are not a solution that only gives you visibility. We’re a solution that’s designed for procurement professionals so that they can manage these conflicting business requirements that they have to understand that they’re being faced to make decisions on. So, no longer will you be able to just consider cost and quality, but you’ll actually be able to consider cost, quality and sustainability, understand the trade-offs between each one of the decisions that you make, and be able to measure and report as you progress towards your sustainability journey.

Lauren Puffer:

And it seems that it would be really helpful from an enterprise level, because it helps to align all of those little decisions, and I don’t mean that they’re little or small or insignificant, but multiple decisions that are made deep down in an organization with the enterprise level ESG commitments or emissions commitments that the companies are making.

Daniela Osio:

Absolutely. Absolutely. Because they all need to live in harmony, right? One of them is not necessarily, let’s say, more important than the other, because you can’t be a sustainable company if you run out of money and you no longer can operate, right? So, that kind of loses the point. So, you want to make sure that you’re understanding the trade-offs that you’re making and be able to make the right choice where it matters, because not every supplier has the same level of environmental impact. You don’t buy the same amount across the board for every supplier. So, certain suppliers and certain commodities are driving your impact, much larger relative to the rest. And so, when you can understand the breakdown, the trade-offs that you make, you’ll actually be able to operationalize sustainability inside of procurement, meet your impact reduction goals, increase your revenue, and make sure that your organization can live to provide value for another day.

Lauren Puffer:

That’s awesome. Thank you so much, Daniela. I love having these conversations with you, whether it’s a sunny day in Pittsburgh or cloudy and rainy like it is today. Really appreciate your time. Thanks to everyone who has listened in. Again, this is Cowen’s All Things Sustainability. My name is Lauren Puffer, and look forward to our next conversation.

Speaker 1:

Thanks for joining us. Stay tuned for the next episode of Cowen Insights.


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