It is an interesting time in the journey of corporate ESG

By Stan Aronow , VP Distinguished Analyst

It is an interesting time in the journey of corporate ESG. For several years, there has been a rising chorus in corner offices, boardrooms and the investment community for companies to expand the span of stakeholders served and to lead with purpose. In the last year, a counterforce has emerged — anti-ESG voices proclaiming that “woke” corporations should stick to first principles, namely maximizing shareholder value.

It is important to ask why we are pursuing ESG in the corporate context in the first place. Its origins, in the world of supply chain, are the mitigation of liabilities or risks stemming from detrimental environmental or human impacts. That said, many supply chain leaders and teams now see that there is an opportunity to also do good while doing well. More than any other institution, including national governments, companies and their ecosystems have the means and trust to make significant improvements in the lives of the communities they support.

A fascinating subcomponent of this world is supplier diversity . We are seeing an uptick in corporate spending and increased focus on supporting diverse suppliers, but also an enormous opportunity to reframe the ultimate benefits of these initiatives.

Last year, I met someone aspiring to make a broader societal impact in the domain of supplier diversity.?Jill Miller?was a successful development executive supporting large CPG companies with manufacturing automation, but also saw a lack of diversity and an opportunity to narrow the wealth gap for those employed and supported by her industry. She left the comfort and stability of the corporate world to focus full-time on these broader challenges, collaborating along the way with teams at Harvard University and the Brookings Institute.

Here are my excerpts from a recent interview with Miller to explore new ways of measuring and managing supplier diversity programs and how they can ultimately be vehicles to improve human flourishing.

Driving Change

Aronow:?What led you to your current work?

Miller:?Like many in recent years, I could no longer unsee inequality. So, I looked for where I could drive change. I live by trying to find common ground with everyone I meet. After numerous conversations, it was clear that workers wanted more, and leaders of large corporations genuinely wanted their values expressed in all they did. I also found that massive data challenges clutter finding that common ground, and existing programs like supplier diversity have an opportunity to produce results for more workers at scale. On that premise, I founded a company, Lunum, to make sense of the data and created new tools to help companies make purchasing decisions that better align with their values and strategy.

Aronow:??You have mentioned to me that running into the team at Harvard was a breakthrough in your journey. How do you see their work lining up to what you are doing in supplier diversity?

Miller:?The team there developed an Impact-Weighted Accounts framework that monetizes the impact of employment on communities in a more holistic way. It’s like a P&L statement for impact. The premise of this work is that “the legitimacy of a business depends on its ability to create value for society. Companies that create value for investors, workers, customers, suppliers and the larger ecosystem are evidence of businesses’ power to increase collective wellbeing.”1?Looking at this through the lens of supplier diversity, it moves beyond measuring spend with suppliers classified as “diverse” based on owners’ backgrounds and dives deeper into employee diversity, compensation, mobility, health and wellbeing.

Supplier diversity should be a component of a solid ESG strategy. This work allows supplier diversity to become supplier impact and complements ESG initiatives using a common language and an easily understood framework that is robust and neutral.

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Measuring the Impact of Diversity

Aronow:?Where does the current system for measuring the corporate impact of supplier diversity efforts fall short?

Miller:?When we think about the potential for broad economic impact on workers and underrepresented groups, today’s supplier diversity programs typically do not measure much beyond spend and ownership. When it comes to high-barrier-to-entry industries, diverse ownership is quite limited. For example, women own less than 4% of the U.S. consumable packaging market and less than 1% of that market is Black owned, yet it employs a lot of diverse workers. A more inclusive set of practices focused on measuring the impact on all workers presents an opportunity for transformation and might include measures in line with the figure below. This would improve employee engagement and productivity, wealth creation and the vibrancy of communities. We also hope that customers using these new KPIs will eventually lead to more opportunities for diverse suppliers to thrive and grow.

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Aronow:?What would be a better way to drive toward these goals?

Miller:?Learn to love the long term. Use double materiality to assess how your business activities affect social factors. Impact-Weighted Accounts from Harvard does this in a quantitative way and allows you to see workers as more than expenses. Second, and short of being cliché, what gets measured gets managed. Measure for economic mobility and create interventions that support progress. Gather and organize the right data to drive decisions that better align with your values, while still considering risk-and-return dimensions.

Aronow:?Recognizing that most of the industry is nowhere near using the new measurement system you’ve outlined, any prioritization on what to implement first?

Miller:?Determine what gaps exist in your current approach and understand the overall situation in your supply chain. Next, look to where you can improve in areas like job creation impact, wages below living wage and diversity in the supply chain workforce. Collaborate with your suppliers. They are the keys to your success.

It is time for us to move toward more human-centric business practices. We can only do this in partnership across industries and ecosystems. This change won’t happen overnight, but there is an opportunity for supply chain leaders to move from strategy to action and start evaluating this new way of managing supplier diversity as a part of their broader ESG efforts. Many thanks to Jill Miller and others like her forging this new path.

For more insights from Gartner For Supply Chain:

• Expand supplier diversity initiatives in your procurement organization
• Explore more from Beyond Supply Chain
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