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How Supplier Diversity Fits into Corporate Sustainability (ESG)

Supplier diversity and sustainability (ESG) are becoming more connected as responsible sourcing strategies intersect for environmental, social, and diverse suppliers.

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We frequently talk about corporate sustainability in terms of environmental impact, but the concept goes beyond reducing carbon footprints and limiting packaging waste. These are extremely important endeavors, but to reach overall sustainability goals—to be truly effective—corporate sustainability must involve the entire supply chain, which, in turn, must incorporate supplier diversity.

We’ve reached the point where supplier diversity is no longer a negotiable option when it comes to achieving sustainability objectives. According to the Sustainable Purchasing Leadership Council (SPLC), “leadership in sustainable purchasing means both finding ways to increase the use of diverse suppliers and improving environmental, social, and economic performance in a holistic fashion.”  In fact, many organizations today are connecting their supplier diversity initiative with their company ESG (Environmental, Social, Governance) goals. 

Three Pillars of Sustainability

A quality corporate sustainability policy is built on three pillars: the environmental pillar, the social pillar, and the economic pillar—or planet, people, and profit. And they’re all a part of the same ESG vision.  Let’s take a quick look at each pillar.

The environmental pillar: This is the pillar most of us think of first when discussing sustainability initiatives. Companies focus on reducing their impact on the planet through initiatives such as no-waste packaging and reducing greenhouse gas emissions.

The social pillar: This “people” pillar is built on the belief that a sustainable business should have the support and approval of its employees, stakeholders, and the community where it operates. In other words, a company should treat its employees fairly, be a good neighbor, and buy from socially responsible organization at both the local and global levels.

The economic pillar: Profit is the foundation of this pillar. After all, a business cannot sustain itself for long unless it turns a profit. However, profit at any cost is not sustainable over the long term. The other two pillars should be given equal weight to the economic pillar. Each of these pillars of sustainability is equally important and intertwined with the others, and any sustainability policy must meet current needs without compromising future generations, whom we hope will continue to live, work, create, and thrive.

How Supplier Diversity Supports Corporate Sustainability Goals

So how does supplier diversity support each of these three sustainability pillars? To reach your corporate sustainability goals, you must develop a sustainable procurement program, which, as we are seeing over and over, must include supplier diversity. Here, again, I defer to SPLC, which asserts that “leadership on supplier diversity is an essential part of leadership in sustainable purchasing.”

Obviously, you want to vet diverse suppliers to ensure that they are utilizing best practices and their values are aligned with yours, but research shows that, when given the chance, small- and medium-sized suppliers will step up and meet whatever performance criteria are important to their customers.

Environmental Goals

Take a fresh look at your environmental sustainability goals, then look for diverse suppliers that can help you achieve them. So often small, diverse businesses have innovative solutions to problems but are overlooked during the bidding process. Maybe they don’t have access to contract opportunities or don’t have the capacity needed to be a tier 1 supplier. Your supplier diversity program should seek out potential suppliers and help them apply for opportunities with you, or you can match them with potential tier 2 opportunities.

For another spin on diverse suppliers and environmental sustainability, consider working with local suppliers—another meaning of supplier diversity—which has the wonderful benefit of decreasing your carbon footprint while contributing to your local economic impact.

Social Goals

Your corporate sustainability policy—should you choose to make it public (and why wouldn’t you?)—can generate a wealth of goodwill. Survey after survey shows that millennial and Gen Z consumers prefer diverse and socially conscious companies. Factor in the rapidly changing demographics of the United States, and we’re looking at a huge consumer base that wants to do business with companies aligned with values that promote equality, innovation, and sustainability. If that’s not motivation to adopt and enact a corporate sustainability policy, I don’t know what is.

Partnering with diverse suppliers supports economic equality, invests in communities where your consumers live, and reflects the changing face of consumers. Leverage your supplier diversity program by spotlighting diverse suppliers as well as find B-Corp certified suppliers, especially in local markets, as proof of your commitment to social corporate sustainability.

Economic Goals

The economic benefits of supplier diversity include cost savings through innovation, competition, and efficiency, which have a positive impact on revenue. According to The Hackett Group, for every $1 million that supplier diversity programs spend in procurement operation costs, they add $3.6 million to the bottom line. That’s an ROI shareholders can get behind!

Don’t forget that when you make sure that contract opportunities are equally accessible to diverse suppliers, you are supporting the health and resilience of local and global economies. Economic impact reporting can also show how partnering with diverse suppliers reaps rewards that go beyond immediate economic benefits and lead to sustainable healthy supply chains and growing communities.

Sustainability involves the entire supply chain, from tier 1 suppliers to tier 2 suppliers to retailers. Sometimes it seems like corporate sustainability and supplier diversity are competing objectives, but when we break down sustainability into its three pillars, it becomes clear that sustainability and diversity complement each other. When we incorporate diverse suppliers into our supply chains, we open new avenues for a competitive edge, cost savings, and public goodwill.

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