The word “diversity” has become corporate jargon; it’s a relatable buzzword, which makes it important not to simply group “all things diversity” together.
That commonly happens when supplier diversity becomes entangled under the diversity, equity and inclusion (DE&I) umbrella or is viewed as an input for environmental, social and governance (ESG) reporting.
As a response to the U.S. civil rights movements 50 years ago, supplier diversity was created to provide procurement opportunities to underserved communities. ESG was popularized in 2005 to focus on factors to create sustainable markets and provide better outcomes for societies. ESG plays on a global stage, whereas supplier diversity is a corporate strategy, personalized and business-aligned.
The confusion comes from increasing fervor around the word “diversity.” This can lead to a separation of supplier diversity from procurement, pairing it instead with DE&I and reporting.
What Supplier Diversity Is Not
It’s not ESG. ESG is a set of standards for keeping a company’s operations socially responsible, viewed by some as a way to placate investors on the purposeful use of environmental, inclusive and ethical practices. It also can be considered a reporting exercise intended to underpin operational integrity.
With the growing trend of younger generations supporting companies whose practices reflect their values, the importance of ESG measures has increased, not only driving corporate investment strategies but impacting personal employment decisions.
An ESG rating is a composite of inputs. This means that offsetting factors can cancel individual inputs providing the overall state of corporate health.
The environmental component looks at risks a company presents to the environment and how it is managing them. This includes tracking energy use, waste, pollution, natural resource conservation and treatment of animals. The social component measures such factors as business relationships, human rights, company support of the local community, labor standards, data protection, product safety, workplace diversity and an ethical supply chain. Governance focuses on such factors as avoiding conflicts of interest, promoting ethical practices, transparency into political contributions, board diversity, and corporate operations.
So, while ESG can be considered a reporting exercise, supplier diversity is a strategic initiative whose results can be measured and reported. ESG is an output of programs like supplier diversity — programs that require active oversight. A successful supplier diversity program delivers business value, which is outside and above the scope of ESG reporting.
Supplier diversity also is not workplace diversity. Company diversity and inclusion programs typically focus on the workplace, eliminating unconscious bias and building equal opportunities for all without discrimination due to age, race, religion, or sexual identity or preference.
Like supplier diversity, DE&I was an outgrowth of the Civil Rights Act of 1964, which called for affirmative action to provide equal employment opportunities. Related programs are people-centric, often including the creation of affinity groups and grooming of leadership. Workplace issues including employment practices also fall under the human resources department, and like supplier diversity, these metrics are inputs to ESG reporting.
What Supplier Diversity Is
Supplier diversity is a procurement practice that requires the purposeful inclusion of diverse suppliers in bid opportunities to increase their representation in sourced spend. The practice can be a powerful strategy for growing ROI and being laser-focused on supply chain inclusion. Building a culture that supports supplier diversity is action-oriented, requiring rethinking processes, measuring potential to include diverse suppliers, quantifying their contributions, and determining the economic impact on communities.
Metrics of inclusion. Both workplace diversity and supplier diversity provide ESG metrics, but neither is simply a reporting exercise. Workplace diversity is managed by human resources leadership, who develop an agenda providing for an inclusive labor force. Supplier diversity is managed by the procurement function, which focuses on suppliers and contracts to build a diverse vendor pool.
Workplace diversity is generally easily understood. The concept and value of supplier diversity, a pillar supporting the DE&I agenda, can be confusing. It becomes clearer if thought of as an approach for delivering business value by winning contracts, increasing innovation and competition, all the while supporting the communities that make a company successful.
Reporting sparks interest in supplier diversity. That said, ESG reporting requirements may be the perfect measure to wake up companies’ supplier diversity efforts — by asking them to report their supplier diversity performance. This simple request can prompt companies to begin tracking their spend with diverse suppliers.
Finding the diverse suppliers in your supply chain is the first step, creating awareness that some of your suppliers are in fact diverse.
Reporting is only a starting place, not the destination. Establishing a supplier diversity program does not automatically produce results. Moving beyond reporting requires focus, dedication and a strategy. Done right, supplier diversity creates value for companies and their surrounding communities. ESG reporting requests introduce the importance of inclusive procurement, starting companies down a path that might lead them to develop supplier diversity programs.