MBN USA

October 26, 2022

UnFollow View Profile Send Message Copy Link

UnFollow View Profile Send Message Copy Link

Navigating the impact of ESG on supplier diversity

By Ralph G. Moore and Reginald K. Layton

Wall Street’s recent focus on the importance of environmental, social and governance or ESG strategies when assessing investment quality has increased supplier diversity’s visibility throughout corporate leadership teams. 

As Reginald K. Layton, retired vice president, supplier diversity and supply chain sustainability, Johnson Controls International PLC, stated in his insightful 2021 article, “Sustainability, Social Responsibility and Ethics for the Supplier Diversity Professional:”

“More corporations are now linking supplier diversity and sustainability in the supply-chain practitioners’ job descriptions because of needed process efficiencies or external stakeholders’ expectations. While understanding each function was necessary to progress in the past, supply-chain professionals can significantly contribute and enhance their organizational value when they exert an integrated understanding and approach toward these disciplines. Supply-chain professionals should use critical success factors and best practices in supplier diversity to advance sustainability in their corporations’ supply chains by recognizing process similarities between the two disciplines.”

Since publishing his article, ESG has hit corporate America like a tsunami and, in the process, has been a significant disrupter of supplier-diversity strategy. Moreover, ESG has elevated Layton’s advice from something to consider to a mandatory course of action. 

Why BlackRock’s definition of materiality is a game changer for supplier diversity
BlackRock Inc.’s working definition of “materiality:” the economic sensibility associated with sustainability factors that make them quantifiable when considering the competitive position of a company compared to its peers in a given industry.

Communities are critical sustainability stakeholders, and there are few initiatives within corporate America that impact communities more directly than supplier diversity — thus elevating it to a material sustainability factor. 

Leveraging the RGMA 5-Levels of Supplier Diversity Maturity Model™ to guide your enhanced supplier-diversity strategy resulting from ESG alignment 

Introduced in 1994, leading organizations such as Billion Dollar Roundtable Inc. and National Minority Supplier Development Council Inc. have embraced the RGMA 5-Levels as the gold standard for benchmarking corporate supplier-diversity programs worldwide. (See chart.)

Supplier-diversity practitioners must consider incorporating the following four steps into their multiyear ESG alignment strategies:

1. Assess the current level of your supplier-diversity program, including your ESG readiness, based on the RGMA 5-Levels. We recommend utilizing the RGMA digital assessment and strategy tool to assess your program.

2. Benchmark the level of your supplier-diversity program against industry peers, competitors and key customers. Use your industry group to conduct benchmarking activities.

3. Based on your level on the RGMA 5-Levels, develop a 2022/2023 quarterly action plan that:

• Incorporates ESG alignment in the supplier-diversity value proposition.

• Defines/enhances supplier diversity’s relationship with ESG-related functions, including sustainability, diversity, equity & inclusion and community engagement.

• Determines resource requirements needed to maximize supplier diversity’s ability to contribute quantifiable data to ESG reporting.

4. Present your ESG alignment strategy to leadership and your board’s ESG committee. 

Beware of these pitfalls
The advent of ESG has created some pitfalls that corporations must navigate. The three most common pitfalls are listed below.

• Hiring “brand-name” consultants with limited supplier-diversity experience.

Several consulting firms that have established well-earned reputations as thought leaders in various practice areas have decided to expand into the supplier-diversity arena. Unfortunately, many corporations are discovering that some skills are not transferable. Having worked in this area for 43 years, we recommend asking the following questions when interviewing a prospective supplier-diversity consulting firm:

1.How many corporations has the supplier-diversity consulting firm team that is assigned to my organization advised in supplier diversity?

2.Please share three corporate supplier-diversity client references in my industry.

3.How long has the supplier-diversity consulting firm had a supplier-diversity program? 

The answers may surprise you. 

• Failure to understand that technology is not strategy.

Supplier-diversity technology providers have created game-changing tools for tracking spend, monitoring diverse-supplier certifications and maintaining diverse-supplier databases. However, technology is not strategy. It is the corporate supplier-diversity strategy that will determine the level of success and impact of a supplier-diversity program.

• Equating increased visibility with increased effectiveness.

Visibility is a very enticing pitfall because we all like to see our company’s name and logo in giant print associated with successful events. However, visibility does not measure effectiveness. Data such as the number of jobs created, the number of diverse suppliers with which your corporation contracts and the dollars spent with diverse suppliers within a given community are just a few of the metrics associated with measuring the effectiveness of your supplier-diversity program. 

In closing, ESG is empowering supplier diversity to become an essential contributor to corporate strategy. However, to capitalize on this opportunity, we must prepare supplier-diversity practitioners to redefine supplier diversity’s role in the corporation. 

Look for “Supplier-Diversity Best Practices 

– ESG and Beyond” in the next issue of MBN USA. 

Ralph G. Moore, CPA, is president of Ralph G. Moore & Associates, or RGMA, and is recognized as one of the world’s foremost thought leaders in the area of supplier diversity and minority business development. 

Reginald Layton is former vice president of supplier diversity and supply-chain sustainability at Johnson Controls International PLC.

Ralph G. Moore, president, Ralph G. Moore & Associates 

Reginald K. Layton, retired vice president, supplier diversity and supply chain sustainability, Johnson Controls International