Diversity, Equity and Inclusion can Contribute massively to the Social Pillar of ESG
Social Procurement
Makes a Difference
Should ‘S’ barely be numbers?
ESG, which stands for Environmental, Social and Corporate Governance, forms the main pillars of the framework of modern corporate sustainability policy. Internal corporate governance is formulated atop the two other problematic areas. Generally, the assessment of ESG implementation is supported by international standards of practices and regulations such as the United Nations (UN).
“While experts are getting to grips with the ‘E’ in ESG, the ‘S’ remains the most difficult pillar to analyse and incorporate into investment analysis – a key part of the data challenge...”
~ extracted from the Global ESG Survey 2019 of the BNP Paribas
The social pillar becomes the most challenging area. Internal human policies must be adapted habitually, while community engagement is not easy without in-depth exploration. Among all actions, Social Procurement and Supplier Diversity are much more unutilised than unattainable. The social pillar in ESG policies is depicted no longer by numbers.
ESG Policies
The corporate governance policy "Environmental, Social and Corporate Governance (ESG)" aims to be integrated into the overall policy of the corporate organisation and create corporate value by expanding three aspects of goals. When formulating policies, we systematically identify, assess and manage risks and opportunities in sustainable development and address the relationship between different stakeholders (including but not limited to customers, suppliers and employees) and the environment.
Environmental: Concerns about climate change, greenhouse gas emissions, biodiversity, deforestation, environmental pollution, energy efficiency and water resource management, and effective responses at the corporate level.
Social: Pay attention to employee safety and health, working environment conditions, “Diversity, Equity and Inclusion (DE&I)”, and internal and external conditions of conflicts and humanitarian crises, evaluate the direct results of related "risks and rewards", and plan the right strategies to improve customer satisfaction and employee engagement.
Corporate Governance: Formulate policies on preventing bribery and corruption, diversity within the board of directors, compensation adjustments for senior executives, cybersecurity, privacy practices, and management structures within the company.
"Although 92% of S&P companies were reporting ESG metrics by the end of 2020, according to a 2020 BlackRock survey of clients, 53% of global respondents cited “poor quality or availability of ESG data and analytics” and another 33% cited “poor quality of sustainability investment reporting” as the two biggest barriers to adopting sustainable investing..."
~ extracted from Globally Consistent ESG Reporting by Deloitte
Companies or organisations around the world that adopt ESG strategies are as follows:
Nedbank Group, Africa’s first carbon-neutral bank, integrates climate considerations into its operations, aiming for net-zero by 2050. It supports biodiversity, renewable energy projects, and community initiatives like tree planting and nature conservation while reducing financed emissions and aligning with the Global Biodiversity Framework.
Lenovo aims for net-zero by 2050, focusing on sustainable product design, renewable energy, and circular economy practices. Its initiatives include using recycled materials in products, reducing emissions during transport, and innovative solutions like liquid cooling technology. Lenovo’s efforts have earned recognition for advancing sustainability standards.
Ørsted leads in renewable energy sustainability, achieving top rankings for decarbonisation. It pioneers net-zero wind farms and biodiversity initiatives like blue bonds. By integrating low-carbon materials and green vessels into projects like Hornsea 3, Ørsted advances sustainable energy solutions globally.
Different Principles and Practices for Sustainability Worldwide
Creating Shared Value (CSV)
Business for Good
B Corporation (B Corp)
ISO 26000:2010
Stakeholder Capitalism
Triple Bottom Line: 3P
The Fundamentals of the Social Pillar – Diversity, Equity and Inclusion
Diversity, equity and inclusion (DE&I) can create shareholder value over the long run.
Affirmative investments by companies in DE&I outcomes can have a significant impact on reducing loss of talent and minimising risk to a company's reputation.
When employees feel included, they are more engaged, which has positive knock-on effects on productivity, morale, and trust.
Companies can foster a greater sense of safety and innovation by embracing a learning environment and an inclusive culture, ensuring that everyone in the organisation can adapt to change, feel comfortable with failure or mistakes, and quickly identify new opportunities.
To be a good company to work with, one should commit to improving social equity, such as investing in underprivileged and underrepresented communities.
With the assistance of Big Data, investors would see how a company performs on broader diversity and inclusion measures, such as race, sexual orientation, age and disability.
By mining LinkedIn, investors can reveal possible internal problems, such as high staff turnover, which in turn can portray other issues such as competitiveness and staff treatment.
By analysing employee reviews on the employment platform Glassdoor, candidates are equally easy to gain a better understanding of the implementation of a company’s policy on diversity, equity and inclusion.
Employees are also increasingly prioritising social factors such as belonging and inclusion as they choose whether to remain with their company or join a competing employer.
Social factors are becoming more significant in decision-making.
To improve workforce diversity, employment is surely a way, while social procurement can boost diversity further.
In its May 2020 report, McKinsey used the title "Diversity wins: How inclusion matters". This was the third time that "diversity" was used in the professional report column. An article on the topic details a survey on governance effectiveness.
McKinsey concluded that the "diversity and inclusion" policy has made the financial returns of enterprises far outweigh the costs, and proposed five major reasons, namely: 1) ensure the representation of diverse talent; 2) strengthen leadership accountability and capabilities for I&D; 3) enable equality of opportunity through fairness and transparency; 4) promote openness and tackle microaggressions; and 5) foster belonging through unequivocal support for multivariate diversity.
From the first report in 2005 to the second report in 2018, and then to the third report in 2020, McKinsey’s research and analysis on “diversity, equity, and inclusion” over the years have affirmed its impact on corporate governance and is the key to success.
Why social procurement?
Social Procurement is when a company uses its purchasing power to attain social goals or to generate social value above and beyond the value of the goods, services or construction being procured.
By sourcing from social benefit suppliers, the company can subsequently attain some basic goals of the Social pillar in ESG implementations:
Solidify the implementation of Diversity, Equity & Inclusion in line with, or even escalating, internal policy;
Promote diversity in the supply chain;
Secure sustainable supplies when procured from local sources;
Support social enterprises;
Support socially innovative businesses that incorporate underprivileged or socially-disconnected people;
Create additional social value for businesses; and
Build trust with customers and other stakeholders.
What is Social Procurement?
“The rationale for social procurement is deceptively simple: provide social value with the money spent by a city. Social procurement represents the choice by an organization to embed the achievement of social values into their procurement practices…
If the primary procurement goal of an organization is to reward contracts to the lowest bidder, then this goal is readily and continually achieved. However, if the goal of procurement is to support city-wide initiatives a city’s purchasing can be used to support other city goals. Two decades ago procurement was entirely focused on economic factors and market efficiency. Over the past twenty years, environmental sustainability has increasingly become more relevant in procurement practices. The next step in the evolution of what is valued in procurement is social impact…”
~ extracted from Social Procurement Framework of the City of Vancouver, December 2017
Traditional procurement refers to all business processes related to sourcing activities to obtain goods, services and constructions.
It covers the entire life cycle from identification of needs to the end of a service contract or end of useful life and subsequent disposal of the asset.
Besides, it includes the organisational and governance framework that underpins the procurement function. Procurement excludes storage management and logistics, which are part of the broader topic of supply chain management.
The direct perspective of Social Procurement is that a company purchases goods or services from a "social benefit supplier". The company can directly deliver social and/or sustainable outcomes by sourcing from social benefit suppliers.
Types of Social Procurement
Three common practices of Social Procurement are:
Supplier Diversity involves establishing a range of suppliers in the procurement process, including those from disadvantaged and underprivileged categories. Companies can create new opportunities for traditionally disadvantaged groups while creating new opportunities for themselves.
Green Procurement necessitates sourcing products and services that are made in an environmentally sustainable means. This can embrace products and services produced using renewable energy or made from materials from sustainable resources.
Ethical Procurement is to source products and services made according to ethical standards such as fair labour standards.
Basic Goals of Social Procurement
The following basic goals of Social Procurement have been identified as priorities within companies:
Provide opportunities for people with disabilities;
Support social enterprises and social value businesses;
Increase involvement of local suppliers;
Promote diversity in the supply chain;
Support SMEs; and
Support social innovation.
General Benefits from Social Procurement
All benefits and impacts of Social Procurement to businesses are:
Create real, meaningful change in businesses;
Create additional value for businesses;
Create new opportunities and drive positive outcomes;
Build relationships with suppliers and vendors that are committed to ethical practices and sustainability;
Build trust with customers and other stakeholders;
Gain an edge over their competitors;
Access new markets and new sources of competitive advantage;
Reduce their environmental footprint; and
Reduce their use of resources and reduce their environmental impact.
Why Supplier Diversity?
McKinsey published an article titled "Expand diversity among your suppliers–and add value to your organization" in May 2022, proposing that supplier diversity is good for the economic benefits, working with minority- and women-owned businesses (MWBEs) creates value, and many other points of view.
"Increasing the diversity of suppliers has become more urgent at a time when social issues strongly influence business growth. Sixty-four per cent of millennials say they won’t work for companies that perform poorly on corporate social responsibility..."
~ extracted from McKinsey's Insights in Operations
Accenture published a document titled "Five reasons why You should prioritise supplier diversity as part of your sourcing strategy" in 2020. The five reasons are: (1) to improve supplier competitiveness, (2) to boost innovation, (3) to heighten the perception of impact, (4) to attract and retain top talent, and (5) to provide positive social impact.
"But many companies with Supplier Diversity Programs historically have treated them like 'check the box' or non-essential programs, which are often deprioritized when things get tough..."
~ extracted from Accenture’s Insights on sustainability
Harvard Business Review published the article "Why you need a supplier diversity program" in August 2020. They interviewed multiple companies and organisations for diversity, analyzed media reports and corporate reports, and It was discussed that “Supplier Diversity and Social Procurement” policies can contribute to the social economy and corporate benefits.
"The 'feel-good' factor associated with diversity programs can also burnish a brand. In a 2019 study for Coca-Cola, Hootology, itself a diverse supplier, found that the individuals who were aware of Coca-Cola’s supplier diversity initiatives were 45% more likely to perceive the brand as valuing diversity, 25% were more likely to think favourably about the brand, and 49% were more likely to use Coca-Cola products..."
~ extracted from an article by Harvard Business Review
International organisation, WeConnect, released the 2021 ranking of the world's top 10 companies that attach great importance to “Supplier Diversity and Social Procurement” policies:
Merck: Their social procurement policy promotes economic inclusion and sustainability by sourcing from diverse suppliers, including minority and women-owned businesses. It integrates environmental and social standards into procurement practices, supporting equitable supply chains and reducing environmental impact.
Kelly Services: Their social procurement policy emphasises supplier diversity, equity, and inclusion by supporting underrepresented businesses, including minority, women, veterans, and LGBTQ+ suppliers. Through mentorship, resources, and networking opportunities, Kelly fosters socioeconomic growth, creates jobs, and strengthens communities. Its commitment to sustainability and ethical practices ensures long-term value and innovation in its supply chain.
Randstad: Their social procurement policy emphasises responsible sourcing, supplier diversity, and sustainability. It ensures suppliers respect human rights, labour standards, and ecological principles through a Supplier Code. Randstad actively supports diverse-owned businesses, fosters mentorship programs, and engages suppliers to reduce emissions, promoting equity, innovation, and environmental responsibility across its global supply chain.
In addition, we can easily find the “Supplier Diversity and Social Procurement” policies of other large international companies:
Wells Fargo: Their social procurement policy integrates supplier diversity into strategic sourcing processes, fostering relationships with minority, women, LGBTQ+, veteran, and disability-owned businesses. Through initiatives like the Diverse Supplier Development Program, it invests in supplier growth, promotes equity, and drives innovation while supporting sustainable practices and community economic development.
Target: Their social procurement policy, previously part of its Supplier Diversity Program, aimed to increase procurement from minority, women, and veteran-owned businesses. Recently rebranded as "supplier engagement," it now focuses on inclusive global procurement processes, emphasizing small businesses while adapting to evolving external landscapes and reducing public DEI initiatives.
The Hershey Company: Their social procurement policy emphasises supplier diversity as part of its broader ESG and DEI strategies. Through programs like Supplier Diversity, Hershey partners with minority, women, veterans, LGBTQ+, and disability-owned businesses, aiming to quadruple diverse supplier spending to $400 million by 2030 while fostering innovation, equity, and community growth.
Social Benefits from Supplier Diversity
One of the common practices of Social Procurement is Supplier Diversity. A company can purchase goods or services from a "social benefit supplier" once. Establishing a long-term relationship with the social benefit supplier would be the best for their sustainable development.
Social benefit is the positive impact on people, communities or society generated by the practice of Social Procurement. Social benefits from Supplier Diversity might include:
Promote a more diverse and inclusive workforce;
Create training and employment opportunities for the underprivileged;
Helping people participate in their communities and the economy;
Address complex local challenges such as intergenerational unemployment, communal disconnection and the decline of economic activities in local communities;
Encourage local economic development and growth; and
Involve SMEs and social benefit suppliers and give them the same opportunities as other businesses.
Social Enterprises Become Key Partners for Businesses
“Corporations by partnering with Social Enterprises can direct significant spending into a positive impact, generate business value, and change people's lives in the process.”
~ extracted from Sopact’s perspectives
Common characteristics of Social Enterprises that make them the key partners for businesses are:
Provide economic or social activities for local communities;
Stay in touch with stakeholders;
Innovative business practices by incorporating people (from local or global) that are underprivileged or socially-disconnected; and
Create social values.
Different Principles and Standards for Sustainability Reporting
Organisation for Economic Co-operation and Development (OECD)
Global Sustainability Standards Board (GSSB)
B Corporation Reporting Standards
Sustainability Accounting Standards Board (SASB) Standards
Global Reporting Initiative (GRI) Standards
Comparing GRI and SASB Standards for Corporate Sustainability Reporting
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