Organizational Change
Social Sustainability Is the Next Supply Chain Frontier

Fueled by an upcoming Securities and Exchange Commission rule on human capital management, increased focus on the ‘social’ element of ESG, and rising consumer awareness of supply chain issues, social sustainability in supply chains is poised to become the next frontier for brands.

The S in environmental, social and governance performance has been gaining currency over the past couple of years; and public companies will soon have to start reporting more thoroughly on their social impact. A Bloomberg Law analysis of the SEC’s direction predicts that human capital management will be a front-burner topic this year, and investors will seek more disclosures to ensure that companies are walking their talk. At the same time, pandemic-driven disruptions have sparked ongoing media coverage of supply chain issues. Consumers are seeing the sausage-making, and it isn’t always pretty.

This is all to the good. Accountability can sting; but for companies that view it as an opportunity, the new focus on social sustainability in supply chains can lead to stronger corporate brands and accelerated revenue growth for suppliers pursuing positive social impact.

Focus on social impact brings risks and opportunities

What is a socially sustainable supply chain? Certainly, it’s free of negative practices such as child labor, forced labor, unsafe working conditions, below-living wages, and racial and gender discrimination. The case for excluding suppliers that layer these social costs into a corporation’s products and services is clear from both an ethical and a business standpoint: Investors, customers and employees are buying into a brand’s reputation — and “risking that over a supplier with poor ESG credentials could cost you all three,” Moody’s observes.

Eliminating negatives is fast becoming table stakes, though. The emerging standard is net-positive impact — actively contributing to solving social problems.

“The very nature of social impact isn’t just about risk; it’s also about prosocial behavior. In other words, a company’s actions, policies and investments can and should positively impact people’s lives,” writes Jason Saul, executive director of the Center for Impact Sciences at the University of Chicago. And, he notes, these social impacts can also positively affect a company’s financial performance “through competitive advantage, business growth, market relevance, brand purpose and securing license to operate.”

Stocking the corporate supply chain with companies that are broadening workforce opportunities, contributing to stronger local economies and providing other social benefits brings real supply chain reliability and ESG benefits. Suppliers that hire from a broader talent pool and create a positive work environment that reduces churn are better able to deliver consistently. Those that also build community wealth and diversify their supply chain contribute to equity and inclusion goals.

For supplier companies, delivering these positive social impacts is a differentiator — especially where other value dimensions such as effectiveness, design and price are comparable — and it will remain so until their competitors catch up.

3 big impact areas cut across supplier types

Building a socially sustainable supply chain requires reviewing and upgrading the full spectrum of suppliers — not only suppliers of raw materials, value-added inputs and finished goods, but also professional services and technology providers. That is a big universe; but when looking at it from a positive social impact perspective, most suppliers can add value in three broad areas.

Workforce development: Companies that actively recruit, train and retain people who have been excluded from opportunities or face barriers to employment can improve the lives of whole families and communities while developing untapped talent pools that provide a hedge against tight labor markets. For example, the growing second-chance (or fair-chance) movement delivers high social returns by focusing on hiring formerly incarcerated people. Nearly 70 million Americans have a criminal record; and even after they’ve paid their debt to society, many remain marginalized. Incarceration brands those it touches, trapping them in a cycle of unemployment and poverty — which can lead to recidivism. Second-chance hiring can transform their lives. It also has multiple business benefits. At U.S. Rubber, for example, we fueled substantial growth through pandemic labor shortages by making a significant investment in second-chance hiring: Ex-felons now constitute about 60 percent of our workforce.

Community investment: Fair-trade programs that bring new resources to local supplier communities, corporate treasury investments in community finance institutions, and other direct material contributions to customer or supplier communities can have a powerful multiplier effect. Community development financial institutions, for example, responsibly serve people and places that often don’t have access to mainstream finance — providing business loans to women, people of color and low-income entrepreneurs; funding affordable housing; and supporting climate-change resilience projects. Minority-owned banks play a similar role as community capital providers. Small and medium-sized suppliers, which have traditionally been community anchors, can expand their impact by stocking their own supply chains with small businesses that play key roles in local economies.

Diverse leadership: Diversifying the supplier pool to include more companies owned and led by women and people of color — especially in fields where they continue to face barriers to entry — contributes to corporate diversity, equity and inclusion goals and expands both opportunities for the suppliers and resources for the buyers. This is also an area where corporate commitments are under a microscope and investors, customers and employees are looking for measurable progress.

The opportunity in supply chain sustainability is huge. Eliminating negatives is about to become the minimum viable approach to social performance. Public and large private companies and their supply chain partners that go beyond that to create positive impacts will reap the benefits: stronger brands, greater customer loyalty, investor favor and the ability to attract increasingly choosy workers. And in doing so, they’ll help advance prosperity for everyone.