Environmental and social governance (ESG) concerns are top of mind for investors, suppliers and procurement leaders right now — as they should be. Dedication to ESG extends a company’s social license and improves its standing with stakeholders. Beyond that, adhering to ESG can increase an organization’s operational efficiency by bringing diverse voices to the table and enabling business agility, especially for industries struck by supply chain disruptions.
Between 2016 and 2018, investors put 33% of their assets toward organizations with ESG in mind. That equates to more than 30 trillion dollars going toward organizations that properly promote diversity, equity and inclusion (DEI), and/or sustainability. But that’s not the only proof-point for prioritizing ESG in 2023. More than half of millennials (64%) say they won’t work for an organization that performs poorly in social and corporate responsibility. And since millennials are the largest generation in our current workforce, it would be devastating to lose their interest.
In other words, there’s a lot at stake when building an effective ESG program. And unbeknownst to them, many procurement leaders leave money on the table when they use manual data platforms or solely consider official certifications. These choices cause leaders to lose insight into diverse and sustainable suppliers downwind of the supply chain. Let’s discuss how to combat those costly losses.
AI and ML are Powerful Drivers for ESG
Traditional methods of supplier data collection require manual input — think of long spreadsheets and non-automated source-to-pay (S2P) point solutions.
There are several issues with these tools. First and foremost, sifting through manual data in search of a supplier is time-consuming. Top sourcing and procurement leaders report that it takes five weeks to find a new supplier on average, which creates project delays down the line. Worse, the process is unreliable, as manual data is typically outdated and incorrect. Although it’s hard to assign blame in this situation — who can be expected to verify their supplier info every minute, every day? — it still leads to supply chain hiccups and lost business.
Most problematically for ESG compliance, manual data platforms provide a limited scope of current and potential suppliers. These systems often overlook suppliers that fall into diverse spend categories. That’s by design: small suppliers are more challenging to connect with in a vast sea of unfiltered options.
In these arenas — and many others — artificial intelligence (AI) and machine learning (ML) consistently outperform manually collected data. AI and ML tools harvest, evaluate and analyze supplier data to synthesize a comprehensive set of supplier information that is always up-to-date. Using this information, procurement leaders can quickly ascertain ESG standards and meet their goals — all in a shorter timeframe. Leading AI-backed supplier platforms can search by spend category, which allows procurement leaders to identify small suppliers who fit their specific ESG criteria.
Plus, the right tool will improve the number of diverse spend categories an organization can enter. That’s thanks to self-certification.
Self-Certification May Be the Key to Demonstrating Corporate Social Responsibility
Official certifications are useful because they provide evidence that a supplier of interest meets the requirements to be considered diverse or sustainable. However, not all sustainable and diverse suppliers possess official certifications, even if they fulfill the requirements to do so. The certification process requires numerous on-site interviews, immense paperwork and documentation. It can take weeks or even months to complete. Most importantly, the process can be costly, prohibiting certain suppliers from taking that final step.
For reference, 45% of diverse business owners don’t believe it’s important to be officially certified as ESG compliant. This stat demonstrates that while most diverse and sustainable businesses understand the value of certification, many diverse suppliers — including minority- and women-owned businesses — will be excluded if procurement professionals only review officially certified companies.
Of course, ESG-minded procurement leaders want to ensure they enter a contract with a genuinely diverse or sustainable supplier. That’s where self-certification comes in. Self-certification programs allow small suppliers to follow a rigorous but doable verification process, verifying their compliance with official requirements — just without the costly official process.
Although self-certification requirements vary by provider, leading data platforms will walk suppliers through the process intuitively. Then, procurement professionals using these data platforms will have access to all relevant sustainability and diversity information, including disclaimers about what counts as official certification.
The benefits of self-certification are numerous. The functionality allows smaller diverse suppliers to reach large-scale procurement operations, increasing their footprint in the process. And for procurement operations, it opens new doors to work with smaller but equally committed diverse and sustainable suppliers. That’s a win-win scenario for all parties.