Back in May, we held our annual Supply Chain Leaders Forum, gathering COOs and heads of supply chain from across industries to focus on the big trends and issues facing our community, society and planet. Our CEO keynote was delivered by Alan Jope of Unilever.
One of Jope’s key messages was that being purpose-driven is also good for business — powering growth, lowering long-term costs and attracting and retaining the best talent. At the time, he was on the cusp of retiring — which he did in June — hoping that part of his legacy would be proving this direct connection between people, planet and profit.
Jope also made clear that Unilever is not an NGO. It’s pursuing sustainable business practices out of enlightened self-interest and a strong business case. Part of the company’s “Compass” strategy recognizes that brands with a stated purpose grow faster than those without.
We are seeing many other members of our community set their strategies and investments in line with greater environmental and social sustainability. At the same time, there is a growing anti-ESG movement. Even BlackRock Chairman and CEO Larry Fink, famous for prodding the corporate world on the adoption of ESG standards, has stopped using the term because he feels it has become politicized and weaponized.
As a thought experiment, what if we simply removed these political considerations from our policies and investments and evaluated them based on whether they yield positive returns and greater resilience in our businesses?
Return on Human Capital
Over the years, I have spoken to scores of supply chain leaders who can point to the direct returns they’ve seen from investments in greater environmental sustainability. For example, optimizing distribution routes, reducing empty miles and maximizing full truck loads means less spending on equipment, labor and fuel. The resulting energy efficiency also generates fewer carbon emissions — a win-win.
Compared to green investments, there is less documentation on how workforce policies directly impact business results, but there are proof points.
In 2021, non-profit JUST Capital, created a stock market index to highlight the performance and impact of investing in companies that prioritize their workforces. The Workers Leaders index data set covers several key worker issues reflecting various aspects of the workforce, including whether companies conduct pay-equity analyses, disclose workforce diversity data, offer paid time off and provide paid parental leave. It also tracks the estimated percentage of workers making a living wage and the CEO-to-median worker pay ratio.
When JUST Capital compares the market performance of companies on their annual ranking that score in the top 20% for worker issues to the broader Russell 1000 stock index, it has consistently shown outperformance by the Workers Leaders group. Data as of Sept.15, 2023, shows a more than 3% difference, though over the last 20 or so months, that premium has at times exceeded 12%.
JUST Capital has also compiled statistics demonstrating the outperformance of Workers Leaders on a variety of complementary measures, including:
- Being 118.5% more likely to pay a family-sustaining living wage.
- Having 9.1% more women on their boards.
- Being 20.6% more likely to have a human-rights policy.
Additional Value Measures
Last year, I published a blog titled, “Elevating Humanity Through Supplier Diversity” in which I interviewed Jill Miller, the founder of Lunum, a company focused on changing how companies think about the connection between employment and community impact, using an Impact-Weighted Accounts approach.
Per Miller, “Lunum’s findings, when analyzing companies with higher-than-average employment impact, align with JUST Capital’s findings. These leaders not only demonstrate significant positive employment impact, but also outperform the Russell 1000, underscoring the financial benefits of investing in workforces — for their companies, workers and communities. The next step is to measure and improve over time, not only in single corporations, but across value chains.”
Recently, I was in a conversation with Paul Gallagher, chief supply chain officer for General Mills. When asked what was going well for the organization, he mentioned office and frontline worker attrition rates that are significantly lower than broader industry. The secret sauce? Putting an intentional focus on workforce diversity and a culture of belonging that makes people want to build a career there. Both the inputs and outputs are measured in this case.
The more we can move away from performative actions and take an objective, apolitical look at the outcomes companies experience when they pursue ESG objectives, the better off we’ll be. When investing in workforce wage-equity initiatives, for instance, citing third-party data that demonstrates bottom line and community impact speaks louder than media sound bites. It also assures investors that our workforce is resilient.
Results like these are part of a legacy to which any leader would aspire.
Originally posted on Gartner.
