How ESG drives diversity, equity, inclusion & growth
Elevate your company’s culture, reputation, and ESG score
Diversity, equity, and, inclusion (DEI) initiatives are becoming increasingly common in the workplace. The reasons are clear: over and above moral and ethical reasons, diversity is a key factor when it comes to achieving greater levels of creativity, innovation, and success. However, overall, progress on scaling diversity and building inclusive work cultures in most companies has been slow (McKinsey).
There is a strong direct link between a company's Environmental, Social, and Governance (ESG) score and its record on DEI as their measurement is intertwined. Companies with favorable scores tend to experience above-average profitability and strong financial performance (McKinsey, Gartner). In line with investor demands, regulatory agencies are increasingly demanding that companies make public the details of their board diversity and DEI programs.
In the upcoming year, a revised version of SEC's human capital disclosure rules is anticipated to be put into action in the United States. It is anticipated to make diversity and inclusion key components of your sustainability or ESG reporting strategy. Many companies are now preparing to report on Diversity and Inclusion metrics, springing into action on DEI initiatives to create positive change and mitigate the risk of reputational damage.
In this resource, we examine
The Business Case for incorporating DEI into your ESG program
23 initiatives that will accelerate DEI and grow your ESG score
For more general suggestion on how to scale ESG (not exclusively focused on DEI), see our resource: 21 Sustainable Business Practices at Work.
Diversity, Inclusion, and ESG: A Primer
The term ‘ESG’ (Environmental, Social, and Governance) is often used to describe the elements of corporate life that involve environmental and social responsibility. In the past, ESG efforts have been heavily skewed towards the environment or E category such as sustainable investing or reducing emissions. However, more recently, there has been a strong push for human capital disclosures in ESG reporting. As a business leader, it’s important to understand how these new requirements should manifest in ESG reporting, and that their goals are consistent with DEI commitments.
What are diverse and inclusive companies?
The goal of diversity and inclusion efforts is to have a diverse workforce that is treated fairly and equally, feels included, and that they belong within the company. They also aim to create an inclusive environment where all employees feel valued and safe spaces for employees to express different concepts and bring their whole selves to work along with a diverse workplace and equal access.
Diversity extends beyond measuring critical demographics like gender diversity, ethnicity, age, disability, and sexual orientation at top ranking companies. Those work environments include other forms of diversity, such as social persuasion, religion, veteran status, ethnic diversity, marital status, gender identity, and different races and nationality. They also seek a variety of perspectives across the company on everything from product design and company culture to marketing campaigns.
But simply committing to diversity isn't enough. Steps need to be taken to create an inclusive culture that actively works to foster relationships between people from different backgrounds. Companies must also recognize the importance of hiring, developing, and retaining a diverse talent pool that can bring new perspectives and challenge existing norms.
Diversity and inclusion has evolved one more step over recent years to include an important concept, belonging. To learn more about how to move beyond diversity to create inclusion and belonging, see our resource on 11 Ways to Create Belonging in the Workplace.
Where does DEI fit into ESG frameworks?
ESG frameworks are largely divided into three categories Environment, Social, and Governance. While workforce diversity is more prominent in the "Social" category, DEI can fit into any of the three elements. It ties into environmental issues by addressing sustainability in its production processes, social issues by making sure employees are treated equally and fairly, and governance issues through board diversity as well as by making sure that the company is compliant with laws and regulations. All of these elements are integral to a successful ESG program.
However, diversity matters are prioritized in the "Social" category of ESG, which focuses on the measurement of workplace well-being, equity, and career advancement. Companies that prioritize diversity efforts, respect, belonging, and have an inclusive culture will typically be rewarded with a higher ESG rating.
Challenges in accounting for DEI inside ESG frameworks
Many corporations struggle to track and communicate the results of DEI initiatives both internally and externally. Human Resources is often tasked with overseeing this program but may not be in a place where they can predictably measure the effectiveness of different initiatives beyond baseline indicators. DEI measures are often less tangible based on indicators such as feedback sheets and surveys. As a result, there is no quick fix for DEI. It needs to be addressed over time.
Many companies shy away from DEI, reluctant to share their data. However, this is a perfect moment to embrace the opportunity to demonstrate transparency - use it as a lever to scale activities that enables diversity to thrive. By doing so, there is a chance to not only meet expectations and also to craft a positive narrative about what has been achieved through these efforts.
Ultimately, for DEI to become fully integrated into the company's ESG goals and initiatives, key leaders must endorse such efforts and guide team from HR, IT, and accounting teams on what data needs to be collected. Furthermore, setting benchmarks of success while actively influencing the organization's progress toward reaching those milestones will be essential for success.
The Business Case for Diversity and Inclusion in ESG
There are many compelling reasons why companies should embrace diversity and inclusion in the workplace as part of their ESG efforts. Aside from the ethical and moral reasons, the benefit of integrating ESG into your business strategy is clear; improved business performance and an increased ability to outperform competitors.
Improves business performance
According to research by the Boston Consulting Group, companies with diverse management teams earn 19% more revenue than companies that have less. In addition, a McKinsey study shows that more diverse companies are 35% more likely to outperform their competitors. Also according to a Deloitte survey, 78 percent of respondents deemed that diversity and inclusion would bolster any company's competitive abilities.
The mechanisms by which it increases performance include:
Improve board performance: When organizations incorporate diversity in their board of directors, they reap the rewards through improved decision-making and greater business success according to a study reported in the Harvard Business Review.
Drive innovation: Teamwork makes the dream work, and that's especially true when it comes to diversity. A Gartner report indicates that diverse teams outperform those that are less diverse by up to 50%. A Boston Consulting Group study also suggests a strong relationship between diversity and corporate innovation.
Capture new markets: A Harvard Business Review article suggests that companies with diverse teams are 70% more likely to capture new markets. This is especially true for companies targeting multicultural audiences, as working with diverse teams helps marketers better understand consumer needs.
Recruitment and retention of top talent: A McKinsey report suggests that when employees have people at work who they can trust and rely on, they are 86% more likely to suggest their company to others, and far less likely to want to leave. They are also happier with their jobs and 53% less likely to get burned out and leave.
Mitigates risk and keeps investors happy
A company's record on diversity and inclusion initiatives profoundly affects how customers and employees interact with a business. Risks associated with reputational damage, or even litigation have become more prevalent as society has become increasingly aware of the need for greater inclusion. Demonstrating a commitment to DEI initiatives, companies can demonstrate to their shareholders and potential investors that they take their ESG goals seriously, improving the perception of an organization amongst current and prospective investors, and reduce the risk associated with investing in it.
Strengthen your ESG strategy and elevates DEI to the board level
Diversity and inclusion have not received the attention that they deserve in most companies. Including DEI as part of your ESG program will elevate its importance and be a lever for action. It will elevate it to the board level and codify its measurement with the rigor required by ESG frameworks. Disclosures and reporting it will create new activity and build momentum.
Read more about the business case for ESG in the resource, Why Business Should Embrace Sustainability.
26 company initiatives to enhance DEI and improve your ESG
Here are 26 ways that organizations can embrace diversity and inclusion while also improving their ESG score.
Strategy, Leadership, and Governance
Appoint a Chief Diversity Officer: Appointing a senior leader, such as a Chief Diversity Officer, will help to ensure that diversity and inclusion is given the priority it deserves. This senior leader can also be responsible for reporting progress and results on DEI initiatives, creating a task force to assess and managing DEI initiatives.
Create a Board Diversity Committee: A board diversity committee is focused on ensuring that the board reflects the diversity of its stakeholders. This committee should be responsible for monitoring and evaluating the organization's progress in achieving its DEI objectives. It can also advise on strategies to attract and retain diverse candidates, as well as provide training and guidance to ensure that all employees are given equal opportunities.
Establish a DEI benchmark and set goals: Companies should establish a DEI benchmark, based on their industry or sector, which can serve as an ongoing guide for achieving the organization's DEI aspirations. In addition, companies should set measurable goals such as increasing the percentage of women and people of color in executive positions.
Publish a sustainability plan that includes DEI: Creating a business strategy with measurable outcomes and outlining tangle impact (the what’s in it for me)for each stakeholder, turns sustainability into a business imperative. DEI should be a significant component of your sustainability plan. For a more detailed look on how to develop a sustainability plan, see our resource here.
Promote DEI awareness among employees: Monitor overall workforce turnover to ensure that minority groups are not over-represented in attrition rates.
Measure your progress: Monitor demographics of all departments for bias, diversity, and inclusion and track progress related to the recruitment, retention, and promotion of underrepresented groups within the organization.
Set objectives and key results(OKRs): Measure progress against DEI initiatives and include diversity metrics in your performance reviews.
Integrate DEI into your ESG program: This will help to ensure that companies are meeting their obligations and making meaningful progress on DEI issues.
Issue Company Policy
Zero tolerance for sexual harassment: Create and enforce a zero-tolerance policy for sexual harassment in the workplace.
Flexible working arrangements: Increase access to flexible working arrangements, work-from-home options, and parental leave policies that promote gender equality.
Anti-discrimination policy: Implement an anti-discrimination policy and ensure compliance with all diversity laws at the federal, state, and local levels.
Diversity, equity, and inclusion policy: Develop a comprehensive diversity, equity, and inclusion policy that guides how to foster a culture of inclusivity.
Communicate
Publish a diversity report: Analyze data to create a diversity report that provides quantitative and qualitative information on the company’s progress toward creating an equitable workplace. This should include statistics on gender, race, and ethnicity, as well as other characteristics such as age, religion, and sexual orientation.
Audit your website and marketing materials: Ensure that they represent a diverse array of people and are reflective of your entire community.
Ensure inclusive employee onboarding: Include DEI content in your onboarding process to educate new hires about what DEI means for the organization and create an environment that is welcoming to everyone.
Set Up Systems and Structures
Employee resource groups: Launch an employee resource group (ERG) and create opportunities for employees to connect based on common interests or shared backgrounds.
Employee feedback surveys: Utilize employee feedback surveys to gain insights into the experiences, perceptions, and opinions of employees around diversity and inclusion in the workplace.
Educational Programs and Training
Unconscious bias training: Introduce unconscious bias training for managers and recruiters. This is an effective way to develop a better understanding of how our own biases can impact decision making which can help create more equitable outcomes.
Cultural competency training: Develop cultural competency training for all employees to ensure a respectful workplace and create the conditions for open dialogue and mutual respect.
Launch sponsorship programs: Foster an inclusive atmosphere with sponsorship, mentorship programs, leadership development, and career development opportunities.
Recruitment and Engagement
Targeted recruitment processes: Invest in diverse talent and create a strong recruiting process that sources from multiple channels. For an in-depth look on targeted recruitment programs work, including examples from 25 top companies, see our resource on how to Attract diverse candidates with STEM Education.
Review benefits packages: Ensure that you’re providing equitable benefits and compensation packages across all demographics including gender, race, and ethnicity.
Workplace Culture
Recognize diverse contributions: Create an environment of appreciation by recognizing and celebrating employee contributions from different backgrounds.
Celebrate diversity events: The HR calendar includes numerous heritage and history events such as Black History Month, International Women’s Day, Pride Month, and Hispanic Heritage month. Celebrating these events is one positive signal of an organization's commitment to diversity. To learn more about how companies celebrate these months, Black History month in particular, see our resource on 25 Black History Month Ideas for Work.
Offer educational opportunities: Offer educational opportunities to help employees gain a better understanding of different cultures and backgrounds. This might include lunch and learn events, cultural evenings, or poster displays.
Engage your community
Diverse supplier programs: Ensure your company is working with suppliers from underrepresented groups. This can involve working with minority-owned businesses, women-owned businesses, or veteran-owned businesses. By diversifying their supplier base, businesses can increase their access to new ideas and perspectives possibly leading to improved products and services and increased innovation.
Support local nonprofits: Donate or volunteer at local nonprofit organizations that are dedicated to advancing diversity, equity, and inclusion.
Conclusion
Creating a diverse and inclusive workplace requires commitment from all levels of the organization. By investing in DEI initiatives, companies can ensure that their ESG efforts are truly effective and sustainable. Not only does it make for a more diverse, equitable, and inclusive workplace, but it also helps build trust in the company’s values and create long-term value for stakeholders.
It’s important to remember that DEI initiatives are not just add-ons or “nice-to-haves.” They are an essential part of any comprehensive ESG program with increasing requirements for transparency. Now is the moment for us all to reimagine our strategies and commit ourselves wholeheartedly to promoting real change – both within our organization and outside of society as a whole.
What more resources on how to more the needle of DEI through your ESG initatives? You’ll find a number of “Social” impact resources here.
