Diversity and Inclusion Are More Than the ‘S’ in ESG

Keeping diversity and inclusion at the heart of what your organisation has been shown to stand for can benefit almost every aspect of the business. The most financially successful companies increasingly are also the ones with the most wide-reaching diversity, equity and inclusion programmes.

Diversity and inclusion boosts innovation, empathy and empowers employees from marginalised communities. It is also the ‘S’ in ESG: environmental, social and governance. Shareholders and investors are increasingly using ESG criteria as their benchmark for assessing future success.

Whether or not you are already listed or looking for investment, a committed D&I strategy will boost your value, appeal and credibility with today’s stakeholders.

What is ESG?

ESG is a framework used by investors who take environmental, social and governance factors into account, alongside -and sometimes before- financial indicators. As climate change, social diversity and sustainable living are at the forefront of consumer minds, investors are looking beyond financial performance.

ESG is important for companies to embrace and incorporate in their work culture. Reporting on your impact and progress in the areas of ESG can accurately tell an investor whether their investment will be sustainable.

Diversity and Inclusion in Sustainability

When we think of the word ‘sustainability’, we think of efforts that support and maintain our environment. However, sustainability has three pillars -environmental, economic and social. Getting the balance right between all three is central to true sustainable development.

Good sustainability strategies must embrace diverse communities and the voices within them. Sustainable businesses listen and respond to the triple challenges of climate change, growing populations and limited resources. A workforce that represents diverse ethnic and social backgrounds is more likely to understand how a business’ environmental footprint affects different communities. There is also evidence that diverse companies are more productive when making changes and solving existing challenges.

Companies with an inclusive culture are more likely to champion flexible working, equal opportunities, ethical sourcing, fair wages and support local communities. Being sensitive to employee needs translates to better decision making, lower turnover of staff and higher employee satisfaction. Employees feel confident in voicing their ideas, promoting a collaborative, innovative company culture.

Research shows that diverse companies are more likely to report a 59% increase in creativity and openness and a 39% increase in awareness of consumer needs and interest.

Diversity and Inclusion in ESG

Diversity and inclusion can strengthen each of the three components of ESG.

A diverse pool of employees is more likely to be aware of how environmental issues affect different areas and communities, which enables the business to introduce strategies that reflect local needs. In-depth, first-hand knowledge is vital when designing innovative solutions for reducing a business’ carbon footprint.

This aspect of ESG focuses on how a company manages its relationships both internally and externally. It looks at work conditions, health and safety and diversity. Companies who actively recruit people from a range of ethnic and social backgrounds score high in this area of ESG.

Research has shown that 35% of an employee’s emotional investment in their work and 20% of their desire to stay within their existing company is down to how included they feel in their workplace. Therefore, D&I undoubtedly results in more loyal, hard-working and dedicated employees.

This examines executive decision-making and leadership style. It considers factors such as equal pay, equal opportunities and potential corruption. Inequality and ethical leadership behaviour underlines every D&I strategy. Employees -and other stakeholders- know they can voice their concerns and that problems are quickly dealt with.

Repeated research has shown that gender-diverse boards are linked to improved investment efficiency, better engagement between board members as well as less fraud cases and operations-based lawsuits. The inclusion of women on corporate boards also increases the likelihoods of discussion on social issues, climate change and work/life balance.

Effective D&I and ESG reporting

Companies often find it difficult to set metrics for their D&I efforts. Aligning D&I strategy to the business case and targets means that you can use the same performance indicators to show the impact of D&I. Work your D&I mission into your company’s prospectus and documentation to ensure that all stakeholders are aware of your commitment.

Add D&I metrics and report on diversity programmes as part of your annual sustainability report. Decide which diversity and inclusion metrics you want to include and how to source the data. Relate your D&I strategy to your values and link its importance to the company operations.

D&I and ESG: more than financials

Many studies have concluded that companies with a working D&I strategy are more likely to have better gross and net margins, investment performance, market value, revenue and multiple other factors involved in financial health. But the investment and business worlds are now looking for more.

Eyes are open to the severity of global warming, race and gender inequality, the mental health crisis and miscarriages of justice that haunt our society and have a direct impact on business.

Leaders who put kindness, humanity and respect at the forefront of business decisions are being rewarded and celebrated. Scoring highly in all three areas of ESG is no longer a ‘nice bonus’ to business leadership -it’s vital for every business looking to grow.

There has never been a more exciting or more urgent time to take a look at diversity and inclusion in your workplace and assess where you can make changes. Contact GDP today to see how we can help with regard to D&I consultancy. Your employees will thank you for it. Your investors and shareholders will reward you for it.

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