Does ESG include diversity and inclusion — or is it a separate issue? It’s a question many business leaders ask as they build out their ESG strategies. For various reasons, efforts to address environmental, social and governance (ESG) have historically focused most on the ‘E.’
With the spotlight on organizations’ sustainability strategies, much of the regulation on ESG — including the 2021 Climate Risk Disclosure Act and Task Force on Climate-Related Financial Disclosures requirements — has made environmental concerns the priority for companies starting on ESG.
But businesses increasingly recognize that a fully-rounded ESG strategy needs to prioritize diversity and inclusion too. We saw increased attention to DEI in 2020, but implementation can’t be a checkbox exercise or a fleeting fad. ESG and diversity and inclusion are too interwoven for there to be an alternative. DEI should be in your ESG strategy and then routinely monitored and updated.
What is ESG Diversity? The Role of Diversity in ESG
Some believe that when it comes to ESG, diversity and inclusion are an add-on: Fortune, for instance, advocates for “ESGD,” a philosophy that gives D&I equal billing with the other elements of ESG. Others believe it fits within the “S” of ESG, the social justice aspect.
And indeed, it’s tempting to think that diversity and inclusion only relate to the “S.” In fact, Fortune believes that D&I needs to be baked into all aspects of an ESG strategy, arguing that it needs to be:
“integrated specifically as a lens to look at the “E” (think of the water crisis in Flint, Mich.), or the “S” (zeroing in on the social impacts of businesses on black communities), and the “G” (promoting people of color for corporate boards).”
Perhaps, then, diversity and inclusion aren’t pigeonholed within the ‘S’ but should run through the DNA of your entire ESG approach to ensure you are building environmental, social and governance strategies with an eye to D&I.
The Benefits of ESG Diversity
What are the advantages of integrating diversity into your ESG strategy?
Better Business Decisions
Diversity in its broadest sense — encompassing gender, race, age and other factors — can help businesses improve their decision making and, consequently, enhance business performance.
Better Business Results
An analysis of corporate performance during the Covid-19 pandemic found that age and gender diversity among directors correlated with better financial performance. Across the board, reports show that more diverse organizations perform better; ESG is good for business.
Better News for Investors
Improved financial performance as a result of ESG diversity isn’t just good for corporations. Those who invest in them get enhanced returns, a reduced risk that their investments will fail and the knowledge that their investments are on the right side of the ethical debate on ESG.
A More Robust ESG Strategy
Effective ESG demands an integrated approach to risk — and with D&I shortcomings creating clear risks for organizations, by definition this integrated approach must include diversity and inclusion.
Your organization’s D&I performance is increasingly transparent, with mandated reporting and growing awareness of the benefits of diverse boards and businesses. An ESG strategy that fully integrates D&I is more comprehensive, giving your board and stakeholders assurance that you are taking the issues seriously.
D&I Gets the Attention It Deserves
The flip side of the above: not only does integrating D&I into ESG make your ESG strategy 360-degree, it also gives D&I equal billing with the other elements of your strategy.
In their droves, businesses are turning to automation and structured ESG frameworks to put rigor around their ESG strategy. Include your D&I efforts here, and they will enjoy the same attention and thoroughness. ESG diversity metrics become part of your wider ESG monitoring, elevating them to the board and codifying their measurement into your ESG strategy and reporting.
It’s the Right Thing To Do
Integrating diversity into ESG ramps up the momentum for organizations, encouraging initiatives like reverse mentoring and prioritizing LGBTQ equality. This isn’t just good for talent management and profits; it’s unequivocally the right way to act for ethical, purpose-driven businesses.
Integrate ESG and Diversity to Super-Charge Your Results
It’s clear, then, that ESG and diversity, when combined, deliver a more rounded approach to both.
Applying a D&I lens to all aspects of your ESG strategy brings an added dimension to the issues at play. Attacking D&I challenges with the same metrics, structure and rigor, you devote to other areas of ESG elevates diversity and inclusion practices.
As a result, businesses can achieve better results, easier investment, cheaper and more plentiful capital and helps attract and retain employees.
If these are compelling enough for you to want to learn more about D&I, and how you can improve your own diversity and inclusion strategy, you can download a free copy of the latest diversity report from Diligent Institute, focusing on women in the leadership.