Dialing Back Your Company’s DEI Efforts? Not So Fast.

Consistency or controversy?

Political division and ‘Anti-woke legislation’ have backed many C-suite leaders into a corner related to DEI (Diversity, Equity and Inclusion) efforts: forcing them to walk a fine line between accommodating employee expectations and addressing customer needs while still avoiding controversy.

In responding to this strain, many organizations have determined that the best path forward is to avoid social issues, even to the point of abandoning significant past DEI efforts – frustrating leaders, muddying organizational values and undermining existing strategies from HR to Operations.

DEI experts have responded by calling by focusing on fairness with greater transparency of internal diversity metrics to show issues, addressing bias in systems, and accountability for DEI training.

All of these are excellent (and necessary) suggestions. But how does an organization meaningfully incorporate all of these requirements into a meaningful business case with a clear return on investment?

The answer, surprisingly, comes by considering DEI within an emerging market force that asks business leaders to incorporate environmental, social and governance (ESG) considerations within the overall business strategy. ESG is a framework designed to help business leaders identify, report, and ideally strategize potential risks that can impact the long-term profitability of an organization.

According to Dora Lutz, a leading thought leader in social impact using the principles of ESG, “diversity, equity and inclusion (DEI) strategies support ESG efforts by ensuring that organizations create an environment that supports all employees, meets the needs of their diverse customers, and establishes a sustainable ecosystem of communities, suppliers, and partners.”

ESG’s momentum is growing

The 2022 Trust Barometer stated that “Societal leadership is now a core function of business.” Most businesses in the US are already using ESG to evaluate which challenges are most relevant to their overall strategy, evaluate external risks and prioritize long-term investments.

The benefit for organizations to share their ESG strategy and report on findings is growing exponentially. Their recent report found:

• 57% of Procurement Managers Consider Impact in Supplier Selection
• 80% of Investors Consider ESG as Part of their Decision Making
• 88% of Consumers Purchase Based on Social Impact
• 96% of Employees Care About Your Organizations’ Sustainability Strategy

Lutz believes the momentum in ESG will create a renewed sense of urgency, forcing leaders to ensure DEI investments drive results. It also provides an opportunity for leaders to leverage past DEI improvements as proof of an organization’s ability to manage change and meet its overall environmental, social and governance goals.

DEI’s foundational role in ESG

Data shows that DEI efforts, as a standalone issue, continue to be discussed within corporate documents, including: ESG reports, corporate filings, news releases, and company transcripts. In fact, total mentions have increased 191% in just a 10-year period.

DEI is an essential component of ESG, particularly the S of ESG:

• An effective DEI program can support your Social goals by ensuring equitable pay across your employee base (while reducing costs in talent attraction and recruiting).
• An empowered DEI effort can increase diverse viewpoints from the boardroom to the breakroom (while driving sound corporate governance).
• An engaging DEI strategy can help an organization align with Environmental goals by and work to eliminate hazards that historically impact under-resourced communities (while reducing long-term regulatory or compliance risks).

Stakeholders’ demands connect directly to the bottom line. Customer, Employee and Investor expectations for inclusion allow your brand to stand out and your employees to stay connected. A 2023 ManPower study found that:

• 78% of people believe diversity and inclusion offers a competitive advantage
• 68% of Gen Z workers are not satisfied with their organization’s progress in creating a diverse and inclusive work environment, and 56% would not accept a role without diverse leadership
• 75% of investors say companies should address ESG (environmental, social and governance) issues, even if doing so reduces short-term profitability

Leaders that care about the long-term success of their ESG efforts should ensure that their DEI efforts continue to drive strategy in a meaningful, reportable way.

DEI’s purpose is cultural change – that creates equity and belonging for all employees – not training for the sake of training. A strong DEI initiative boasts intentional and consistent activities over time. It requires a long-term lens and immediate action, but one size does not fit all.

Here are some activities to consider (re)investing in:

• DEI strategic planning
• DEI road map updates
• Employee Resource Group (ERG) creation and expansion
• Cultural Intelligence education
• Bias reduction in systems (recruiting, hiring, promotions)
• Pay equity and transparency
• Inclusive leadership development programs
• Mentorship and sponsorship programs
• Key performance indicators for management accountability on DEI
• DEI measurement programs

Leaders need to pivot now, before it is too late

The Global Reporting Index provides qualitative and quantitative metrics that connect diversity and equity into your ESG strategy including:

• Diversity of governance bodies and employees (GRI 405-1)
• Ratio of basic salary and remuneration of women to men (GRI 405-2)
• Operations with local community engagement, impact assessments, and development programs (GRI 413-1)

Additionally, future legislation from the EU will drive forthcoming reporting expectations for many businesses.

Ensure your organization is measuring employee perceptions on inclusion, evaluating representation at multiple levels in your organization, and leveraging leading indicators to assess DEI within your own organization.

Quantitative proof of your organization’s past DEI efforts is a clear way to demonstrate ESG leadership and gain competitive advantage.

Now is the time to act to strengthen your efforts and showcase your successes and secure a first mover advantage over your competition.

Organizations must prioritize DEI efforts despite the current political environment. Utilizing an ESG (Environment, Social and Governance) framework can position organizations for long-term success: by clearly aligning diversity within the broader business strategy – enhancing social impact, driving stakeholder satisfaction, and building competitive advantage.