The rise of D&I in the ESG agenda

By Clare Harris, Diversity Equity Inclusion Consultant – Shape Talent

We’ve known for some time that a focus on inclusion and diversity (I&D) is more than doing the right thing and has a strong business case for company performance. But now the priority is becoming even more important as I&D climbs the Environmental, Social and Governance (ESG) agenda.

Societies are increasingly looking not just to governments, but also to big businesses for leadership in providing good and fair work, fostering social justice, and protecting the environment. Pressure around the ESG agenda has increased in the last decade from investors, customers, employees, regulators and across the supply chain.

For publicly listed companies, we are seeing a trend in Europe with investors becoming increasingly vocal on ESG issues including diversity, gender pay gaps and ethical work practices. For example, Legal & General Investment Management – one of Europe’s largest asset management companies – have made it clear they will vote against the re-election of any Chair whose board consists of fewer than 25 per cent women.

Large companies are responding and we now see 45% of the FTSE 100 companies with ESG measures in executive pay[i].

Further indicators show that demand for ESG is now firmly on the agenda for leaders:

• Funds that invest based on ESG themes pulled $20.6 billion in 2012, four times the amount in 2018[ii]
• 85% of investors are interested in sustainable investing, up from 71% in 2015[iii]
• The Business Roundtable (which represents CEO’s of the largest companies in the US from Coco-Cola to Walmart) released a statement of purpose in 2019, signed by 181 CEO’s that want capitalism to serve more than just shareholders, but also workers, customers and the environment[iv]
• Consumers say they are willing to pay more for sustainably-produced products[v]

An increased focus and transparency around reporting means there is also a growing reputational risk for companies not taking ESG and (of particular interest to us) I&D seriously. From a talent perspective, prospective employees have greater visibility on how large companies are performing when it comes to inclusion and diversity. With a few online clicks individuals can access information on the company’s gender pay gap, how many women hold leadership positions, and what employees think of the organisation. Where the results aren’t favourable prospective employees will look elsewhere. For the companies who get this right, there is a fantastic opportunity to lead in this area and become a talent magnet from a diverse field of the best and the brightest talent.

From January 2021 contracts awarded by government departments and agencies require five key ESP themes to be expressly evaluated – including workforce inequality, and these themes must have a minimum weighting of 10% in the procurement process. Similarly, our clients are increasingly reporting that suppliers are demanding more transparency on ESG (environmental, social and governance) issues, including diversity within their organisations.

We have been working with several leadership teams recently who are keen to better equip themselves to respond to the ESG pressures they are facing. Whilst there is a realisation that things need to change, there is often a lack of clarity about what, as well as a sense of competing priorities.

For those operating in the UK’s Finance Sector, the Financial Conduct Authority has recently released a consultation paper proposing ‘comply or explain’ targets of at least 40% of board positions held by women, including at least one senior role (Chair, CEO, CFO or Senior Independent Director). They further propose that at least one member of the board be from a non-white ethnic minority background. It is likely that other industry regulators will move in the same direction to raise the bar across ESG activities.

So as a leader, what do you need to be aware of and focusing on to meet stakeholder expectations (and to get ahead of the regulation that is inevitably on its way)? We have identified the initial steps that leadership teams should be considering:

1) Use data to understand your position

Unless you know how you are currently performing in ESG areas, it’s going to be hard to know what needs addressing. We’ve been working clients to not only help them gather and interpret their own data, but also to benchmark against their customers, competitors and those in their supply chain. This builds an understanding of their performance in relation to stakeholders, consideration of the barriers and opportunities and an ability to make strategic decisions around prioritisation and measures of success that will have an impact – not only commercially, but also on the ESG ambitions set.

A focus on ESG requires additional data of a different nature to that which has been used to measure commercial success in the past. So as well as financial performance data, it’s important to look at attraction, engagement, and perspectives on how ESG related topics are being managed. At Shape Talent we have a particular interest in creating gender balance in leadership, so and understanding the experiences of women forms part of our data gathering, often via focus groups and interviews.

By building new qualitative data into the process, this allows leaders to understand the business though a more human lens, which is fundamental to building the kind of inclusive workplaces and cultures that employees demand and deserve.

2) Setting the tone from the top

Having a serious intent at the top of the business to focus on ESG measures is crucial. Board members and executive teams play a key role in driving inclusion and diversity and set the tone for the rest of the organisation. Demonstrable support, reaching beyond empty statements of commitment to active engagement, is critical. Active support can be observed in the choices made by the Chair for board composition, and in the words and actions of the CEO and executive team, including the demonstration of inclusive leadership behaviours to provide role modelling for others. Intentionally engaging quieter group members, not tolerating microaggressions, welcoming opposing views and calling out bias in discussions and decision making all enable other leaders to follow suit. We often work with our clients’ leadership teams to help them ensure the right tone from the top.

3) Engage people at all levels of the business

There is an increasing trend to recruit Sustainability Officers, Environmental Advisors, Chief Inclusion Officers and the like. Yet accountability for driving positive change cannot sit just with these specialists. It needs to be shared by the senior leadership team, and people at all levels of the business need to buy in to the vision.

To do this, there needs to be a multi-faceted approach. From the initial diagnostics, there needs to be input from across levels, departments and geographies. When designing the various interventions, whilst the leadership team needs to be out front, people across the business need to have opportunities to share their experiences and ideas. And it’s important to remember that engagement is not a one-off activity, but a conversation that needs to be ongoing and therefore embedded into both processes and culture.

4) Take a thoughtful, evidence-based approach to planning solutions

As a client of ours recently commented, “diversity is easy, inclusion is hard”. Building the workplace cultures that foster a sense of inclusion and belonging, and where people want to stay, takes time and sustained effort. But it also involves focusing on the right things. In a complex world where time and resources are limited, focusing on the few things that really have impact is important. Fads and trends permeate people practices, but often these trends offer no meaningful or sustainable benefits. An example is unconscious bias training, which, when provided in isolation, has been shown to have limited effectiveness and, in some cases, can even serve to exacerbate bias with participants feeling their behaviour is excused as ‘normal’. Choosing interventions and approaches that have been proven to work, such as anonymous CV screening and hiring in batches, is an important part of an effective diversity, equity and inclusion plan.

Finally, setting and measuring progress via KPIs sets a tone for the organisation to follow (see our blog on whether gender targets are right for your business).

At Shape Talent we partner with organisations to accelerate gender equality in business and beyond. We design and deliver results-driven inclusion and diversity programmes for complex multi-national organisations to help them achieve their business goals through gender equality. We combine proven proprietary methodologies and tools with practical experience, passion and tenacity to deliver evidence-based solutions for each organisation.

Contact us for more information on how we can support you in this journey.

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References
[i] PWC ‘Linking executive pay to ESG goals’
[ii] CNBC ‘Money moving into environmental funds shatters previous record’
[iii] Morgan Stanley’s 2019 Sustainable Signals survey
[iv] Business Roundtable, ‘Statement on the Purpose of a Corporation’
[v] Fortune ‘Consumers say they want more sustainable products. Now they have the receives to prove it’