Social Focus of ESG: The Importance of DEI in Your Organization’s Strategy

Introduction

Environmental, Social, and Governance (ESG) considerations and reporting of an organization’s human capital metrics have been on a significant rise lately. In addition to the seemingly inevitable environmental reporting rules, the SEC’s 2023 regulatory agenda now includes human capital and cybersecurity disclosure requirements.  Additionally, Diversity, Equity & Inclusion (DEI) has now been elevated to first-among-equals status as a focus area of the Social component of the ESG framework and is ubiquitous in the network of business conversation.

What Does DEI Mean in the Business World?

In practical terms, DEI is about ensuring that all employees have fair access to organization opportunities and resources, can express their authentic voice, and feel a true sense of belonging at work. DEI should serve as foundational traits of your organization’s culture and a key component of your company’s employee value proposition. DEI is about putting your people at the center of your organization. Further, your people strategy should be an extension of your company’s business objectives and, as such, employee priorities represented in core business practices, with leaders and managers making it a priority to focus on their people. It must be authentic!

Why is DEI an Important Focus Area for Companies?

In addition to appealing to what should be a universal human sense of fairness, respect, and dignity in the workplace, DEI makes good business sense, helping companies build engaging, thriving, and innovative workplaces that can compete in a global economy. Intentionally diversifying teams and management allows innovative ideas and perspectives to flourish and drives higher profitability. McKinsey & Company¹, in a recent study, found that companies in the top quartile for diversity were 21% more likely to have good financial performance than companies in the bottom quartile. At the same time, there is keen interest in DEI and how human capital are handled being expressed on the part of additional stakeholders. Specifically, the SEC is asking companies to disclose data on the diversity of their boards, while institutional investors, private equity, and venture capitalists are beginning to look beyond solely conducting financial due diligence when testing the soundness of a deal thesis, the robustness of a valuation and, ultimately determining where to invest.

Where We Are Today?

Over the past two years, recruitment and retention of talent have become a persistent concern for businesses as they struggle to adapt practices, programs, processes, and the overall employee experience to reflect shifting employee work expectations and preferences. McKinsey & Company² shared that two-thirds of U.S.-based employees reported COVID-19 caused them to reflect on their purpose in life, leading 50% to reconsider the work they do. With the pandemic serving as a backdrop and accelerant, many employees are now insisting that their jobs bring a sense of meaning and that the organizations they work for be purpose-driven.

A large component of shifting workforce expectations relates specifically to DEI. Sadly, many who have voluntarily left organizations have cited experiencing a lack of belonging at work as a critical reason. According to a CNBC/SurveyMonkey Workforce Happiness Index³ study, nearly 80% of respondents said they wanted to work for a company that values DEI. A study by BetterUp⁴ demonstrates that employees who feel a sense of belonging at work perform better and stay longer than employees who lack that feeling (50% lower turnover risk; 56% increase in job performance). Put simply, fostering diversity and encouraging inclusion can give you an edge over your competition. Many companies, initially slow to pick up on the dynamics of the modern-day talent marketplace, are adjusting to make up ground.  This pivot must be planful!

Moving Forward

Eager to demonstrate commitment to DEI, many companies have embraced policies and programs without a solid strategy in place. For DEI efforts to take root and be effective, a holistic approach is necessary. Unfortunately, the assortment of public statements of diversity targets, mandatory trainings, and sponsorship of various groups over the past few years has contributed to less-than-optimal results. The strategy and supporting set of initiatives should focus on better capturing overlooked sources of talent, drive a more inclusive culture, and eliminate barriers to career success for all. Put another way, organizations should have a clear sense of why DEI improvements are needed and how they connect directly to the company’s business strategy and values. DEI is multidimensional, incorporating tangible and intangible elements from a company’s mission and vision to HR practices, leadership behaviors, supplier relationships, and community partnerships. To truly move the needle, DEI should be embedded throughout the HR and talent platform – from sourcing and selection to training and development, succession planning, and career advancement. To intentionally create and drive such an enabling organization culture, a clear DEI strategy, a robust roadmap, and a cohesive set of data-driven and measurable initiatives and programs will be required. A disparate set of reactive steps simply will not do!

How Centri Can Help

Centri’s ESG and HR Advisory practices are uniquely qualified to assist you on your DEI journey. And, while each company’s journey will be different, there are a few key steps that should be taken to ensure that DEI can flourish as part of your organization’s culture, align with business strategy, and support meeting your business objectives.

Our Approach

Whether you are starting out or already have a holistic ESG (inclusive of DEI) or standalone DEI strategy, we will work with your HR Leader, DEI taskforce, and/or any other committed parties to drive organizational awareness, understanding, and change at a comfortable pace. Our approach is divided into three phases:

Phase 1 – Current State Discovery: Our goal during this phase is to understand the current state of your culture and DEI approach. We examine existing DEI strategies, programs, resources, and documents; relevant organizational data (e.g., employee engagement, exit interview); and current HR/Talent programs and outcomes (e.g., recruitment, selection, performance management, compensation, promotion). We use structured interviews and focus groups, along with our DEI Maturity Assessment tool, to gather data from HR, leadership, and other stakeholders.

Phase 2 – DEI Roadmap Design: Based on the information gleaned in discovery, we work with your team to identify and confirm gaps in your existing DEI strategy or approach. We develop a DEI Roadmap that ties directly to your business strategy and outlines a realistic journey, including relevant steps, initiatives, and programming needed to enable and drive your culture to support real change.

Phase 3 – DEI Roadmap Implementation Support: We co-present the DEI Roadmap to senior leadership and other stakeholders for feedback and refinement. Work in this area often focuses on core values, competency modeling, ensuring existing HR/Talent programs are transparent with decision-based criteria; leadership development; designing new strategies and practices to ensure a wider talent net is cast; employee communications and branding; pay equity studies; reworking incentive programs, and more. Once approved, we partner with you to execute the plan and measure progress and impact by identifying relevant metrics to track and ensure it is aligned with your company’s ESG roadmap and related framework.

In the end, creating a fair, diverse, and inclusive workplace is a goal that can unify us all with a sense of shared purpose, teamwork, and belonging.  We look forward to partnering with you on your ESG and DEI journey.

¹Delivering through diversity. McKinsey & Company (January 2018). V. Hunt, S. Dixon-Fyle, S. Prince, & L. Yee).

²The future of work after COVID-19. McKinsey & Company Global Institute (February 2021). S. Lund, A. Madgavkar, J. Manyika, S. Smit, K. Wllingrud, & O. Robinson.

³This SurveyMonkey online poll was conducted April 8-18, 2021 among a national sample of 8,233 adults. Respondents for this survey were selected from the more than 2 million people who take surveys on the SurveyMonkey platform each day. Data were weighted for age, race, sex, education, and geography using the Census Bureau’s American Community Survey to reflect the demographic composition of the United States.

⁴The value of belonging at work: New frontiers for inclusion in 2021 and beyond. BetterUp.