Diversity and Inclusion.. ..going beyond policies and KPIs to drive ESG impact
In an era where Diversity and Inclusion (D&I) has become a business imperative, the pressure to move the needle rapidly and visibly is higher than ever before. Businesses world over are bending over backwards to correct the gender balance at various levels, and realizing its neither easy nor simple.
At multiple levels, driving D&I is becoming a challenge for businesses, as the need has moved from one that is nice to have to one that is must have, without which they could be at risk of becoming less relevant and perhaps to stretch it further….non-existent in the years to come.
As a key component of the Social pillar in ESG, D&I has taken centrestage like never before. The good news is this was very much needed and the benefits the increase in D&I is going to bring to business, economy and nation at large are huge! The bad news is… the stakes are high and demonstrating progress is difficult.
The bad news however is not all bad, as this has resulted in opportunities for partnering and has opened opportunities for various players like coaches, consultancies, influencers, speakers, content creators, software developers, technology experts etc to contribute to the value chain.
Decoding the S in ESG
The S in ESG stands for Social, which denotes how a company fosters its people and contributes to the inclusive growth. Their inclusivity and diversity will pave the way for a sustainable future.
To expand a bit, social factors covers issues such as how a company treats its staff, employee safety, gender equality and pay parity. At the country level, they relate to factors like whether human rights are being violated, whether workers’ rights are protected and gender equality is maintained.
Measuring Social Impact
There are three fundamental challenges to be addressed with respect to measuring social impact. These are:
Standardization
A 2018 KPMG study titled “How to report on the SDGs: What good looks like and why it matters” found that only 10 percent of companies surveyed had set specific and measurable (SMART) business performance targets related to the global goals, and less than one in ten companies (8 percent) reported a business case for action on the SDGs.
The ESG field needs an objective standard for reporting social outcomes. Outcomes-based standards are designed to measure the quantum of social change that was realized as a result of a program, strategy or intervention.
Investors might analyze -
Were the impacts generated advantageous to recruitment, business growth, competitive advantage, diversity, innovation, market development or employee health? How did this return compare to other companies or to the industry average? Which populations or communities were most impacted?
Standardized, comparable social impact data can form the basis of valuable analytics that is more incisive, precise and relevant.
Quantification
Standards should set thresholds for what constitutes a “unit” of impact for outcomes like hunger, education, and employment. An “impact creator” (i.e. company, NGO, or social enterprise) could report data and have their results verified against the standard. For example, a company might claim that it has helped 1,000 families become “food secure” by providing evidence that each family has achieved the threshold level of criteria for that outcome (i.e. ongoing access to healthy, nutritious food, to fulfil daily calorie requirements for a family of 3 or 4 in a reasonable proximity to their home, on a free or affordable basis).
Using such a standard, ESG analysts could aggregate a company’s total impact on society. Investors and other stakeholders could assess the level of contribution of a business to a critical social issue. Quantification could also be used to price and benchmark social impact. If one can put a value on a unit of social impact, eventually trading social impact credits much like carbon credits could become common.
Reporting
An Impact Materiality Map could help investors determine which social impacts are most strategic and beneficial to companies by industry. For example, improving the STEM education pipeline could materially impact innovation and growth in technology firms. For financial services companies, financial inclusion can materially expand their customer base and market penetration. For health care companies, social determinants of health can materially influence their cost structure and patient well-being. And so on. These social impacts are every bit as “material” an influence on corporate performance as risky social issues.
A company’s affirmative investment in DE&I outcomes can have a significant impact in mitigating talent loss and reducing risks to company reputation.
Reliable, high-quality S data requires specialized taxonomies, questionnaires, and independent verification. Using this S impact data, rating agencies and others can evaluate a company’s competitive advantage, growth potential, employee resilience, access to new markets, enhanced value chain productivity, and improved operating environment.
Examples of the social factors in ESG
Sybil Dixon, Governance & Sustainability Manager at UniSuper, says the social component of ESG is made up of four categories:
- Staff: diversity, retention, training.
- Safety: managing safe workplaces, measurement, tracking — both of employees, but also of customers.
- Supply chain: modern slavery assessments, occupational health and safety management of suppliers, fair pay.
- Community: managing relationships with the communities that the company operates in, including human rights and traditional landowners/First nations, keeping work practices aligned with evolving community standards.
courtesy: What is Diversity Equity and Inclusion? — ESG | The Report (esgthereport.com)
Conclusion
D&I being a critical part of ESG needs greater attention and is a key business imperative. Applying a D&I lens to all aspects of ESG strategy brings an added dimension to the issues at play.
As a result, businesses can achieve better results, easier investment, cheaper and more plentiful capital and attract and retain employees.
