Is Upholding ESG and Diversity Critical for Future-Proofing?

ESG covers ‘environmental, social and governance’ policies, while DEI is diversity, equity and inclusion. Many think that the ‘social’ element of ESG is where DEI can fit neatly under the umbrella. However, from a governance point of view, there is also increasing scrutiny around the make-up of boards and succession planning, which touches on governance.

The government’s commitments as part of the race to net zero, to ensure that no more greenhouse gases are emitted than the amount taken out of the atmosphere, have been a huge element of what the ‘environmental’ aspect of the three key elements means to businesses. The motor industry and fleet customers have spent billions on meeting the 2030 electrification deadline, showing the significant impact of the policy changes.

Rishi Sunak’s announcement received a mixed response, but leaders in the energy and automotive industries were among the critics of measures, which included a five-year delay in the ban of new petrol and diesel cars. Union leaders were concerned for industries offering new, cleaner tech.

“Both workers and employers in the energy industry know we need clear and consistent policy to drive investment and create good, well-paid jobs in clean energy.”

Sue Ferns, Senior Deputy General Secretary of engineers and professionals’ union Prospect.

In spite of the revisions to the government’s policies, it is important to reinforce that the Prime Minister underlined that net zero is still in sight for 2050. While this changes the roadmap, the destination remains intact. Therefore, for the businesses who have plans in place that they manage to deliver on, sticking to their values will undoubtedly be positively recognised by their key stakeholders.

The evolution of DEI

A strong DEI approach affects the company’s bottom line. This is more acute in some sectors than others, with the traditionally male-dominated construction industry recently launching a coalition to proactively tackle the lack of diversity.

Over recent years, DEI has evolved as an HR discipline – going from being seen as a ‘nice to have’ when times for businesses were not tough and funding was available. However, many companies now have ‘Heads of’ in roles that have been created from legal and regulatory developments, as a key part of compliance. They increasingly play a huge part in building the culture of a firm.

According to our spring 2023 UK Reward Management Survey, 64 per cent of employers reported experiencing retention challenges and 74 per cent anticipated recruitment challenges. New recruits can increasingly command a premium, with 59 per cent of employers quoting the need to offer salaries that conflict with those paid to existing staff, highlighting the business costs of hiring and retaining talent. Shared values centred on DEI and ESG with existing and prospective employees is crucial to fostering a healthy workforce and can help drive down employee turnover.

The role of DEI and ESG in workforce planning

ESG cover the three key components of a company being a good corporate citizen. However, companies need to continue to transform their perception of DEI as a ‘cost’ to the business to build a truly inclusive environment, both internally and externally.

Forbes reports the views of Armando Azarlo, CEO at Axis Agency, who highlights that general recruitment marketing to everyone does not work when the new ‘general’ market is in fact ‘multicultural’ and wants to see different viewpoints and experiences embraced in the workplace. Employee listening is a useful tool to understand what current employees value about their workplace and its culture, that can be built into a wider employer brand campaign to attract and retain talent.

DEI agendas focused on being an inclusive employer can also help companies weather turbulent times. The Harvard Business Review highlights how adaptability, something they term as ‘change power’, is 80 per cent higher in companies that received the highest DEI scores from Glassdoor. Its research also highlights how purpose can be strengthened by greater diversity, pushing forward organisational change through greater internal engagement.

Externally, brands can differentiate themselves by engaging with their local and global communities. As vice president of DEI at NBC Universal Media, Sal Mendoza describes his role as business development, community engagement and building brand equity – directly by reflecting and engaging with the wider communities in which the business operates. We have heard this directly from customers in our HR Workshops, who say that they are trying to be more reflective of their communities and customers in the workplace when recruiting.

How DEI bolsters recruitment practices

Flexible working can hold the key to not only reducing commutes and supporting the environment, but also directly on the diversity of a workforce. The Behavioural Insights Team’s latest research found that offering part-time working or job share opportunities increased applicant pools by 50 per cent at John Lewis and increased applications from women to senior roles by 19 per cent at Zurich Insurance.

A focus on inclusivity can also ensure that recruiters do not unwittingly exclude good candidates. The research highlighted how women and ethnic minority candidates are less likely to apply if the requirements are broad. Instead of saying ‘you’re a natural leader’ in a job advert, ‘you have held line management responsibilities’ is more specific and might result in meaningful differences in how applicants respond.

Long-term sustainability

Worryingly, business’ concerns about falling foul of ESG may be leading to increasing apathy about the pillars and the value they create for the business. According to our most recent UK Reward Management Survey, 65 per cent of employers have a diversity and inclusion plan and nine per cent do not have a plan. However, the Department for Work and Pensions’ Employer Survey 2022, polling 8,002 employers in Great Britain, highlighted that 20 per cent said they ‘see no benefits’ to having a diverse workforce.

Having a plan and executing one effectively are not synonymous; there has to be leadership buy-in that embeds the plan into actions and the wider culture. Crucially, two thirds of staff will quit if the employer does not share their values – which is growing more prevalent, particularly in younger generations who recognise the emotional connection of the work they do.

Furthermore, even though ESG and DEI are on the boardroom agenda, McKinsey has reported that while in some sectors 100 per cent of companies have a defined ESG strategy, only 40 per cent have the internal knowledge and resources to achieve the targets. Importantly, as ESG and DEI can be a broad church, making sure that each company’s role and impact on society reflects the initiatives it adopts will set it up for a sustainable approach that delivers long-term success, future-proofing organisations.

Get in touch

It is important that DEI and ESG are seen as the keys to sustainability planning that can weather the test of time, beyond HR and political trends. With reports that nearly half of businesses are not measuring the impact of their existing ESG efforts, many are calling for a more consistent, data-led approach across the issue. To drive momentum behind a company’s ESG agenda, data collection and analysis is crucial to effectively understand the difference an actionable plan is making.

Communication plans internally and externally to attract and retain talent inspired by a company’s efforts in this area will help organisations in their war for talent. Contact us today to help plan your total reward approach, with ESG and DEI factored into your plans for the future.