Get the knowledge: How diversity, equity and inclusion impact sustainability

The term ‘sustainability’ typically conjures images of green living and consideration for the climate, but in recent times its scope has broadened far beyond environmental matters to include issues such as human rights and social responsibility – factors that comprise the ‘S’ in ESG (environmental, social and governance) reporting, to which companies are paying increasing attention.

A key metric in ESG reporting is diversity, equity and inclusion (DEI) which takes into account a company’s workforce and the way it’s comprised, among other factors.

Diversity includes the way people differ and encompasses a wide variety of characteristics that make people who they are. This includes things like age, sex, race, religion, physical ability and socioeconomic status. The greater the variety of different people among a workforce, the more diverse it’s said to be.

Equity means fair treatment, access, opportunity and advancement for everyone within a workforce, regardless of their unique characteristics. It means identifying and breaking down barriers to participation, and understanding the root causes that lead to discrimination and injustices.

Inclusion is the act of creating an environment where everybody feels welcomed, respected, heard and supported, and where differences are embraced and unique perspectives are valued.

From a business perspective, there are many reasons to promote DEI within an organisation. It creates a good working environment where staff are happier and feel free to bring their best selves to work, which in turn leads to improved productivity and a lower staff turnover. It enables innovative thinking, since there is a diverse range of perspectives and ideas on offer – and people feel comfortable sharing them – and it improves a company’s image in the eyes of consumers and investors alike.

How DEI impacts sustainability

But as ambitious national climate targets loom and many organisations set their own environmental goals, DEI is also playing a key role in the wider ‘green’ sustainability conversation. As the 2021 edition of the Global Diversity, Equity and Inclusion Benchmarks Standards notes: “There is a clear link between the organisation’s sustainability strategy (based on ESG) and the UN’s Sustainable Development Goals. The strategies for each initiative support the other, and opportunities for collaboration make both initiatives stronger. Leaders and practitioners in sustainability participate in the DEI initiative and vice versa.”

The ways DEI can impact sustainability include:

1. Better innovation and performance: According to a study from McKinsey, diverse work teams are as much as 20% more innovative and 35% more likely to outperform undiversified teams, with the research finding that representation within a workforce is directly correlated with performance. This means that more diverse teams are better positioned to successfully develop the important solutions needed to address global challenges, such as climate change.
2. Greater representation of marginalised communities: People from BIPOC (Black, Indigenous, and people of colour) backgrounds or low-socioeconomic status communities are often underrepresented in global conversations, and are less likely to be in positions of power to create structural changes. They are also more likely to be disproportionately affected by climate change and environmental harm. Including voices from these backgrounds in a workforce provides unique viewpoints that could otherwise be missed, and creates valuable opportunities for meaningful action.
3. More sustainable supply chains: When DEI is extended to an organisation’s supply chain, it has the opportunity to promote innovation through the introduction of new products, services, and solutions. It can also address business sustainability challenges – such as fair trade, supplier emissions and the responsible sourcing of materials – by choosing a more diverse range of suppliers that have local or specialist knowledge.
4. Improved leadership and decision-making: When leadership is educated on unconscious bias and privilege, it’s much more likely to make decisions that are good for everyone. Leaders that properly understand DEI are also more likely to have the skills needed to communicate with people from different backgrounds on topics such as company climate goals and workplace initiatives.
5. Greater accountability: Consumers, investors and other stakeholders expect companies and brands to report clearly on ESG metrics, such as DEI. Doing so makes a brand accountable for its activities across the whole sustainability space, and makes it obvious if its efforts are lacking in any particular area, thereby prompting action.
6. A more engaged workforce: A company’s culture is made by its people, and if people feel happy, safe and secure coming to work, they’re more likely to engage with and contribute to workplace initiatives such as sustainability strategies and climate programmes.

The global state of DEI

Thanks to social media, evolving consumer expectations, and movements such as Black Lives Matter, DEI is getting increasing attention around the world. However, meaningful progress remains slow. According to McKinsey, research spanning more than 1,000 large companies across 15 countries shows that many businesses remain stagnant on the issue. From 2016 to 2022, for example, the proportion of women in leadership positions around the world increased by only 3.6%, from 33.3% to 36.9%.

There are a number of reasons for this, including:

• a de-prioritisation of DEI due to COVID-19 and tightening budgets;

• fewer women in the workforce

• a focus on remote and hybrid working, which often favour more highly-skilled employees

• a growth in fields typically dominated by men (according to McKinsey, engineering, computer science and construction account for 60% of new occupations in the US – similar trends have been observed in Europe)

• Higher numbers of job losses in sectors that disproportionately affect women and minority groups

However, some companies are bucking the trend and have made significant gains in diversity – particularly in executive teams. McKinsey attributes these success stories to initiatives such as the DEI Lighthouse Programme and the platform Diversio, which are designed to accelerate progress in the DEI space.

Furthermore, while progress is slow, it is projected to ramp up in the coming years. As McKinsey notes, in 2020 the global market for DEI – that is, dollars spent by companies on DEI-related efforts such as employee resource groups – was estimated at $7.5bn, and is projected to more than double to $15.4b by 2026.

Given the multiple business and sustainability benefits associated with DEI – and as our population becomes more diverse – companies that don’t invest in DEI may find themselves getting left behind.

Consumers can accelerate progress

Just as we’ve seen brands and organisations adopt greener and more ethical practices as a result of consumer demand, so too can we expect them to respond to growing demand for better DEI.

According to Amazon’s Higher Impact report, more than 50% of survey respondents said factors relating to DEI have become more important to them over the past three years, with 72% stating it’s important that the brands they purchase from are taking action to promote better DEI practices.

Consumers can learn more about a brand’s DEI efforts in the ‘social’ section of their ESG reports. Look for evidence of increased diversity (such as a growing number of female or Black employees), information on minority-focused accelerator programmes, and initiatives such as employee resource groups, which are designed to give all employees a meaningful voice within the company.

And – just as greenwashing is a problem in climate and other environmental conversations – don’t be fooled by ‘diversity washing’, where companies use stock photos of women and BIPOC people on their websites, or make vague, PR-friendly declarations in relation to awareness days or current events. Real DEI means fundamental shifts in company culture.