Linking DEI and ESG Creates More Than the Sum of Their Parts

With the economy in flux, geopolitical events rocking countries around the world and the polarization of communities and workplaces deepening here at home, many organizations are choosing to put Diversity, Equity and Inclusion (DEI) on the back burner. These are troubling times.

Pressing priorities, including digital transformation, the dangers of AI, and the importance of sustainability, to name a few, are competing for precious resources. Investors are clamouring for signs of progress regarding Environment, Social and Governance (ESG) initiatives. DEI has topped so many agendas over the past few years that we should be able to take our foot off the gas a bit, right? 

Wrong. Since 2020, organizations have made endless calls to action and pledges to support DEI in the workplace. Driven to respond after witnessing the George Floyd tragedy, over 300 Canadian CEOs stepped up. They signed up for the BlackNorth Initiative with good intentions, committing to real action in addressing anti-Black systemic racism and unconscious bias. However, a Globe and Mail survey two years later showed that only 10% of participants reported significant improvement. Reinforcing this, recent global research conducted by Catalyst shows that “66% of global employees from marginalized racial and ethnic groups have experienced racism at work, and more than half in their current job.”

The Rise and Fall of DEI

The pandemic saw an unprecedented rise in demand for equity and inclusion. Lingering issues around gender equality, 2SLGBTQI+ community rights, and racism continue. But progress has slowed, with new social justice whiplash moments competing for headlines and leaving marginalized communities and allies unassuaged.

In 2022, McKinsey revealed that progress on gender parity had been modest at best, despite years of concentrated effort, showing that only one in four C-suite leaders were women, with only one in 20 women of colour. The “broken rung” holding women back at the first step to management remained fractured, with only 87 women and 82 women of colour promoted to manager for every 100 men. And with women leaders spending twice as much time on DEI work and 1.5 times as likely to leave jobs for organizations more committed to DEI, it’s expected to remain that way.

Momentum in the field is stagnating. DEI programs are often among the first to fall victim to financial pullbacks in leaner times. Without governance and measurement, policy and regulation, and a precise alignment to enterprise strategy that demands action, it can be near impossible to move the needle and gain the company-wide adoption DEI requires. 

No wonder leaders in key DEI roles are stepping down at alarming rates. It recently emerged that the average tenure of a CEO is five years, while the same for a Chief Diversity Officer is a mere 1.8 years. With so much on their shoulders and having to do more with seemingly less budget and fewer resources, the energy it takes to face persistent structural inequality daily is undoubtedly staggering. 

Conversely, despite anti-ESG sentiment and the battle against green investing in the US, almost 90% of companies surveyed recently are looking to invest more resources in ESG over the next three years. About 43% of those surveyed plan to bolster their ESG teams to build capability, boost performance, and integrate sustainability with their business strategy.

So where does that leave DEI? Has the time come for Canadian businesses to swap DEI for ESG? 

DEI Versus ESG

The good news is they don’t have to choose. DEI and ESG aren’t mutually exclusive. Both entail taking responsibility, showing accountability, delivering long-term sustainability, and being good corporate citizens. Dovetailed, they increase engagement, inspire innovation, encourage investment, and contribute to long-term corporate resilience. 

Academics and thought leaders have touted the benefits of ESG for years. Its ability to improve performance and increase competitive advantage and customer loyalty attracts investors and supports sustainable operations. A strong ESG strategy can help define a brand and create a culture people want to believe in and be a part of. This positioning is familiar to that of DEI pundits because the best ESG plans start with a foundation of equitable strategies and strong corporate values. 

How do we evolve this alignment and broaden our scope to encompass ESG when considering DEI? By recognizing their shared purposes and goals. With so many DEI issues straddling environmental, social, and governance issues, separating DEI and ESG can be challenging. Where does DEI or ESG sit in an organization? Is it with HR? The executive? Finance? The truth is they cross all three functions and more. DEI is not an HR issue to be solved but a leadership opportunity to increase shareholder value.

Organizational leaders can view DEI and ESG as two sides of the same coin, with one internally focused on creating a sustainable workforce and the other reaching outwards, contributing to a sustainable environment and society. 

Organizations that value diversity of thought, or the “D” in DEI, are more likely to collaborate on ways to minimize their environmental impact, targeting the requirements of the “E” in ESG. Those who believe in DEI’s equity and care for the well-being of their people will be better able to understand customers’ unique perspectives and help solve their challenges, as well as those of the community around them, thus working on ESG’s social component. And governance and inclusion are about acting ethically and with accountability—doing “well” by doing “good”—and giving investors practical measures to help them make better investment decisions. 

The Future of DEI and ESG

In 2021, Gartner found that 65% of employees were contemplating how and where work fit into their lives. Since the pandemic, that number has likely grown as people seek new and rewarding ways of working. Employees, especially younger ones, are looking for jobs and organizations that reflect their values, where they feel valued and can offer intrinsic value. When competing for talent to recruit and retain valued employees, companies would be remiss not to consider DEI and ESG’s impact on recruiting and keeping people engaged and in place.

When the fit is right, employees stay motivated and help companies achieve their long-term financial goals. Research has shown that organizations with diverse and inclusive teams where people feel valued for their contributions perform better. Companies that prioritize inclusivity are 25% more likely to enjoy above-average profitability. Inclusive teams are twice as engaged, work harder and perform up to 30% better, driving up not only “the bottom line” but the commonly referenced “triple bottom line,” focused on profit, people, and the planet.

Equity work is collaborative, courageous work. It takes time, commitment, solidarity, and the ability to measure impact and tie it to organizational strategy. Canadian organizations looking to shift from DEI box-ticking and outputs to outcomes will benefit from pairing DEI with ESG. 

Not only do they function better together, but doing so lends a degree of weight and legitimacy to both that will have leaders across a business paying attention. And, without the policies, regulation, measurement, and compliance that ESG demands—requiring explicit action and alignment to enterprise strategy—businesses won’t gain the traction needed to move forward into the future. 

We cannot take our foot off the gas. We must recommit to DEI and accelerate our plans to define a more equitable future.