Opinion: DEI has a direct impact on ESG

Dina Readinger

There has been more recent attention given to the mystery of environmental, social and governance standards.

Part of the challenge is there are very few financial studies that give clarity to what really matters most when planning for the social piece of ESG. While there are positive correlations among diversity, equity and inclusion, as well as the returns on equity and assets, stock performance, operational efficiencies and lower costs of capital, few people really understand what ESG is – especially the “S” piece. At least in my perspective, ESG remains unclear to many, outside of big finance, or it is completely unknown.

But it can’t be overlooked. DEI creates social and economic impact.

The Institute for Operations Research and the Management Sciences published a study of over 1,000 public companies across 35 countries and 24 industries, and it proves when they embrace gender diversity within their organization and leverage their diversity, the companies experience higher market valuation. You can have a diverse employee population, but if you fail to leverage their diverse experiences and ideas, people leave. The “Great Resignation” is proof the “S” matters a lot.

DEI also includes society, suppliers, investors and public-facing relationships. 

I contend the most pressing issue is the failure of DEI programs to meet expectations.

New York University’s Stern School of Business revealed in its most recent aggregate of over 1,000 ESG studies between 2015 and 2020 that ESG is a long game, and many DEI initiatives are missing the mark. You can hire diversity, but if you don’t leverage diverse minds and ideas, you will miss the mark on the long game, increasing stock value.

So, how can you impact the “S” within ESG – while keeping DEI at the forefront? There are three ways:

1. Do not ignore great ideas. Be inquisitive and ask Socratic questions. Nikola Tesla, inventor alongside Thomas Edison, shared his ideas for an induction motor for alternating current. Edison replied, “Spare this nonsense.” Don’t be “that person,” who ignores people who want to share their vision for what may be a great idea, yet fear being ignored.
2. Millennial and Generation Z workers will determine the success of your company. Find out from them now what social changes they see that would inspire them to learn new leadership skills. Create platforms that give paths for great ideas and ones that create actionable next steps and social impact.
3. Bridge the gap for employee resource groups. This is where employees of diverse backgrounds are put in groups with the same background or ethnicity. Find ways to connect ERG members, and be sensitive to segmenting them away from the company’s community and connections. Every diverse employee has a need to feel safe for sharing their vision, ideas, and experiences. Giving other employees and leaders a facilitating opportunity and learning the art of creating inclusive environments for all genders and races is one of the most important leadership skills and brings a diversity of ideas.

DEI, done well, directly impacts ESG, and investors are paying more attention today than before. Leaders must get better at creating social impact with their DEI program, if they desire long-term sustainability, and it’s never easy.

We need each other to learn new ways of thinking for solving the right problem, building off new ideas and individual contributions before change can happen. We need to be constantly learning.

Dina Readinger is CEO of Diagnostic Thinking and creator of a leadership system to develop executives, particularly in employee retention and diversity, equity and inclusion. She can be reached at dina@acecoachingco.com.