The Link Between ESG and DEI: How an Inclusive Culture can Enhance Sustainability 

Written By Ian Randle

In the face of unprecedented change and instability resulting from the climate crisis, social justice movements, and the global pandemic, organisations are facing heightened scrutiny over their efforts to drive positive social change and build sustainable business practices. 

This is where ESG comes in; a term that most leaders will be familiar with but may not fully understand. ESG is not just a buzzword, it is a crucial factor in attracting investors, creating purpose, retaining customers, and building a sustainable future. 

Equiida recently held an event with FTSE 250 executives where ESG was a core focus of discussion. We want to encourage and engage in more conversations around ESG and, given that inclusion is a core pillar of our mission, how ESG relates to DEI. 

Firstly, what exactly is ESG? 

ESG is a collective term that describes an organisation’s impact on the environment and society and provides a framework for its governance. Specifically: 

  • The environmental aspect focuses on how businesses contribute to the conservation of the natural world. Environmental issues can include energy use, pollution, waste, the treatment of wildlife, and natural resource conservation. 

  • The social aspect focuses on how businesses shape workplace culture and impact broader society. Social issues can include workplace conditions, employee health and safety, the treatment of customers, whether a company holds suppliers to high ESG standards, and how a company contributes positively to the local community. 

  • The governance aspect focuses on the internal policies and practices that lead to effective decision making and legal compliance. Governance issues can include accurate and transparent reporting and accounting, leadership integrity and diversity, and the distribution of rights and responsibilities among different stakeholders. 

Why should you care about ESG? 

ESG and corporate performance are intrinsically linked. Research consistently demonstrates that organisations prioritising ESG outperform the market and are more resilient to emerging issues (Broadstock 2021; Moalla 2023; Huang 2021). This is because embedding ESG in their practices and policies allows organisations to: 

  • Increase customer loyalty and brand reputation by being transparent in how they are helping the environment, embracing diversity, equity, and inclusion, and following ethical business practices. 

  • Improve employee satisfaction and retention by creating the conditions that allow employees to thrive, have an impact, and be valued for the work they do. 

  • Reduce risks and costs by facing fewer regulatory fines or lawsuits, garnering more governmental support, and being efficient with resources. 

  • Attract investments by gaining interest from investors who are looking for socially responsible investing strategies. 

  • Build a sustainable future by reducing their environmental impact, improving social conditions, and promoting ethical governance practices. 

These benefits refer to business outcomes, but what about the benefits of prioritising ESG to both wider society and our planet? 

We live in a world where 40% of people live in countries with unequally distributed income; one in nine people don’t have enough food to eat; one in eight young people cannot find work (see Doughnut Economics by Kate Raworth); the concentration of carbon dioxide in the atmosphere is higher than ever before leading to a more hostile climate; rising sea levels threaten the future of islands and coastal areas...the list goes on. 

ESG didn’t come about just to improve organisational functioning; it exists to help improve the environment, create better human working conditions, and make a more sustainable society in response to these issues. 

The Role of DEI in ESG 

DEI is a fundamental part of any comprehensive approach to ESG but is often overlooked in ESG conversations. To most people, the connection between DEI and ESG lies in the ‘social’ component, as DEI-focused organisations are better equipped to address social issues such as discrimination and inequality and are more invested in the overall wellbeing of their employees and stakeholders, thus promoting a more just and equitable society. However, a focus on DEI will also strengthen an organisation’s environmental and governance strategy.  

Here are some of the reasons why: 

  • First, leaders who are less focused on addressing social inequities and the environment may be more likely to see profit as the sole measure of business success. Conversely, leaders who prioritise their people with a focus on inclusion, will be more likely to seek a balanced model that benefits the many more than the few. 

  • Second, research has shown that diverse Boards generally score higher across ESG components and are more likely to discuss issues like climate change and work-life balance. This is because companies with a broad range of perspectives at the board level will make more informed decisions to benefit employees, the environment, and society as a whole. 

  • Third, an organisation cannot effectively serve diverse populations without first understanding the needs and perspectives of all stakeholders, including employees, consumers, and communities. By bringing people together from different backgrounds and embracing their perspectives and ideas, an inclusive, diverse, and equitable organisation will create a greater understanding of the needs of both employees and consumers. This will inevitably impact how an organisation is governed as well as its values, purpose and mission.  

Ultimately, can you really be described as an inclusive leader if your business has the resources to contribute to positive change for society and the planet, but you choose not to? The very definition of inclusion is ‘the practice or policy of providing equal access to opportunities and resources for people who might otherwise be excluded’. On this basis, we believe that inclusive leaders are more likely to consider the needs of people and the planet, as well as profit. Such leaders will guide ESG goal achievement and lead their organisation to a more sustainable future. 

At Equiida, we seek to find these leaders through our proven search and succession and leadership assessment and effectiveness work. We are proud of the work we do in sourcing and assessing inclusive, diverse, and equitable leaders who care deeply for ESG, and its overarching goals outlined in this article.  
 
We’d love to hear your thoughts on this topic, and the different ways in which your organisation is prioritizing both ESG and DEI. 

 

For further reading on ESG, check out these useful resources: 

Ian Randle
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