If you have a business, are starting a business, or work for a business, you have likely come across the phrase ‘Environmental, Social & Governance’, or ESG.

A company’s ESG agenda has never been more important. According to the third SEC Newgate ESG Monitor report, 77% of consumers agreed it was important for companies to take action on ESG principles.

And if this isn’t convincing enough, from a business standpoint, companies who were considered global leaders in ESG earned an average annual return of 12.9%, compared to an average 8.6% annual return earned by laggard companies This represents an approximate 50% premium in terms of relative performance by top-rated ESG companies.

However, ESG continues to face backlash, with many big name companies – such as BlackRock, JP Morgan AM, and Pimco, to name a few – significantly reducing their ESG-related funds and leaving the Climate Action 100+ investor coalition earlier this year. But if anything, this highlights the importance of having a strong and effective ESG strategy in place, as many companies lean a lot on the Environmental side of ESG, when there are a range of opportunities to be seized across Social and Governance that promise to yield favorable return on investments.

It’s therefore not a huge leap to say that the quality and effectiveness of an organization’s ESG strategy plays a vital role in sustaining success long-term. And a sure-fire way of strengthening this agenda and ensuring it continues to yield profitable results is by having diversity, equity, and inclusion (DEI) deeply embedded in the decisions being made around ESG.

If you look at ESG in more detail, you’ll see that it covers three crucial areas:

Environmental – this is everything from reducing carbon footprint, being energy efficient, managing waste, water usage, and the conservation of natural resources.

Social – this is societal impact, human capital, DEI, labor practices, human rights, community engagement and product safety, and health and wellness.

Governance – this looks at internal management and decision making, board diversity, executive compensation, stakeholder accountability, and reporting and communications.

As you can see, DEI plays a prominent role in the Social aspect of an ESG strategy, as this is focused primarily around the management and treatment of people, whether this be internally through employees or externally through local communities/consumers.

However, DEI also plays a crucial role in an organization’s Governance, too. Whether this be the diversification of the board, representation in management, or examining pay equity, DEI is a consistent thread throughout these processes that must be embedded in order to improve and strengthen the overall performance of the company.

So, how can a business effectively embed DEI into their ESG strategy?

For Environmental, DEI plays a less prominent role but should still be a considered factor. With the effects of climate change disproportionately affecting those from underrepresented groups, it’s important to consider how your environmental strategies may play a part in this and ensure that this is kept front of mind when expanding globally (especially in those territories with more extreme climates and less access to basic needs).

When it comes to embedding DEI into Social strategies, an effective way I have found of measuring this is by using the employee lifecycle as the key point of reference. This means having metrics in place to measure whether these strategies are actually working, and strategically placing these metrics at precise intervals of the employee lifecycle – attracting talent, recruiting and onboarding, learning and developing, engaging, and retaining. DEI must be present during all these aspects, and middle managers will play a vital role in sustaining the driving force behind DEI, so offering them specialized coaching and training is paramount for this to remain a consistent success.

And with Governance, leaders must be holding themselves accountable for educating themselves and their teams around what DEI means within the company and how it aligns with the company’s vision of success. DEI should be embedded in the foundations of an organization and should be considered when any and all key decisions are being made.

What’s important to note is that DEI is a component of ESG, and with it embedded across those strategies, employers will be equipped to create an airtight agenda that is attractive, ethical, and sustainable – the ultimate equation for long-term business success.

If you would like to discuss the role of DEI in your ESG agenda in more detail, or simply just want to get more insight into ESG overall, you can email me directly at patsy.doerr@orgshakers.com or feel free to book in an hour with me to get some advice about any and all ideas you might have for strengthening your ESG agenda through our confidential online consultation service OrgShakers CL!CK.