Diversity and Inclusion (D&I) has risen on the agenda of companies as pressure from various stakeholders to pay closer attention to the topic increases. Investors, employees and consumers are three key stakeholders demanding such a focus. Institutional investors are increasingly incorporating D&I criteria into their manager selection, pushing GPs to demonstrate how they promote D&I within their firm and amongst their portfolio companies. Talent shortages and the Great Resignation are being driven by a variety of factors. One of them being an increasingly selective workforce that refuses to work for a company that does not prioritise employee diversity and inclusive work practices. On the consumer side, we are seeing individuals increasingly choosing to buy from companies which actively take a stance against social injustices. In this article, we outline why we, MJ Hudson’s ESG & Sustainability team, believe that D&I has moved from being a ‘nice to have’ to a ‘must have’. We explain the business case for D&I and how we help companies and investors progress through their D&I journey.
Diverse and inclusive companies solve problems with high levels of innovation and attract and retain the best talent in their industry, altogether enhancing their business resilience. There is substantial evidence to support that diverse companies have 19% higher innovation revenues. A key reason for why Diversity and Inclusion improves innovation levels is because when diverse perspectives are heard and included in decision-making, they can combat ‘group-think’ which occurs when a group of individuals reaches a consensus without critical reasoning or evaluation of the alternatives. Group-think often leads to a continuation of the status quo as current processes go unchallenged. This happens frequently in workplaces made up of homogenous teams or where a non-inclusive environment forces people with different perspectives to conform to the mainstream viewpoint for fear of conflict. A workplace which performs well on D&I is therefore more likely to combat this phenomenon and enable debate and discussion, resulting in creative problem solving and innovation. This is also known as the ‘Diversity Bonus’, a term coined by Scott Page (2017) to highlight how various types of cognitive diversity—differences in how people perceive, encode, analyse, and organize the same information and experiences—are linked to better business outcomes.
Become the employer of choice
Another compelling reason for businesses to invest in good D&I practices is to become THE employer of choice in their industry. D&I has a significant impact on employer brand and how prospective applicants view the company they choose to work for. As companies battle through ‘The Great Resignation’, those who can tap into previously underrepresented pools of talent and create inclusive workforces which ensure existing talent is retained, will win talent over their competitors. Around 76% of jobseekers and employees currently report that a diverse workforce is an important factor when evaluating companies and job offers. Non-monetary benefits like culture, diversity and inclusion are increasingly important to Millennials and Gen-z employees, with many stating that they would be happy to take a pay cut in order to work in a diverse and inclusive environment.
Boost brand value
At a societal and consumer level, the COVID-19 pandemic and social movements including Black Lives Matter and #Metoo have shed light on the systemic inequalities which exist around us and the responsibility and capability of businesses to take a stance on social justice issues. Increasingly, consumers expect the businesses they buy from to be aligned with their own values4. Research is showing that up to two thirds of consumers are ‘voting’ with their wallet5 by actively looking to put their money in businesses that demonstrate they are tackling social inequality. A study by Kantar Global Monitor6 found that 65% of consumers state that their purchasing decisions are influenced by the Diversity and Inclusion practices of a company. Therefore, to connect with consumers, companies must consider how to incorporate a wider representation of age, sex, disability, race, ethnicity, origin, religion and economic status in their messaging and storytelling to better reflect the markets they serve.
In the context of rising pressure from investors and consumers, companies are being pushed to develop their house view on the topic and most importantly to prove through their actions, that they do indeed empower diverse talent and create a culture of inclusion where all employees can thrive. This is a topic that is only set to increase in the future as investors, consumers and employees demand more from the businesses they invest in, buy from and work for. In the background, we also see D&I-related regulation increasing, through the growing presence of gender pay gap reporting legislation and the publication of the EU’s social taxonomy which outlines D&I as a topic ‘relevant to all sectors’. There is a clear first mover advantage to being prepared for these future regulations.
Diversity is about the different ways of thinking which individuals embody, based on their different life experiences which are influenced by factors such as their ethnicity, disability, educational background, a list which is non-exhaustive. To reap the benefits of this diversity, it is essential that companies create a workplace culture of Inclusion, enabling employees to bring their authentic selves to work, without fear of this causing conflict or feeling forced to conform to the dominant culture. This powerful combination creates businesses which provide innovative solutions to problems and are a magnet to attracting and retaining top talent in the industry.
At MJ Hudson ESG & Sustainability we support investors, companies and fund managers throughout their Diversity and Inclusion journey in various ways, from running strategy workshops focused on D&I, to developing D&I-related policies and reports, and more generally by integrating D&I as a material theme in investors’ ESG approaches. We have developed a solutions database which can be used to guide you to improve the diversity and inclusion of your workplace, at every stage of the employee lifecycle. This database includes best practices, industry alliances you can partner with, important KPIs to measure, as well as templates for D&I-related policies (e.g. harassment policies and grievance procedures). We also offer more bespoke advisory for specific D&I related challenges businesses might face.