DE&I’s Direct Impact on Environmental, Social, and Governance (ESG)
There is more recent attention to the mystery of ESG. There are very few financial studies give clarity to what really matters most when planning for the social piece of ESG. There is positive correlation between DE&I, ESG, ROE, ROA and stock price, yet no one really understands what is ESG, especially the “S” in ESG. There is a direct correlation between ESG performance and operational efficiencies, stock performance, and lower cost of capital. The market is shifting with an exponential growth in ESG expectations and impact investing due to the evidence that business strategy focused on material ESG issues is synonymous with high quality management teams and improved returns.
ESG remains unclear to many, outside of big finance, or it is completely unknown. Long term sustainability is exceedingly difficult to measure since it is complex, dynamic, and relies on a different approach for creating social change, and yet remains one of the most powerful KPIs as it relates to the success of the company. The Great Resignation is proof: the “S” matters a lot.
When looking at the “S” in ESG, there are many stakeholders to consider such as employees, civil society, suppliers, and investors. Contracts between corporations and society can determine consumer loyalty, demand, and government restriction. The most pressing issues are the failure of DEI program to meet expectations.
NYU Stern Business revealed in their most recent aggregate of all studies from 2015-2020 report out that ESG is a long game and other studies need to be done to completely understand ESG, with a focus on sustainability driven innovations, employee relations, supplier loyalty, customer demand, risk mitigation, and operational efficiencies.
How can you impact “S” within ESG?
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.” Do not be “that guy,” who ignores people who want to share their vision for what may be a great idea, yet fear being ignored.
Millennials and Gen Zs will determine the success of your company. Find out from them now, what social change do 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.
Bridge the gap for ERG Groups. Find ways to connect ERG members with diverse backgrounds and be sensitive to segmenting them away from the company 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 learn 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.
Impacting ESG is a leadership capability that drives the bottom line. Creating social impact within companies drives revenue and shareholder value. Leaders must find ways to create inclusive and diverse environment that lead to long term sustainability, and it’s never easy.
About the Author:
Dina Readinger is an expert facilitator for transformation change and strategic thinking, solving business critical problems through diverse groups of employees. Her signature Diversity Leadership Development program creates strong confident leaders and culture where people are inspired to stay. Her new book “Thinking Differently” is set for release summer of 2022.