The Crucial Role Of DE&I In ESG Reporting

For ESG policy to succeed, leaders must get their diversity metrics on track

Every company can learn something from Gap, Inc. The company, which is the largest specialty apparel company in the United States and initially set out with the goal of selling jeans like McDonalds sells hamburgers, has made diversity and inclusion its guiding principle. “Inclusive, by design” is one of its operational mottos. The company placed No. 1 in a 2021 ranking of the world’s top 100 most diverse and inclusive workplaces. And despite the pandemic, Gap achieved substantial wins in the past two years, such as reducing its greenhouse gas emissions by 39% and forming a dedicated advisory group committee called the Power of the Collective that will help keep the firm on track with its environmental, social, and governance (ESG) goals.

ESG reporting has become a crucial tool for shareholders and investors alike. In the United States, publicly traded corporations are now required by the SEC to disclose data about their diversity and inclusion, and this is a good thing: What was previously a vaguely defined metric is now well on its way to lending not only transparency to firms but also the ability to ramp up successful ESG policy. And for the rest of the business world, which may still fall under voluntary reporting, it helps equalize the parameters of assessment.

What was previously a vaguely defined metric is now well on its way to lending not only transparency to firms but also the ability to ramp up successful ESG policy.

A company’s ESG policy represents an organization’s stance in the world – how it prioritizes and relates to the world around it and the people at its heart, and how it holds itself accountable. Consumers, investors, and job hunters are increasingly casting a critical eye over companies’ ESG standing, and large-scale social movements and environmental concerns have made people keenly aware of the potential role that companies play in defending the right causes and standing up to injustice, starting with internal management.

For investors, having access to a quality ESG analysis can allow them to avoid the companies that could represent significant risk to their portfolio. For shareholders, solid ESG policy can translate into more investment and safeguard a company’s reputation and brand. And for the companies themselves, having comprehensive, standardized ESG reporting metrics in place can improve their performance and image.

The Role Of Diversity, Equity, And Inclusion

Diversity, equity, and inclusion (DE&I) comprises the central ‘S’ in ESG. There can be no successful ESG without a honed focus on DE&I. Disclosing data – and disclosing the right data – is paramount for DE&I, and ultimately, ESG, to be effective. While at the moment most of the existing regulation is aimed at large, publicly traded, or listed corporations, a certain amount of trickle-down accountability can be expected for SMEs, which make up the vast majority of the world’s businesses.

There can be no successful ESG without a honed focus on DE&I.

As countries around the world set regulations in place to hold companies accountable to their ESG claims, there are many frameworks available for businesses to use as a reference. For example, the World Economic Forum offers a set of universal ESG measures and disclosures designed to help companies report nonfinancial disclosures. These include indicators and disclosures for financial markets, investors, and society, and are crafted to encourage transparency for sustainability and social initiatives. 

What Leaders Can Do

As it stands, leaders face a host of challenges when it comes to measuring, reporting, and gaining insights about DE&I metrics, which may seem overwhelming. Oftentimes, there is no general consensus on which metrics to focus on, and many companies also often lack a process for standardized reporting, adequate controls, and experts to parse the data. There are four steps that leaders can take to ensure their company is utilizing the most effective ESG policy by having a handle on its DE&I data:

1. Hire a dedicated sustainability group or sustainability officer. This would be a person or set of people whose role is to issue an annual corporate responsibility report and keep abreast of all DE&I initiatives within the company and to ensure transparent access to the data about them. Leaders must make sure, however, that such a sustainability officer or group is completely on the same page as the company’s decision-makers and that they fully understand and comply with the controls needed to issue metrics on investment-grade data.
2. Define a set of relevant metrics for ESG reporting. Everyone involved should be clear on what information is being sought, the means by which it will be sourced, and who are the key stakeholders in the operation.
3. Standardize everything. In lieu of official regulations for smaller businesses, leaders can streamline the process in-house by coming up with standardization for everything that relates to DE&I metrics: the data sources and attributes, expectations of quality, general policies about data mining, and the very definitions of metrics.
4. Look at what you’ve already got. Leaders should fully assess their organizations to utilize existing reporting processes that could be copied or combined with ESG policy and see what other departments, if any, are involved in data about the company. The processes that are already in place for other purposes could spark innovation for setting up comprehensive reporting elsewhere, and could save considerable time and money doing so.

Because up until recently there were so few rules, regulations, and definitions surrounding DE&I and its role in ESG, many companies have been running blind – or turning a blind eye – to the need for and value of transparent reporting in these areas. But now that ESG is snowballing into something that every company must brandish clearly on its sleeve, it’s crucial to take the necessary steps to getting reporting on track and getting the data out there in clear, understandable terms.

Stanton Chase’s dedicated ESG Practice Group is here to help leaders to boost their initiatives in DE&I and ESG and benefit the most from the metrics about their initiatives. To find out how Stanton Chase can help your company, please contact us here.

About the Author:

Mala Chawla is the Global Practice Group Leader for Diversity and Inclusion.