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Why diversity is an ESG issue

07 Mar 2023 | 2 minute read

Diversity – arguably the mainstay of modern society – should be the anchor of any environmental, social and governance (ESG) framework. Not only does diversity strengthen each of the three ESG pillars, but it also benefits a company’s returns, employee retention, and market longevity. In this article, I’ll share insights into why diversity is an ESG issue, not just a societal one.

Diversity benefits the boardroom

From a corporate perspective, boardroom diversity strengthens ESG – not only in the social inclusion sense, but the ‘G’ specifically. It has been shown that having more female board directors adds specific functional expertise that is often missing in corporate boards, improving overall governance. Female leadership has also been proven to de-risk firm performance by reducing the likelihood of reputational scandals.

Leaders who put kindness, humanity and respect at the forefront of business decisions set a tone at the top, shaping organisations, putting them on a trajectory for success and a robust reputation. According to EY research, 86% of board members say a focus on ESG and inclusive growth has been critical to building trust with their stakeholders.

Like any team, a diverse board is likely to be more innovative. There is also evidence that diverse boards adopt more progressive organisational management practices, recognising, among other things, that work-life support programmes will increase employee satisfaction and employee retention.

Diversity encourages employee loyalty

Research suggests that 35% of an employee’s emotional investment in their work relates to how included they feel in their workplace. In addition, 20% of their desire to stay within their existing company comes down to inclusion.

It’s unsurprising, then, that proactive firms like IQ-EQ have evolved attitudes to flexible working, recognising employees’ needs and encouraging employee engagement.

In common with enlightened organisations, IQ-EQ treats diversity as a talent issue, committing energy and resources to creating inclusive workplace cultures where everyone has an equal opportunity to contribute and succeed.

By embracing diversity, we can tap into the full talent pool.

IQ-EQ also helps with upskilling and building confidence, making a range of learning and development initiatives available through its e-learning portal MyCampus and running initiatives like Elevate, which encourages women to become leaders.

Diversity facilitates change

With the proportion of female directors on boards rising, company culture is evolving. Why? Women are more likely to be engaged with social issues like inclusivity and climate change, and to see it as important to integrate these issues into corporate strategy.

Irrespective of gender, leaders with social conscience are more able to develop business strategy mindful of societal considerations in ESG, ensuring relevant social factors are ingrained in decision-making and aligned with their company’s overall vision and goals.

For more than a decade it has been accepted that acting in a socially responsible way is a manifestation of social conscience. Now that ESG is a regular topic of conversation and forms part of the standing agenda for boards, there is an expectation that this mindset will make the world a better place. By bringing diverse backgrounds to the boardroom, and creating an open dialogue, other ESG concerns, like the environment and climate change, are more likely to be discussed.

Diversity is now held in high esteem and credited with being of great social significance. Diversity improves corporate culture, employee morale, attracts new employees and encourages loyalty. And while a workforce diverse in gender, race and age may increase productivity and profits for corporates, its true value is its societal impact in steering people and the planet to a more positive place.

Working with IQ-EQ has been seamless – you and your team understand our business, advise us appropriately, and handle your side of our collective partnership so that we can focus on making good investment decisions. Evan Gibson SVP, Merchants Capital

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