The “E” in ESG gets plenty of attention as sustainability is such a high-profile worldwide concern for businesses and consumers alike. But with the introduction of both mandatory and voluntary ESG reporting requirements, company managers recognize the increasing pressure to improve their performance on social and governance issues.
But many leaders fail to see the benefit of effective DEI policies and actions in achieving those ESG components. According to Barbara Frencia, CEO of Business Assurance at Oslo-based assurance and risk management firm DNV, misconceptions about DEI can often blind managers to the business benefits of a more diverse, equitable and inclusive workforce.
Misunderstanding DEI
“Many companies view D&I as a governance or social compliance issue, one that can be managed by simply implementing diversity quotas or fine-tuning human resources policies,” said Frencia, in a news release. “Pressure from regulators or customers to implement DEI policies are certainly drivers, but the real value of cultivating a more diverse and inclusive workforce can be found in improving competitiveness, innovation and business performance.”
Frencia notes that in a recent DNV survey of more than 500 customers representing a diverse cross-section of industries based in Europe, Asia, North America, Central & South America, 79 percent of companies have included DEI as part of their business strategy, but only 37 percent of respondents cited “new business opportunities” as a main driver for implementing D&I policies.
“We were also surprised to learn that only 29 percent of respondents believed that D&I policies would help increase their market share,” she said. “That tells me that there is a fundamental misunderstanding about what D&I is and what it is not.”
Recognizing differences
Many DEI policies are designed to build a workforce made up of people of different ages, genders, sexual orientation, national, ethnic and religious backgrounds. But for Frencia, it’s also about recognition, or empowering people by respecting and appreciating what makes them different.
“I believe in equal recognition for equal contribution,” she says. “D&I is not about gender or color but about what each person brings to the table, the team and the company.”
When talking to other managers, Frencia encourages them to see diversity, equity and inclusion through the lens of their own work experiences, good or bad. Indeed, Frencia’s passion for the subject is grounded in her 25-year career with DNV. Frencia explains that she was hired by DNV Maritime in 1996 as one of the few women in a small unit based in Genoa, Italy. In previous jobs, she had experienced some gender bias and unhealthy work environments but found DNV had a more accepting and welcoming culture.
“In addition to feeling part of a team, I was mentored by my line manager, which incentivised me to work harder and create value for the organization in different roles,” she said. “Now serving as a manager myself, I see that people tend to be more productive, creative and inspired when they feel valued and recognised for their contributions, regardless of their differences. And that translates to better business performance.”
DEI and the bottom line
Most companies recognise that DEI policies can help to retain skilled personnel, strengthen employer branding and support a culture of innovation and creative problem solving. But implementing and measuring the impacts of DEI policies and actions on business performance is harder to quantify. “D&I is a relatively new concept and while some countries have national guidelines addressing elements of D&I, there were no standardized processes to guide implementation,” said Frencia. “With the release of ISO 30415 in 2021, companies now have access to a valuable resource.”
In brief, ISO 30415 provides guidance on DEI, including recommended actions, measures and potential outcomes. The standard recognizes that each organization is different, and that decision makers need to determine the most appropriate approach to implementing D&I in their company. “Using ISO 30415, which includes Key Performance Indicators to measure progress, companies have access to a structured approach to managing a complex process,” explained Frencia.
And as more companies embrace D&I, more data linking effective policies to business performance are beginning to surface. For example, a study by Juliet Bourke, Professor at University in Sydney (UNSW), Australia, found that companies with diverse and inclusive cultures are twice as likely to meet financial targets, three times more likely to be high performing, six times more likely to be innovative and eight times more likely to achieve better business outcomes.
Managing business risk
“Documenting D&I performance has also become an important metric in the tendering process, which has a direct impact on a company’s ability to increase its market share,” said Frencia. “And a more innovative and creative company will have the advantage in developing products or services, which impacts competitiveness. We also see that underperforming companies can face risks related to brand value and, in regions where ESG reporting is mandatory, there are legal consequences to non-compliance.”
Frencia notes that by providing third-party verification, DNV not only helps customers identify gaps or areas for improvement but also builds trust with relevant stakeholders throughout the value chain. However, she recognises that results may vary, depending on the location, size or type of company.
“For example, knowledge-based companies, like DNV, can expect faster results from implementing DEI policies, whereas companies operating in more industrial or manufacturing sectors may need more time for the benefits of DEI to impact year-end results,” she says. “But a growing body of evidence suggests that companies that take steps to build a more diverse, equitable and inclusive workforce outperform those that do not.”
The tipping point
As with any complex organizational change, the implementation of a holistic approach to DEI may represent a challenge for some companies. But Frencia believes that as more organizations recognize the positive impacts of DEI on business performance, more will begin their journey towards a more diverse, equitable and inclusive workforce.
“In my view, we are approaching a tipping point,” she concludes. “Once managers see DEI not as a regulatory or compliance issue but as one that adds tangible value, the race will be on to see who gets there first. And a more diverse, equitable and inclusive future is one we can all hope for.”
