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New Research Proves the Power of Diversity For ESG Outcomes. It’s time brands prioritised their Governance.

DEI and ESG have a lot in common. Two of the most pressing imperatives for business leaders. Two of the biggest drivers for consumers' decision-making. Two of the most cited priorities for talent. And, they both start at the top.

A recent analysis of data from S&P 1500 found that brands with diverse leadership achieved higher environmental ratings from ESG data provider, MSCI. And did so consistently. So why aren't more brands talking about their Board representation, and unlocking this potential?

Here’s why accelerating your brand's ESG impact means looking critically at the governance behind your strategy.

How the 'G' became silent

It's been 20 years since the term 'ESG' entered mainstream vernacular, and in that short amount of time it's dominated business speak.

Rewind to the early 2000s, and this was more commonly referenced in 'Corporate Social Responsibility'. But CSR was often open to interpretation, making it difficult to determine just how successful (and committed) brands were in their action. The uptake of 'ESG' derived from a need to create greater specificity, particularly where investment was concerned.

The term was designed to encapsulate the three business priorities - Environmental, Social, Governance - as equally crucial. But mounting pressure around climate action and social awareness in recent years meant the association shifted. Much of the conversation rightly began to hone in on "green" practices and social issues, but wrongly resulted in governance slipping through the cracks, at least where public rhetoric was concerned.

Within many organisations, the 'G' has become almost secondary to establishing an environmentally- and socially-conscious brand. On the contrary, effective action with effective outcomes means starting with governance. Not only through how decisions are made, but through the perspectives of who makes them.

The untapped potential of a diverse Board

For most leaders, the idea that a diverse governance can lead to higher ESG achievements isn't some surprising revelation. But seeing the facts and stats on paper is different to an anecdotal view, and gives more weight to the argument that greater investment into DEI leads to greater outcomes.

The Harvard Business Review research took 15 years of S&P 1500 data and found that a 10% increase in female Board members correlated to around a 17.5% increase in an organisation's MSCI environmental ranking. Similar findings applied for the number of Black directors in an organisation.

It's important to acknowledge that these numbers are really only a drop in the ocean, and determining the true extent of diversity's impact on environmentalism will require more granular data. But it's equally important to acknowledge that however small, these findings demonstrate something wider.

Differing backgrounds will naturally lead to differing perspectives and insights. Having a diverse Board increases brands' abilities to view situations, decision-making and behaviours through varying lenses - something that’s crucial to the complex issues of the climate crisis.

Lived experience is really the key player here. To state the obvious, a 30-something year old man born, raised and working in London will likely have vastly different experiences from a 50-something year old woman born and raised in Tokyo, and who has worked all around the world. And with that, they'll each be in a position to bring formative concepts and solution-making to the table.

The greater the diversity, the greater power that table will have. But it's still a power many brands aren't fully harnessing.

The secret is there is no secret

Much like environmentalism, achieving true DEI comes with many steps that work cohesively together over a long period of time.

For the majority of leaders, this is already in motion. Diversity has been amongst the top priorities for brands big and small for years within teams, and outcomes are hugely positive. Having a diverse workforce is proven to boost innovation and the financial success of a business, not to mention employee engagement.

But unlike ideation and revenue, the majority of a brand's ESG action, particularly its strategy, is led by decision-making at the top. And equal representation at Board level is drastically behind. In 2023, Fortune 500 company listings show 8 Black CEOs, 4 openly LGBTQ+ CEOs, and 53 women CEOs - numbers that are consistent with most organisations' executive and director levels.

So how do you drive DEI in governance?

In practical terms, it requires not only an understanding that it's a long-term commitment, but actually making that commitment to your talent strategy. Inclusive company cultures are the foundation to equal representation, and everything from your brand values to the language used in the workplace play a critical role. Similarly, recognition and accountability need to be approached on equal footing; if the same rules that apply to a junior member of staff apply to their director counterpart, talent will feel safe and motivated.

These seemingly small, insignificant steps are anything but. Everything from office accessibility to sensitivity training can have a profound impact on the quality of C-Suite talent your brand attracts, and your ability to cultivate a workforce that's driven to climb the ladder to the Board.

Governance is the bottom line

For many leaders, these business functions can feel like a game of "this or that". Choosing to invest in one may seem like a choice to put another on the backburner, and pressure to make a lasting, positive impact only exacerbates that.

That's the misconception.

With investment into and from your governance, your strategies will be embedded within your culture and maintain momentum. The more you do, the better results you achieve. The better results you achieve, the more you can do.

The power of greater diversity in governance certainly hasn't realised its full potential yet. But if your brand wants to effectively tackle the multi-faceted issues surrounding ESG matters, it needs a diverse body of individuals to present multi-faceted solutions. And who are reflective of the wider community you'll influence.

If you'd like to speak to us about our executive search services, and how we can support you in establishing a more diverse leadership, get in touch.

Posted on 28.12.2023

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