Environmental, social, and corporate governance (ESG) grabbed headlines and a critical priority status for many large organizations—and rightfully so. When properly executed, ESG investing shines a bright light on environmental and moral issues and highlights the ways an organization builds a multicultural, gender-equal culture and gives back to the community. It’s an investment in sustainability that many believe will fuel long-term growth. 
But anyone making an investment in ESG without the same commitment to diversity, equity, and inclusion (DEI) will struggle with mounting a successful initiative. DEI is the backbone of any successful ESG initiative.
DEI as the Backbone
A more diverse organization produces stronger results, and an argument could be made that the ESG focus begins with “S.” The social human perspective is critical; a dependable ecosystem and responsive governance rely on people and behavior.
Everything you do hinges on your employees—if you get the people part right, then the rest will organically fall into place. When looking at ESG from that perspective, it is really all about the “S.” It is the most important letter in the acronym because at the end of the day, we’re all people trying to do the right thing for the environment and trying to govern our behavior.
More Than a Feel-Good Exercise
In the past, many organizations would have waved a hand at all this and said it’s soft and doesn’t drive the bottom line. But that’s simply not true; it’s much more than just a feel-good exercise. And it’s much more than just an investment strategy. It’s really a quantifiable strategy with measurable results, and the only way it has value creation is if your leadership team takes an intentional position and remains committed to the values, authenticity, and metrics. According to McKinsey, companies in the top quartile for gender diversity on executive teams were 25% more likely to have above-average profitability than companies in the fourth quartile—up from 21% in 2017 and 15% in 2014. Additionally, companies whose executive group was more than 30% women were more likely to outperform companies where this percentage ranged from 10%–30%.
The trouble is, too many executive teams are caught up in the peripheral data without drilling down into what it means. For instance, maybe an organization is 21% female. While that certainly signifies there’s work to be done, one could contend the business is trending in the right direction. But, how many are on the executive team? Are they on your board of directors? How many are in critical, decision-making roles? We can’t get locked into just looking at one number—we need a balanced scorecard approach that looks across the organization as a whole and identifies gaps.
Making a Business Case
What was formerly a chief Human Resources officer (CHRO) or chief people officer (CPO) concern has become the concern of the chief financial officer (CFO). It wasn’t until recently that CFOs had to care much about the softer side of the business—their concern was the numbers. Here’s why:
- The soft stuff—and DEI—leads to cash flow. By hiring a diverse workforce, you’re creating new markets and developing a better understanding of the communities you serve. In a day when customer experience is the top business driver in nearly every organization, having a workforce that understands broader markets and how to serve them is a business differentiator.
- You can reduce expenses and operating costs. By providing the right financial benefits, you can reduce your overall operating costs and increase employee productivity anywhere between 14% and 18%. There is a lot of financial stress on your employees after the last year. Our surveys show that those with financial stress—who constitute nearly two-thirds of your workforce—are seven times more likely to be suffering from depression and nine times more likely to have troubled relationships inside and outside of work. Imagine having open and honest financial conversations with your employees and developing benefits programs to meet their needs. You’ll see employee productivity skyrocket, as you’ve reduced operating costs and built top-line growth. Sadly, employers are only doing an adequate job here; in a recent survey of black, indigenous, and people of color (BIPOC), 42% said their employer offers benefits that reduce financial stress, but 41% said their employer doesn’t.
- Fewer regulatory issues, fewer legal issues, and optimized investments. By leading with DEI as the backbone of ESG, you’re minimizing risk. What CFO doesn’t get excited about less risk?
This is the business case for ESG—and it stems from DEI and putting your people first. There is potential for value creation through DEI and ESG, and those opportunities are way too big to ignore. Ultimately, any CFO who is not focused on DEI and ESG together as a business strategy is experiencing a large opportunity cost. Pursuing diversity and ESG is not just about doing the right thing; it’s about doing the right thing and driving better outcomes, enhancing business growth, and building your brand recognition. CFOs who are focused on ESG and DEI will be in a much better space in terms of their bottom line.
Anita Ward is a Cultural Anthropologist whose career has been dedicated to culture, behavior, and the growth and transformation of organizations. Considered a corporate shaman, Ward has led growth, development, and technology in organizations that include Chase, American General, Safelite Autoglass, Occidental Petroleum, and the Cleveland Clinic Lou Ruvo Center for Brain Health. Most recently, as President of Operation HOPE, she transformed the nonprofit and generated a 553% growth in revenue, locations, and partnerships in 3 years. She is now the Chief Development Officer of Salary Finance, a fintech company focused on solving the root cause of financial stress: a lack of employee savings caused by high levels of high-interest personal debt.