How does DEI (Diversity, Equity, Inclusion) fit into ESG?

With increased pressure from investors, consumers and the wider workforce and the media presence of this topic, ESG is high up on the agenda for boards and management bodies.

But it isn’t all about the “E” for environment. The S for social limb of ESG covers a variety of different societal and workplace issues. Many believe that DEI falls neatly within the social limb and it's one of the more tangible and measurable metrics of the social limb.

DEI helps businesses maintain their largest commodity, human resources. DEI and ESG are about building a sustainable workforce, like a sustainable environment or sustainable governance. Using the lens of DEI, people are at the heart of every element of ESG. People are those affected by environmental changes, people are those impacted by how a company engages its social standing and people are ultimately impacted by how a company governs itself.

The concept of ESG therefore lends a useful legitimacy to DEI, because ESG represents the suite of things that businesses need to pay attention to in order to be good corporate citizens. ESG is about doing the right thing by the environment and by the people and in terms of a company's governance and corporate responsibilities. Slotting DEI under the ESG umbrella is helpful, if it encourages senior leaders of companies to pay attention to it. In the past, businesses used to just have clear commercial drivers which motivated them. Now, as a result of a focus on ESG, businesses also have responsibilities as drivers for business.

People often question which heading DEI falls under. Health and safety matters were traditionally seen as an environmental issue, but they fundamentally affect people and, if you have bad health and safety, you also have bad governance. So is health and safety under the E or S or G? Many issues straddle E S and G, so it does not matter where you place DEI.

DEI used to be a fluffy elective sitting outside of HR, which people paid attention to when times were good. In tough times, it was not the first thing people thought about. As a result of linking DEI to ESG, that may have changed things for some businesses, because business leaders are more focused on ESG.

We are starting to see bigger DEI ambitions by companies, depending on where they are at in their DEI phase. Responding to compliance requirements is one thing, but it's important to view DEI as presenting an opportunity to be a leader in ESG and DEI matters.

For more information on how the Linklaters Diversity Faculty can help your business to keep on top of legal and regulatory developments relating to Diversity, Equity & Inclusion, please reach out to Matthew Devey, Yukiko Hitzelberger-Kijima and/or your regular Linklaters contact.