DEI and ESG – What Are They and What Companies Should Know About Them

For years now, board rooms have been expanding their focus from P&L statements and quarterly projections to elevating culture-centric topics around sustainability, inclusion, and diversity, among others, as well. These topics often intersect and overlap, and as such, models have emerged for how to best apply them for an organization’s success. Two of the more common focuses for companies are DEI and ESG. 

What is DEI?

Diversity, equity, and inclusion (DEI) is a model for ensuring that everyone in an organization feels welcomed, that they have a voice, that their uniqueness is valued, and that they have the same opportunities as one another.   

Valuing DEI repeatedly has shown to be to an organization’s benefit. More diverse and inclusive companies outperform those that aren’t by 35%, according to McKinsey. More than three in four job seekers note diversity as an important consideration when assessing potential employers.

Leadership is taking note of these positive outcomes and have adjusted appropriately, some even implementing DEI training . According to a report from Accenture, more than a third of executives listed DEI as one of their organization’s top priorities – behind more perennial focuses like increasing revenue (76%), driving innovation (57%) or expanding operations (54%).

What is ESG?

ESG stands for Environmental, Social and Governance considerations organizations face. Increasingly, these three topics reflect a wide range of factors a business must account for, beyond strictly financial matters. It varies from company to company, but an ESG framework establishes measurable objectives for each of these categories to guide their operations and overall performance. 

Areas of focus for ESG efforts commonly include:

• Environmental
  • Overall carbon footprint
  • Energy-efficient facilities
  • Waste management and recycling initiatives

• Social
  • Employee wellness and safety
  • Diversity and inclusion policies
  • Community impact

• Governance
  • Board diversity
  • Shareholder rights
  • Accounting practices

What is ESG investing?

Because ESG accounts for such a wide range of factors – all to ensure the business is operating in an ethical way – many individuals and financial professionals use it to gauge a business’ investment potential. Most investment companies offer ESG funds that include only those companies that meet certain criteria. This is something more investors are favoring. Global ESG assets amounted to $35 trillion in 2020, and already, are expected to surpass $41 trillion in 2022. By 2025, Bloomberg Intelligence forecasts they will reach $50 trillion – roughly 2.4 times the United States’ GDP.

How are DEI and ESG similar?

As noted above, both DEI and ESG frameworks help organizations proactively address issues beyond those strictly related to financial performance. While not the same, both give organizations a model to assess how their operations and culture impact people, and specifically, how they can work to ensure that this impact is a positive one. 

The most effective DEI and ESG initiatives are those that are informed by an organization’s values. DEI and ESG factors are reflections of a company’s culture and the actions of its people. Simply stating priorities related to either without any measurable progress can be a deterrent to employees, customers, and investors.

How are DEI and ESG different?

Despite DEI and ESG having considerable overlap in some areas, it’s important to recognize they are two entirely different concepts. DEI is more focused on an organization’s efforts to ensure its workforce represents people across all backgrounds and that everyone is afforded the same opportunities at every level. ESG covers a much broader range of issues, which includes DEI. While companies with a strong DEI vision outperform those that don’t, as previously mentioned, ESG offers a much more comprehensive framework to assess how ethical a business’ practices are.

Successfully implementing an ESG framework also demands input from more people across an organization as some measures, like using sustainably sourced materials for products or reviewing a facility’s energy efficiency, can be quite technical in nature.

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Stakeholders of all types are more attuned to businesses’ values and how those values inform their operations and employee mix. While some organizations have detailed ESG and DEI plans, it’s important to review the principles behind each against your organization’s values and practices. Even incremental change can be a positive sign to current employees, potential ones or even investors on how serious an organization takes DEI and ESG efforts.   

Curious how your company’s employee relocation policy could support your DEI or ESG goals? We’d love to help!

Onie Girton Author