Both researchers and industry experts concur that workplaces with diverse and inclusive environments make positive impacts on organizations. They point out that having diversity, equity, and inclusion (hence DEI) initiatives at work improves corporate culture, client relations, enables the organization to move into new markets and even positively affects profitability. The three essential components – diversity, equity, and inclusion are interlinked and, when combined with business strategies, can help organizations thrive amid societal changes. (Ely and Thomas 2020.)
These topics inspired me during my MBA studies and I chose them as a topic for my Master’s thesis. In my thesis, I collaborated with a company in Finland that has a nascent DEI strategy and was interested to develop a roadmap to amplify the benefits of having DEI in the workplace to the company’s leadership.
Why the need to place a focus on DEI?
Diversity, Equity, and Inclusion (DEI), as a social pillar of sustainability policies, is part of the global goals in order to make a positive difference in own industry, as well as generate impact on society. DEI topics, as non-financial indicators, may be difficult to measure, unless they are conceptualized and well aligned to the strategy. This may pose a challenge to smaller companies, new to this area, and therefore the experience and developments in big companies deserve attention and dissemination.
Especially the appropriate selection of DEI indicators is the necessary step for any organization in the new era of CSRD. For organizations, key performance indicators (KPIs) are the essential managerial tools to determine whether the company is headed into the right direction. Metrics are vitally important, as evidenced by the proverbs ”if you can’t measure it, you can’t manage it” and ”what gets measured gets done” (Marr 2022). The DEI KPIs are important not only for reporting, but for implementing and truly “living” the strategy of the organization. They are indicative tools that will shed light on performance and point out the areas that require special care.
A look at EU’s Corporate Sustainability Reporting Directive (CSRD)
For the last two decades, the EU has been a champion in promoting DEI. The latest CSRD regulation (adopted since 5th January 2023) and its newly adopted EU standards (ESRS) include not only sustainability, but also – profoundly – social issues reporting, including DEI (see ESRS S1). As communicated in the EU Commission’s website on Corporate sustainability reporting:
“Companies subject to the CSRD will have to report according to European Sustainability Reporting Standards (ESRS). The standards were developed by the EFRAG, previously known as the European Financial Reporting Advisory Group, an independent body bringing together various different stakeholders. The standards will be tailored to EU policies, while building on and contributing to international standardisation initiatives.”
This latest EU CSRD legislation requires that all large companies disclose the information on the opportunities and risks they perceive as emerging from social and environmental issues, as well as their effects of their actions on the environment and human population (EU Commission, Press Corner, Q&A, 2023). At the European Commission’s request, EFRAG (European Financial Reporting Advisory Group) drafted the standards to enforce the proposed CSRD, that focus on appropriate due process, transparency, and the knowledge of pertinent stakeholders. The 12 new standards (ESRS) cover the full range of sustainability issues and include the four significant “must-do” reports under the social facet, namely:
ESRS S1: Own workforce
ESRS S2: Workers in the value chain
ESRS S3: Affected communities, and
ESRS S4: Consumers and end-users.
The ESRS standards point to a range of recommended metrics for disclosures under the social pillar, namely in “ESRS S1: Own workforce” (such as the characteristics of the undertaking’s employees to collective bargaining and social dialogue). Figure 1 shows the range of KPIs in the newly adopted CSRD and ERSRS recommended for corporate reporting.
Figure 1. Metrics recommended by EFRAG for ESRS S1: Own workforce” (EFRAG 2022. Educational session on the first set of draft ESRS).
In addition, the newly adopted CSRD and ESRS give room for flexibility to organizations which specific aspects of DEI they can select for reporting on their DEI related topics. Especially the gender diversity policies are seen as the most common focus in workplaces and reporting practices. By having a gender-balanced workforce, companies can demonstrate their commitment to having an inclusive and equitable work environment.
This condition gives a unique chance to the front-running companies to excel and stand out among competitors by demonstrating their leadership via adopting not just mandatory, but wider reporting practices, beyond the required minimum.
Nordic companies are at the forefront in DEI reporting
Companies, especially the larger ones, have undergone digital and other transformations in the past decades. These changes were also closely related to sustainability and diversity issues. The organizations that successfully embraced these efforts as part of their business strategy were immediately spotted by other industry players, to a big extent, due to their excellence in reporting. These companies have managed to set examples of reporting that other organizations – as well as students in DEI topics – can learn from. The widely acknowledge examples of DEI leadership from Nordics include, for example, the following front-running companies. AFRY can be considered as an inspiring example of a leading international engineering, design, and advisory company when it comes to sustainability reporting. AFRY´s Annual and Sustainability Report 2023 (published in March 2024) measures and follows us on sustainability commitments through targets that encompasses its solutions, operations, and people. It also monitors its progress on a wide range of KPIs in DEI area (which is especially obvious when comparing to reports on DEI topics published in 2020 or earlier). Also, CGI make an interesting example among the largest IT companies in Finland that emphasizes in its DE&I governance. DEI is endorsed by the CEO and the executive committee, and that accountability for DE&I is a shared responsibility. DEI topics are embedded in the annual business plans for each Strategic Business Unit (for example, in CGI 2022 ESG report, p.45). The company clearly indicates its DEI targets and KPI also in its 2023 Sustainability report (published in 2024) and sets the targets, for example, to achieve the same level of gender diversity representation in leadership positions as is present across the entire company by 2025. (CGI 2023 ESG report, p.21).
These Nordic examples demonstrate that, by understanding and selecting measurable DEI targets and KPIs, the companies can create and follow more professional development plans, identify the multitude of domains where DEI can bring benefits to an organization, and thus point to a measurable impact of DEI on the overall performance. It makes this topic worth studying, also by the students at universities of applied sciences.
About the author:
Joan Mhyles Cruz is an MBA graduate in Business Informatics. In her student times, Joan was a student ambassador of Metropolia UAS and an advocate of DEI. She made this topic into her Master´s thesis done for one of the front-runners of DEI in Finland.
References:
AFRY (2022). Annual and Sustainability Report 2022. Retrieved on 30.10.2023. https://afry.com/sites/default/files/2023-04/annual-and-sustainability-report-2022.pdf
CGI (2022). Environmental, Social and Governance Report. Retrieved on 20.11.2023. https://www.cgi.com/sites/default/files/2023-03/cgi-2022-esg-report.pdf
CGI (2023). Environmental, Social and Governance Report. Retrieved on 20.04.2023.
https://www.cgi.com/sites/default/files/2024-05/cgi-2023-esg-report-en.pdf
Cruz, Joan Mhyles (2024). A DEI Roadmap for an Organization and Its Sustainability Reporting:Master´s Thesis. Metropolia UAS. https://urn.fi/URN:NBN:fi:amk-2024053018232
EFRAG (2022). Educational Session on Draft ESRS S1 Own workforce. Educational videos on the first set of draft ESRS (downloaded). Retrieved 30.11.2023. https://efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FSiteAssets%2FFINAL_26.01_Long_S1_SR%2520PPT%25201%2520vers230126%2520%281%29.pdf
EFRAG (2022). European Sustainability Reporting Standards (Draft). ESRS S1 Own workforce. EFRAG November 2022. Retrieved on 20.11.2023. https://www.efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FSiteAssets%2F13%2520Draft%2520ESRS%2520S1%2520Own%2520workforce%2520November%25202022.pdf
Ely, Robin J. and Thomas, David A. (2020). Getting Serious About Diversity: Enough Already with the Business Case. Harvard Business Review, Nov-Dec 2020. https://hbr.org/2020/11/getting-serious-about-diversity-enough-already-with-the-business-case
EU Commission. Corporate Sustainability Reporting. EU rules require large companies and listed companies to publish regular reports on the social and environmental risks they face, and on how their activities impact people and the environment. (online).
Retrieved on 01.02.2024.
EU Commission (2023). People first – Diversity and inclusion. Fostering a diverse and inclusive workplace. Retrieved on 5.12.2023. https://commission.europa.eu/about-european-commission/organisational-structure/people-first-modernising-european-commission/people-first-diversity-and-inclusion_en#fostering-a-diverse-and-inclusive-workplace
EU Press Corner (2023). Questions and Answers on the Adoption of European Sustainability Reporting Standards. 31.07.2023 (Brussels). (online). Retrieved 20.11.2023. https://ec.europa.eu/commission/presscorner/detail/en/qanda_23_4043
EUROPA. EUR-Lex. Directive – 2022/2464. Official Journal of the European Union. Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (Text with EEA relevance). 16.12.2022 (online). Retrieved on 10.12.2023. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2022.322.01.0015.01.ENG&toc=OJ%3AL%3A2022%3A322%3ATOC
Marr, Bernard (2012). Key Performance Indicators: The 75 measures every manager needs to know. Introduction. KPIs are vital management tools (xxv). Pearson Education Limited.
Ei kommentteja