Businesses often promote workplace diversity to investors as a key performance driver.
But a new report from responsible investing leader Regnan finds diversity strategies mean little without a focus on equity and inclusion.
- New research report analyses diversity, equity and inclusion as indicators of company performance.
- Diversity programs won’t improve business performance without equity and inclusion.
- The report offers a blueprint for Diversity, Equity and Inclusion (DEI) programs that deliver both social equity and business performance.
New research from Regnan highlights the need for a rethink of the link between business performance and a company’s DEI strategy, suggesting investors should reconsider the indicators they use to evaluate company performance.
Diversity has long been promoted by responsible investors as a way to contribute to creating just societies as well as improving business performance.
But a new study from Regnan Insight and Advisory Centre shows that focusing on diversity metrics without also looking at equity and inclusion can be counterproductive.
It’s more likely that equity and inclusion are the factors driving business outperformance, concludes Regnan.
“This finding suggests that investors need to reconsider how they evaluate and engage with companies, increasing their focus on equity and inclusion,” says Regnan co-author and Head of Engagement, Alison Ewings.
The report, “Beyond diversity: equity and inclusion as an overlooked opportunity for investors”, is based on wide-ranging analysis of the academic literature on diversity, equity and inclusion, as well as interviews with practioners and a review of leading organisations.
The work has identified the organisational conditions critical to boosting both diversity and business performance and provides a framework by which they may be considered.
“A study by Deloitte found that “inclusive” companies were 3.6 times better at dealing with performance issues.”
The conventional wisdom in responsible investing is that diversity is a driver of performance and, as a result, investors can focus purely on measures of an organisation’s diversity when evaluating investments.
Regnan offers a new framework for judging equity and inclusion, drawing on research by Cornell University’s Lisa Nishii.
The framework highlights three essential pre-requisites for effective DEI:
- Equitable employment practices: eliminating bias at all stages of the employee lifecycle through recruitment, retention and progression.
- Supportive culture: ensuring that employees can make their fullest contributions at work, without fear of negative consequences.
- De-biased decision-making: focusing on the ability of the organisation to elicit, understand and adapt itself to feedback from its people.
The report then offers a blueprint for how this approach can be best implemented.
“Organisations can self-assess against these pre-requisite conditions to identify potential areas of strength or weakness in their current approach,” says Ewings.
For more on these factors and how investors can evaluate a company’s diversity, equity and inclusion approach, download Regnan’s report here.
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.
Regnan Credit Impact Trust (available in Australia only) invests in cash, fixed and floating rate securities where the proceeds create positive environmental and social change.
Both funds are distributed by Pendal in Australia.
For more information on these and other responsible investing strategies, contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at [email protected].
The information contained in this document has been prepared by Pendal Institutional Limited (ABN 17 126 390 627; AFSL 316455) (Pendal) and is current as at 9 July 2021. “Regnan” is a registered trademark of Pendal Group Limited ABN 28 126 385 822 (Pendal Group).
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