ESG and DEI key contributors to long-term stakeholder satisfaction and competitiveness
by Pay Wu, President, MWBE Unite, Inc.
Environmental, social and governance (ESG) practices, or stakeholder capitalism, have been adopted by companies and their leaders at an accelerating pace over the past decade.
Business leaders are increasingly embracing the idea that when businesses operate sustainably, the world works better for all parties involved – this includes people, the environment and ultimately the business itself. . In this way, longer-term value is created that will replace short-termism* by including a broader ecosystem where more stakeholders, including employees, consumers, suppliers, communities, investors and shareholders, all get involved together.
The pursuit of stakeholder satisfaction
Historically, corporate management prioritized finances and shareholder satisfaction above all other factors. Today, improving business performance while meeting critical social and environmental needs is central to creating the future of resilient businesses. Gender and racial disparities, wage discrimination and environmental stewardship now weigh heavily on the concept of success and the future world in which we all live.
Our country shares a rich history of progress and economic prosperity, often progress is based on models of commercial exploitation that include the diversity and creativity of immigrant participation and globalization. Previously, institutional business models operated on the belief that thin margins and profit siphoning define business success. After COVID, the focus is now on human capital losses and supply chain impacts, which shape local and global economies and where people work, live, play and study. Companies integrate into their ESG program, beyond finances, the consideration for the sustainability of the supply chain before the costs, the sustainability of their work and the social impacts on the community in which they operate. The definition of stakeholders has broadened for the good.
Equality as a decision factor
Fortunately, equity and inclusion are on the company’s ongoing agenda as DE&I initiatives progress and awareness goes beyond boardrooms. The reason? It makes financial sense to include equality in decision-making now. A study by “Women Count 2020” showed that including women in corporate strategies was likely to increase net profit margins by 10 times compared to those without women serving on executive committees. Focusing on DE&I also brings a range of perspectives that help companies better understand their customers/consumers and therefore compete for increased market share.
Companies and business leaders now recognize that stronger teams are built by hiring diverse candidates with different values, work or educational backgrounds, and personal preferences.
DE&I a key element of reporting
The intersection of DE&I and ESG comes together at this opportune time as organizations determine what to include in their ESG plans and investments. Companies recognize DE&I as an essential part of their ESG roadmap. Statements and commitments without actions or transparency around DE&I can harm long-term competitiveness, brand reputation and negatively impact financial condition. In commercial real estate, for example, investors are interested in ESG and want to see
evidence of progress and governance in making meaningful investments. Post-COVID digital transformation has accelerated and businesses need to find functional skills from a more diverse workforce. There is a clear need for buy-in as well as a direct benefit for including DE&I in the ESG framework.
Perspectives on human capital are changing, and with ESG it is now possible to build a more equitable corporate culture and create greater long-term value for all stakeholders. With ESG standards, companies now have the opportunity to demonstrate their responsibility and responsible impact. Risk and reward will be mutually beneficial in the new order of stakeholder capitalism with the promise of a more inclusive world.
*Short-term has its own common-sense meaning, but in a business environment, short-term refers to the idea that a company manages the earnings report for shareholders in each financial reporting period. This has been criticized since the management
the earnings report does not invest in business growth. This is a huge topic in what they call “agency theory” – Although short term also means what it says, not looking to build anything long term, just a try quick to make a profit for the benefit of a few people.
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