Op-ed: ESG, DEI and other acronyms and why we need to know about them IMHO*

by Anna Prodromou

Quite a few times I found myself receiving messages and having to pause and google search an acronym to understand its meaning. I’m sure I’m not alone, and it’s surely not just a Gen X symptom. Acronyms seem to be a code of communication between those few who understand them. But ESG and DEI most definitely concern us all.

Let's start with the 3 letters ESG that we hear more and more often lately, and which according to Robin Nuttall of McKinsey & Company, “are here to stay”.

ESGs, which stands for ‘Environment, Society, Governance’, are three key criteria in measuring the ethical aspects and impact of a business or investment. These three criteria, therefore, acquire special weight in the whole spectrum of economic activity and set new standards for the creation and increase of profit.

ESGs should not be confused with what we call CSR (Corporate Social Responsibility). Although they both are aimed at sustainability, CSR is a voluntary commitment based on the 17 UN Sustainable Development Goals, whilst the ESG criteria were made mandatory after the publication of the European Commission’s Taxonomy Regulation in June 2020.

But why did this happen?

Europe is stepping up its efforts to tackle climate change, driving the transition to net-zero emissions, and a more resource-efficient and sustainable economy. European Council President Charles Michel stated, “we are in a climate emergency” and the goal is “to make Europe the first climate-neutral continent on the planet by 2050”. Now, to achieve this, the whole European economy must be aligned with it. The ESG criteria oblige investment funds and banks to evaluate companies for their performance in ESG, thus helping to address risks and challenges but also seize new opportunities.

ESGs in simple terms

E - Environmental criteria that examine how to manage the natural environment and actions to repair the damage caused by the activity of a company.

S - Social criteria through which relationships with employees, partners, customers and local communities are assessed.

G - Corporate Governance criteria which address issues of leadership, transparency, corruption, compliance, remuneration and business ethics.

DEI as a component of ESG

DEI is the second component of the ESG social pillar (S - Social) and has rightly attracted considerable media attention, as well as attention from institutional investors who now incorporate ESG assessments into their investment processes. Investors, business partners and consumers pay more attention and demand transparency in organizations' diversity programs, metrics and key performance indicators.

The acronym DEI (also referred to as EDI or D&I) refers to Diversity (D), Equity/Equality (E) and Inclusion (I) as the core functions of an organization. The purpose of DEI functions is to ensure that the organization is comprised of diverse individuals (based on individual characteristics, values, beliefs and backgrounds) and to foster a working environment in which all employees feel respected, accepted, supported and valued.

DEI in the workplace, is it worth the effort?

Research on the subject has shown that organizations with strong diversity environments are more likely to have employees with increased job satisfaction, higher levels of trust and are more engaged. But DEI benefits are visible at all levels of business. More precisely according to COQUAL, a global non-profit Think Tank that conducts research on DEI in the workplace, teams are 158% more likely to understand target customers when they have at least one member who represents their target’s gender, race, age, sexual orientation, or culture. Research by the BCG Technical University of Munich showed evidence that companies with higher diversity in management earned, on average, 38% more revenue than companies with lower diversity. This is because the diversity of gender, country of origin, ethnicity, religion, career path and industry background are highly correlated to innovation. When it comes to leadership, McKinsey & Company found that organizations in the top 25% when it comes to gender diversity among executive leadership teams were 21% more likely to be profitable and 27% better at creating value.

DEI and Cyprus

Cypriot companies are required to take up the challenge to align themselves, in time, with the ESG criteria and to take advantage of the large inflows of capital directed to the companies that monitor and publish their performance to the standards. The DEI process is undoubtedly a challenge for an organization, perhaps one of the biggest they’ll face, but extremely necessary. And of course, it is no longer an option. As a critical component of ESG, it requires commitment and a clear and strategic approach.

Anna Prodromou is a PR, Communications & DEI Consultant in Cyprus

*IMHO - In my humble opinion