What about the “S” in ESG? – Still room for improvement on diversity

May 28, 2021

Transparency in reporting on social issues is a powerful way for businesses to build trust, create accountability, show leadership, and move the dial on seemingly indelible industry-wide issues. It is also a key factor for ESG investors who want to show alignment with increasingly stringent ESG regulations.

The EU regulations, or “SFDR”, for example, includes 16 mandatory social metrics regarding respect for human rights, anti-corruption, and anti-bribery matters. While the UK and US are still working towards their own versions of SFDR, it’s clear that the governance of Social issues is here to stay. It’s clear from the responsible investment disclosures of leading asset owners such as NEST, the National Employment Savings Trust, that investors are increasingly considering the reputational and operational risks of public reporting (and lack thereof) within their core investment risk-opportunity matrices.

While regulations are pushing ahead, investors depend on high quality data to take an informed view. In this final instalment of a three-part series, Áine Clarke of The Workforce Disclosure Initiative sheds some light on the latest developments in corporate transparency on social issues, based on the insights gleaned from their 2020 survey.

Corporate diversity and inclusion is an area of ESG investing that was brought into stark relief by the pandemic and the recent publication of the Parker Review. The 2020 WDI Survey revealed corporations pledged to re-focus their efforts on levelling the playing field, with 98 per cent of companies reporting on plans to tackle diversity and inclusion in their organisations.

However, despite this high-level of commitment, companies lacked or failed to report concrete data around workforce composition to ensure these plans are measured and effective. While an average of 86 per cent of companies provided the percentage of women in leadership positions (which in the WDI is comprised of the Board, executive committee, and senior leadership), only 75% could provide their overall workforce gender breakdown.

Additionally, more than twice as many companies provided data on the gender breakdown of their workforce than on their workforce’s ethnic composition. This reflects what we saw on pay gaps, where over 10 times as many companies provided data for the gender pay gap as the ethnicity pay gap. With the Parker review producing similar findings, it does raise questions over whether the report has been heard by corporates.

Finally, while most companies (78 per cent) stated how the company has addressed, or intends to address, pay gaps, and pay ratios, only 4 per cent provided data on their ethnicity pay gap (this 4% does not include companies operating in locations with legal restrictions on collecting this data).

The findings suggest that the lowest-paid workers are often also the workers who feel the negative consequences of a failure on diversity and inclusion the most keenly and have the most limited recourse to address this. Companies need to prioritise diversity data collection for these workers and use the data to ensure their diversity and inclusion efforts consider all workers, not just those at the very top of the organisation.

Now in its fifth annual cycle, WDI’s survey shows that no company is ‘there yet’ when it comes to reporting on the S of ESG. However, WDI survey participants are pioneering a model of corporate transparency that is head and shoulders above the rest, making almost 3 times as much data available than those who do not.  

There is still a lot of work to be done to improve workforce practices. While transparency in and of itself is only a first step, public information means knowledge sharing, mutual learning, and the improvement of business practices across the board, ultimately driving the provision of good work and fair wages globally.

For a more in depth look at the WDI 2020 survey findings please follow this link.

Last Updated: 4 June 2021