2024 DEI Trends: How Top Companies Plan To Meet Investor Expectations

Capital Markets Comment is pleased to welcome back Sarah Hassaine , a global leader in Diversity, Equity, and Inclusion (DEI) to answer Ten Questions about the focus of investors regarding DEI in 2024, and how best-in-class companies are responding.

Focus 1: Transparency in DEI Reporting

• Investor Perspective: Investors increasingly are interested in transparent and comprehensive reporting on DEI metrics. However, many companies struggle to provide clear data.
• Best-In-Class Companies: Leading companies are adopting standardized reporting frameworks, such as the Global Reporting Initiative (GRI) or Sustainability Accounting Standards Board (SASB), to ensure consistent and reliable DEI data. Enhanced reporting includes not just diversity statistics but also progress on inclusion initiatives and equity outcomes. It is important to note that DEI is a new official field and the majority of companies have just started tracking data; metrics take time to measure and to thread a story of inclusion and/or diversity.

Focus 2: Integration of DEI into Corporate Strategy

• Investor Perspective: Investors want to understand that that DEI is not just a peripheral issue but integrated into the core corporate strategy and across the business.
• Best-In-Class Companies: Progressive companies are embedding DEI objectives into their overall business strategies and ways of work. This integration is visible in their mission statements, strategic objectives, key performance indicators (KPIs), policies, practices, and behaviors.

Focus 3: Board Diversity

• Investor Perspective: There is an accelerating demand for diversity at the board level, as it's seen as critical for varied perspectives in decision-making. Additionally, data has shown that innovation, ROI, and ROE increases when there is more diversity on the board.
• Best-In-Class Companies: ?Companies are actively diversifying their boards by focusing on members of different genders, abilities, race, age, etc. They are also setting clear targets and timelines for achieving board diversity and working with their recruiters to achieve those goals. While the fear is that they are taking seats, the reality is that they were not being considered for those seats in the first place. Now there is more intentionality when looking at board candidates.

Focus 4: Inclusive Leadership

• Investor Perspective: Investors are scrutinizing the commitment of company leadership to DEI.
• Best-In-Class Companies:? Proactive Leadership Engagement and Invest in Resources
• Regular DEI Training: Leading organizations are institutionalizing regular DEI training for their leadership. This training goes beyond basic awareness, delving into actionable strategies to foster inclusivity, understanding unconscious bias, and cultivating cultural competence.
• Accountability Measures: Best-in-class companies are setting clear DEI goals for their leadership teams. These goals are specific, measurable, and integrated into the broader business objectives. Leadership is held accountable through regular reviews and assessments of their progress in meeting these goals.
• Tying Compensation to DEI Goals:
• Performance-Linked Incentives: An innovative and increasingly adopted practice is linking a portion of leadership compensation to DEI objectives. This approach aligns personal financial incentives of executives with the company's DEI goals, ensuring a stronger commitment to achieving these targets.
• Criteria for Incentives: The criteria for DEI-linked compensation include metrics like improvements in workforce diversity (particularly in senior and middle management roles), successful implementation of inclusive policies, employee satisfaction scores regarding inclusivity, and progress in creating equitable career development opportunities.
• Impact Assessment: Companies are developing robust methods to assess the impact of their DEI initiatives. This isn’t limited to quantitative measures but also includes qualitative assessments, like feedback from employees and stakeholders, which offer insights into the lived experiences of diverse groups within the company.
• Continuous Improvement and Adaptation: Leading companies recognize that DEI is an evolving area. They commit to ongoing learning and adaptation, understanding that societal norms and expectations change. They are open to feedback, willing to challenge their own biases, and prepared to make changes as necessary.

Focus 5: Addressing Pay Equity

• Investor Perspective: Pay equity is a significant indicator of a company's commitment to DEI.
• Best-In-Class Companies: Forward-thinking companies are conducting regular pay equity audits and making the results public. They are also implementing remedial measures to address any disparities uncovered. They mention these efforts on their websites, reports, in job descriptions and to candidates during the recruiting process.

Focus 6: Supplier Diversity

• Investor Perspective: There is a growing expectation for companies to extend their DEI commitments to their supply chain.
• Best-In-Class Companies: Companies are developing supplier diversity programs to ensure that their procurement practices start tracking partnerships with businesses that are minority/Veteran/women/Disability owned.

Focus 7: Employee Engagement

• Investor Perspective: Engagement of the entire workforce in inclusion building initiatives is crucial for their success.
• Best-In-Class Companies: Companies are creating inclusive cultures by encouraging involvement in different events, conferences, recruiting opportunities, mentorships, trainings, and more.

?Focus 8: Impact of DEI Initiatives

• Investor Perspective: Investors are increasingly interested in the real impact of DEI initiatives beyond the activities undertaken.
• Best-In-Class Companies: ?Companies are measuring the impact of their DEI initiatives through qualitative and quantitative metrics, including employee retention rates, leadership diversity, and employee satisfaction surveys and focus groups.

Focus 9: Global DEI Practices

• Investor Perspective: For global companies, applying DEI practices effectively across different cultural contexts is challenging.
• Best-In-Class Companies: Many multinational companies are adopting a two-pronged approach: setting global DEI standards while allowing for regional adaptations to respect local cultures and norms.

Focus 10: Inclusion of Non-Traditional Voices

• Investor Perspective: There's an emerging focus on including non-traditional voices, such as gig workers or remote employees, in DEI efforts.
• Best-In-Class Companies: Companies are extending their DEI policies and programs to encompass all types of workers, ensuring inclusivity regardless of employment status. Depending on the part of the business, engagement style may vary. For example, employees in manufacturing or logistics will be offered different modes of communication and ways to engage and learn. This thoughtfulness of engaging non-traditional voices is part of DEI efforts and investors’ inquiries.

The landscape of DEI in 2024 presents multifaceted challenges for public companies. The companies that are succeeding are those that treat DEI as a comprehensive, strategic priority, demonstrating commitment through transparent reporting, inclusive practices, and engagement with all stakeholders including investors..