The focus on ED&I can drive trust and business success

To engage stakeholders, Main Market listed companies should embrace upcoming equality, diversity and inclusion (EDI) disclosure requirements to tell a clear and consistent story.

As AGM season continues, equity, diversity, and inclusion (EDI) remains very much at the top of the investor agenda. This is, in part,driven by the recent FCA announcement that premium and standard LSE-listed companies will have to report against a litany of related disclosures, for accounting periods starting on or after 1 April 2022. But beyond that, more and more research is emerging to make a tangible connection between positive action on EDI and investor interest, an engaged workforce and business success.

New mandatory disclosures

The new disclosures include the requirement for companies to report on a comply or explain basis against multiple EDI board targets, disclose numerical data on the sex or gender identity and ethnic diversity of their board, senior board positions and executive management, and expand corporate governance statements on diversity policy to cover key board committees. There is also a recommendation for policies to consider wider diversity characteristics.

The new requirements build off a variety of current mandatory and voluntary disclosures that UK companies are already reporting against, including gender pay gap and gender breakdown reporting. Ethnicity pay gap reporting is also becoming more mainstream. The number of employers publishing their ethnicity pay gaps has increased from 11% in 2018 to 19% in 2021, and this will be supported by the Department for Business, Energy and Industrial Strategy (BEIS), who are publishing guidance for employers this summer.

A workplace built on trust

This decision by the FCA aligns with an increasing understanding of the contribution an equitable and engaged work culture can have on a company’s enterprise value. For example, a 2020 McKinsey study found that companies with the most ethnically diverse leadership teams were more likely to experience higher profits and found a substantial performance differential—48%—between the most and least gender-diverse companies.

Stakeholders are recognising that an inclusive workplace built on trust has significant benefits, including diverse thinking and the ability to attract and retain talent. From the point of view of investors, this is shown through more than 60% of private equity limited partners requesting EDI demographic data.

Beyond investors, EDI is of important interest to employees and the public. A recent study by Boston Consulting Group (BCG) found that over half of workers wouldn’t consider an offer from a company that doesn’t share their beliefs on diversity and inclusion. Another survey by Deloitte suggested that 40% of workers would consider leaving their organisation if it did not fulfil its EDI commitments. EDI is also being considered by one in three consumers when they make a purchase decision choosing between undifferentiated products sold by separate brands.

These findings, combined with the current worker shortage in the UK, are powerful motivators for companies to embrace change.

An opportunity for joined-up storytelling

Over the coming years, aside frommeeting the new requirements, there is an opportunity for companies to go further with their EDI communications: to better communicate and evidence their EDI progress and initiatives, articulate a clear and meaningful strategy implementation, and a joined-up story that stakeholders can follow and support.

Within their annual reports, companies should bring EDI issues into a broader contextual frame, exploring challenges and opportunities, risks, and viability, and consider how best to relate their chosen approach’s effectiveness. This might including setting and aligning with holistic commitments and targets, developing a digestible framework to champion progress, incorporating key impact metrics and extrapolations, and bringing their story to life through case studies and other insight-forward content. Companies should also communicate about EDI internally, engaging with and creating a dialogue with employees, and online.

The journey towards a sustainable future

Companies that take on this advice, embrace these upcoming disclosure requirements and effectively communicate their EDI story, will see the benefits. For example, Deloitte research suggests if employees trust their employer’s EDI commitments, their engagement level can increase up to 20%, and the likelihood they will leave their organisation decreases by 87%.

These changes, though already requiring immediate attention, are a part of a large and growing movement focused on sustainability, one that will only grow and mature, and treating them seriously now, rather than later, will avoid any unnecessary volatility in transition. Companies will be judged on these disclosures, and it is always best to think ahead and steer the opinions that will emerge and solidify between stakeholders and make an undeniably material impact. 

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Whether you’re thinking to develop a new EDI strategy or better embrace new regulations and best practices, we would be delighted to discuss your evolving stakeholder communications and how we have helped other clients through this journey.

Get in touch with Oliver MacMahon at [email protected].