Revolutionizing ESG and DEI means treating them as transformational change initiatives rather than transactional tactics to better ensure their staying power and long-term organizational resilience
At their core, environmental, social & governance (ESG) and diversity, equity & inclusion (DEI) strategies are transformational change initiatives, similar to digital transformation, but historically they appear to have been pursued through siloed strategies.
Given the recent backlash — both at a corporate and a political level — companies need to rethink how they pursue ESG and DEI through a transformational and organizational development lens.
In the recent past, many ESG and DEI efforts focused on short-term, transactional tactics which didn’t serve that strategy well, given the recent backlash against both of these. “Through a transactional lens, while ESG and DEI can show immediate results, they often fail to create lasting impact,” says Nicki Gilmour, an organizational development expert and CEO of Evolved People.
Instead, companies should aim for transformational change that affects the entire organization, according to Gilmour. This means moving beyond surface-level metrics and isolated programs and instead working to integrate ESG and DEI into a company’s core business strategy.
Steps to push transformational change with ESG and DEI
To foster a sustainable organization, leaders should take these three key action steps to better drive transformational change.
1. Integrate DEI and ESG into the company’s core business strategies
One of the first guiding principles in organizational change is to set a clear vision for both DEI and ESG change initiatives. This vision must be communicated from the top by multiple C-suite leaders including the CEO to establish the direct connection from the outset that these strategies are core to the company’s long-term business strategy. In particular, this vision must clearly articulate how it helps the organization achieve long-term goals and specifies desired outcomes of the initiatives, providing a roadmap for the entire organization to follow.
To get this right, leaders should conduct a thorough diagnostic analysis to understand the current state of the organization, says Gilmour. In turn, this data is used to set a realistic and aspirational vision that aligns with the company’s values and strategic goals. This includes identifying the foundational reason or the why the change is being pursued. “Understanding that structures are foundational is critical because you can’t just expect people to change behaviors overnight,” she explains.
A common challenge for transformational change, however, is that it is long-term, and often conflicts can come up in the short term that become a higher priority. Thus, it is easy for organizations to get distracted and off course. When, not if, this occurs, it is critical to consistently return to the why and distill with clarity how ESG or DEI helps the organization to deliver on its goals.
One of the past mistakes in setting up the DEI and sustainability functions was siloing them into the company’s Human Resources and Marketing functions, respectively, with no budget and no power to drive change.
Another key mechanism for weaving ESG and DEI into the fabric of the organization’s overall strategy is develop a comprehensive plan that ensures that these goals are reflected in performance metrics and employees’ annual reviews. For ESG specifically, changing financial workflows and enterprise risk management processes to better integrate these initiatives also is an effective way to ensure they become embedded into the core operations of the business.
Another related consideration that impacts how much DEI and ESG initiatives are integrated into business operations is how resistance shows up and from whom. To effectively manage change, Shane Lloyd, Chief Diversity Officer at Baker Tilly, said that he advises change leaders to segment audiences between proponents, opponents, and persuadables and gauge how much power and authority each group possess to help or hinder the work.
“We know we cannot get 100% of people on board but everyone needs the opportunity to be in two-way communication with the leaders so their perspective can be accounted for,” Lloyd says.
2. Reshape language to focus on performance
Another crucial step is to reformulate the language around these initiatives, shifting the focus towards performance-oriented goals. To do this, leaders need to make clear why ESG and DEI are important.
“I have found myself talking to CEOs about performance, and about organizational development, leadership development and belonging” and not using words like “diversity that perpetuate it as a non-integrated strategy,” says Gilmour. “When it is not consistently aligned with performance, it becomes at risk of being siphoned off, isolated, and overly scrutinized.”
Lloyd agrees, recommending that it is critical for leaders to repeatedly communicate how DEI “spans training, leadership development, talent management, recruitment, and business operations.”
More specifically, a diverse workforce might be one of the mechanisms to achieve one of the organization’s long-term goals. From the perspective of sustainability, for example, one need not use the words environmental and social to describe key actions. Though an engaged and skilled workforce is a key social element, committed and capable employees can be critical to navigating the current and future labyrinth of obstacles in a turbulent economic landscape.
One of the past mistakes in setting up the DEI and sustainability functions was siloing them into the company’s Human Resources and Marketing functions, respectively, with no budget and no power to drive change. Both budgets and the power to drive change are key ingredients to signal that both DEI and sustainability are important.
3. Invest in manager excellence
Transformational change in many cases involves cultural evolution and learning, and excellent managers are needed now more than ever to ensure that the cultural shifts stick and organizational resiliency is achieved for long-term success.
Indeed, cultural evolution is an essential element of organizational development. Because culture is the daily manifestation of an organization’s explicit performance expectations and its implicit behavioral norms — what is rewarded, what is tolerated, what is overlooked, and what is punished. Culture is delivered through employees’ day-to-day interactions, many of which are influenced by leaders and managers.
Therefore, doubling down to promote manager excellence and create 21st century leaders who have the skills to foster workplaces that exemplify healthy norms and respectful communication and encourage productive disagreement is critical, especially as a means to uphold a shared commitment to employees, the community, and the company’s overall mission. It also helps when leaders and managers approach mistakes with grace, while maintaining accountability without harshness.
The key to successful ESG and DEI implementation lies in approaching these initiatives as drivers of transformational change, integrating them into the company’s core business strategies and fostering a culture of excellence through skilled management. By reframing these efforts in terms of performance and long-term organizational resilience, companies can create lasting impact and navigate the challenges of our ever-evolving business landscape.
