One thing that sometimes surprises people who take on the responsibility for sustainability in an organisation is the breadth of topics included, and often that sustainability is not just about the environment.
The social aspects of sustainability are numerous and for many sectors of the economy carry more weight in rating agencies assessments than do environmental factors. Often environmental aspects such as waste and energy management had someone managing them before the term “sustainability” was even used. And whilst many sustainability aspects such as our last topic, carbon footprinting, are relatively new to businesses, it is clearly down to the sustainability manager to take responsibility.
However most social aspects, particularly those relating to employees, are usually under the responsibility of HR. This has the potential to create a lot of tension – asking for data, metrics etc. to feed into sustainability disclosures can seem to HR people to be just creating more work for little benefit and encroaching on their turf. I would always advocate talking early to HR about how to approach these topics, what reporting is required and how to structure it for efficiency, but also to help HR gain traction for initiatives and raise the profile of their work. It doesn’t mean that you do everything, but it should mean that you are knowledgeable enough to challenge and support them.
Under social sustainability Diversity, Equity and Inclusion (DEI) is the lead topic, at least in the eyes of investors and rating agencies. Years ago, it was usually just D&I (and indeed the UK government often still talks mainly about Diversity and Inclusion) but in recent years equality has been explicitly added into the mix by many. So, let’s start with a very brief description of what each of those terms mean, although like a lot of things in sustainability, that there are no set definitions, so these are intuitive interpretations.
Diversity is about the variety in the workforce. It includes aspects such as gender, culture, ethnicity, disability and age amongst others.
Equity is about fairness and justice, ensuring that there are equal opportunities for all, irrespective of their differences.
Inclusion is about creating a culture where everyone feels their voice is heard.
All that sounds fairly obvious, and you may even be asking the question, why is this even an issue? In reality many companies are not very diverse at all, particularly at senior levels. Sometimes this has resulted from deliberate discrimination, but often it is unconscious bias that is at play.
There is a lot of evidence that diverse teams perform better than those which have similar members. This is at the heart of why it makes sense for any business to be looking at this issue – improve DEI and you’ll improve employee engagement, maximise your talent, better reflect the markets in which you operate and make better decisions. In short, you’ll have a higher performing business. But there is also an underlying ethical issue here – everyone is entitled to the same opportunity and businesses have a role in society to ensure that.
One thing therefore to be very mindful of is that the law in this area varies considerably. In the UK you cannot legally positively discriminate, whereas, in certain circumstances, in other countries this is allowed. So, in the UK you cannot recruit or promote someone just because they have a certain characteristic, nor can you set quotas on what proportion of the workforce must have a certain characteristic. But you can take positive action to ensure your input to your recruitment process contains people from diverse backgrounds and you can set targets to increase representation. This is definitely an area where your HR colleagues have all the knowledge, and whilst you will need to understand the issues, it is HR that should be responsible for making sure you act in accordance with local laws.
In the UK there have been a number of government initiatives in particular to promote gender and race diversity, relying on targets which are not legally mandated. However, disclosure on gender and ethnic diversity targets and performance at senior level is now included in FCA listing rules for public companies in the UK, requiring three things:
a minimum of 40% women on the board
at least one of the senior board positions (Chair, CEO, Senior Independent Director or CFO) held by a woman
at least one member of the board from a minority ethnic background
The 40% target is quite a common approach when looking at board makeup. The board is typically not a large team, so to set a 50/50 male female split would not be practical, particularly if there is an odd number of directors. However again, this does vary, e.g. in the Netherlands supervisory boards must have a minimum 30% female, 30% male composition.
The various initiatives the have had some effect. The Parker Review in the UK looked at how to increase ethnic diversity in companies and publishes annual updates to show progress. The 2024 review shows that 96 of FTSE 100 and 70% of FTSE250 companies have met the one board member from ethnic backgrounds target. In 2027 targets will be expanded beyond the board to senior management positions.
Similar progress has been made in gender diversity with 42% of FTSE 100 board directors now woman. Europe has seen similar changes. However, it is worth noting that women are still very much under-represented in the top jobs, with only ten female CEOs in the FTSE100. Indeed, what has been seen over the last few years is that many boards have met the targets through the appointment of non-exec directors. Whilst this should have improved diversity of thinking, I would argue that success is really only when we see the change in executive roles too.
One other area that is getting a lot of attention is the gender pay gap reportable for any company with over 250 employees in the UK. Note that the 250 threshold is based on numbers of people not full time equivalent (so if there is a job share that would be two people). This brings up another point which often surprises people new to sustainability – getting data on employees is not always easy! Not all companies have a single system for recording data, and the data that is recorded may not always be consistent (e.g. are contractors included or not). One issue, pertinent for gender pay gap calculations, is what counts as a senior manager. Often companies will start with direct reports to Executive management, but this will often include personal assistants, roles which are disproportionately filled by females. This might make the gender balance therefore look at lot better than it is. Trying to exclude these roles (as will be required by UK senior management diversity reporting in the future) may then be a very manual exercise.
DEI reporting and management is complex and there is increasing focus required in this area. Although your internal people teams will be on top of much of this, they may not be fully up to date with what is required from a sustainability reporting point of view, which is where CEN Group can help. We can help you ensure that you create action plans to get maximum recognition from rating agencies in the social side of the agenda, understanding what policies, targets and performance data are required.
About the Author
Chris is a senior strategic leader with over 25 years’ commercial experience including sales, marketing, strategic planning and major business change initiatives at AkzoNobel and ICI. He has a wide knowledge of sustainability and how to integrate this into business having held senior sustainability roles at AkzoNobel for 12 years, including as Global Sustainability Director Decorative Paints and AkzoNobel Planet Possible Programme Manager. Chris is now an independent sustainability consultant and a pension trustee director.
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