Diversity and inclusion in workforce are top ESG concerns for business

Environmental concerns usually headline corporate responsibility debates, but a balance of workers is critical too, some now realise.

Businesses are keen to derive the benefits of as diverse and inclusive a workforce as possible to compete effectively in a tough environment.

Creating a diverse and inclusive workforce has emerged as the top environmental, social and governance priority for Australian businesses that want an edge in a tight labour market and to prove good corporate citizenship to stakeholders.

Despite environmental responsibility generally being the most talked about element of ESG, more than half the corporate directors and managers surveyed in a new report said diversity was of first importance among ESG goals (55.4 per cent) in the short term, followed by building the specialised personnel and knowledge within the business to achieve those goals (53.6 per cent) and making and satisfying public commitments to address greenhouse gas emissions (43.8 per cent).

“Senior business leaders are seeking to create a culture that will attract, retain and inspire people with a mixture of skills, experiences and perspectives,” authors of the King Wood Mallesons Directions 2022 report said.

“Renewed and more deliberate focus on stakeholders and increasing attention on the impacts of companies and businesses has been triggered by a combination of corporate, market and regulatory failures, and economic, environmental, social justice and public health crises, most recently, the Covid pandemic.”

The analysis also showed 67 per cent of the 118 clients canvassed in April — three-quarters of whom were non executive directors, senior executives or managers — viewed the proper management of ESG positively in the medium to long term, believing it would make their firm more attractive to all stakeholders. There were 37.5 per cent who thought it would generate new business opportunities, and/or improve sales or market share and there was a solid understanding that ESG commitment would “mitigate the risk of regulatory or compliance concerns and critical media reporting” (46.4 per cent).

“Instead of being seen as ‘red tape’ or a compliance burden, our survey results indicate an overwhelming optimism that taking ESG-related actions will generate positive outcomes for business, as well as for the wider community,” the analysts said.

“This focus cannot be ‘set and forget’ or delegated to a team or business unit to administer – it will need to be sophisticated, holistic and measurable. No longer a matter of mere ‘morality’, specific legal, governance and compliance requirements will continue to evolve, and stakeholders will demand greater transparency and accountability in relation to achievement of objectives and targets.”

Other current priorities were active participation in their local communities (39.3 per cent) and engaging with stakeholders such as investors, proxy advisers and ESG ratings agencies on their ESG related initiatives and progress (36.6 per cent).

This was attributed to an increasing recognition by boards and executives that following the Covid lockdowns “broad collaboration between businesses, industries and governments will be required to “fix the problems”.

“We are in a new age of collectivism and engagement.”

The biggest challenge to getting ESG right would be effectively managing stakeholder issues such as balancing competing interests and objectives (51.9 per cent).

ESG was among a number of issues canvassed. Attracting and retaining skilled labour was the most immediate concern at the time of the survey (79.5 per cent) followed by challenges arising from wider labour markets constraints and skills shortages (52.3 per cent), then managing information technology and cyber risks, such as ransomware attacks and cybersecurity breaches (51.5 per cent).

There were mixed attitudes to paying ransoms and other measures to combat the worsening problem. Most did not support paying ransoms (54.1 per cent), but only 30.3 per cent thought there should be an outright ban on making ransom payments

There was strong support for making it mandatory to report ransomware incidents to intelligence services (68.8 per cent) and for making it illegal to ask for a ransom (59.6 per cent).