The term diversity is on everyone’s lips, especially in June, because it is Pride Month. The month is dedicated to celebrating, recognizing and supporting the LGBTQI+ community. Events, parades, demonstrations, cultural activities and educational campaigns are held during this time to promote the visibility and acceptance of lesbian, gay, bisexual, transgender and queer people. In recent years, more and more companies have been celebrating Pride Month and transforming social media into a more colorful place with their colorful logos.
For many companies, however, the approaching sustainability reporting obligation will be about more than just rainbow logos. This is because diversity is mentioned several times in the ESRS (European Sustainability Reporting Standards), which form the framework for compliance with the CSRD (Corporate Sustainability Reporting Directive), particularly in a social and governance-related context.
Sexual orientation and identity, which is only one dimension of diversity, is of course not covered by the disclosure obligation. Why it is nevertheless worthwhile for teams and companies to raise awareness here and to what extent it can play a role in the ESRS and thus in the sustainability report will be discussed later. First, we want to find out what is behind this concept and what other dimensions of diversity there are.
What does diversity mean?
Diversity is an English term that can be translated as “variety” or “diversity”. It describes the recognition and appreciation of diversity among people. This concept, which is relevant in both organizational and socio-political terms, advocates a respectful approach to differences and the individuality of people. It aims to reduce discrimination and promote equal opportunities and a diverse and heterogeneous society.
Diversity refers to the visible and invisible characteristics of every person and can be divided into various dimensions. These include, for example, gender, social and cultural background, age, sexual orientation, marital status and physical and mental health. (Source: https://www.lpb-bw.de/diversity#c70919)
In the world of work, diversity means avoiding disadvantages in companies and using the diversity of employees as an opportunity for the company’s success. This approach is referred to as “diversity management”.
Diversity refers to the representation of women and/or ethnic groups or minorities in the workforce, the age distribution within the workforce and the percentage of people with disabilities in the workforce.
Why is diversity important in the company?
There are good reasons why companies should engage in diversity management, because it has a very concrete impact on their well-being. To come back to Pride Month – those who also work on concrete measures to implement all dimensions of diversity behind the rainbow logo (remember: gender, social and cultural origin, age, sexual orientation, marital status and physical and mental health) not only do their (potential) employees a favor, but also benefit in terms of content and financially. Below are some of the benefits of good diversity management, taken from the McKinsey&Company study and the Diversity Recruiting Report by Indeed and the ifo Institute:
Increased profitability through diversity
♂ ♀ Gender parity: Companies with more gender diversity in leadership teams were 21% more likely to perform better on profitability and 27% more likely to have superior value creation. The companies that were top performers in both profitability and diversity had more women in senior (usually revenue-generating) positions than in staff positions on their leadership teams.
🌈 Cultural/ethnic diversity: companies with higher ethnic/cultural diversity in leadership teams were 33% more likely to achieve industry-leading profitability. Inclusion of highly diverse individuals – and diversity in all its facets beyond gender (e.g. LGBTQI+, age/generation, international experience) can therefore be a key differentiating factor between companies.
📉 Disadvantage of low diversity: Companies with little or no gender and ethnic/cultural diversity were 29% less likely to achieve above-average profitability compared to all other companies in the study data set.
Diversity as the key in the battle for talent
💫 Attracting talent: A diverse workplace attracts diverse talent because people of different backgrounds, experiences and skills are attracted to diversity. Companies therefore have access to a broader talent pool.
Employee retention: An inclusive workplace that values diversity creates a sense of belonging and commitment among employees. This helps them to stay with the company in the long term and continuously develop their skills.
More productivity through diversity
🎨 Creativity and innovation: Diversity promotes the exchange of different ideas, perspectives and ways of thinking. The clash of different views gives rise to innovative solutions and creative ideas that can drive the company forward.
👁️🗨️ Better decision-making: Decisions are made in diverse teams based on different perspectives and experiences. This minimizes potential blind spots and enables more informed decisions to be made.
🚀 Higher productivity: An inclusive workplace that promotes the involvement of all employees creates a positive working environment. Employees feel valued and are more motivated to give their best, which has a positive impact on productivity.
Customer focus: The customer base is becoming increasingly diverse. A diverse working environment enables companies to better understand their customers, recognize their needs and preferences and thus offer more effective solutions and products. It also makes it easier to tap into new market segments.
🧠 More effective problem solving: Diverse teams bring different perspectives and approaches to solving problems. By sharing different ideas and approaches, complex problems can be better analyzed and solved.
Improving reputation through more diversity
🌟 Corporate image and reputation: Companies that promote diversity and inclusion are perceived as progressive, open and inclusive. This contributes to a positive corporate image and a good reputation, which is attractive to both customers and potential employees.
👐 Supporting social responsibility: A company that promotes diversity and integration contributes to the creation of an inclusive society. It demonstrates social responsibility and contributes to equality and equal opportunities in the world of work.
Promoting diversity: Examples and measures
Good diversity management has immense benefits. But how can you promote diversity in your own company in order to not only have a positive impact on your employees and profitability, but also act in accordance with the ESRS (European Sustainability Reporting Standards)? Here are some examples of measures that can help in this endeavor:
🌈 Strategy: Develop an inclusion policy that focuses on ethnic diversity or minority groups. This policy should include a clear commitment to promoting diversity and affirmative action.
👩🏫 Training: Conduct diversity and inclusion training that also takes ethnic aspects into account. This training should be offered to all employees in order to raise awareness of diversity and promote an inclusive corporate culture.
🤝 Targeted recruitment: Active efforts to target recruitment of underrepresented groups. This can be achieved by seeking candidates in specific networks or organizations that focus on promoting diversity
🎯 Targets: Set specific targets to increase the proportion of underrepresented groups in your own workforce and in top management. These targets should be regularly reviewed and communicated transparently to track progress and ensure accountability.
Diversity in the European Sustainability Reporting Standards
Diversity in the company is not just nice to have, it is a legal requirement. It is considered a sustainability issue and must therefore be included in the sustainability report.
Mandatory diversity standards
The concept is relevant in various areas of the ESRS and falls under some disclosure requirements. We have highlighted the relevant sections for you:
🤓 Diversity in top management: There is a requirement to disclose quantitative and qualitative data on the composition and diversity of administrative, management and supervisory bodies (ESRS 2 GOV-1).
Diversity within the company’s own workforce (ESRS S1): In addition, the gender balance at top management level (S1-9) is important. Companies must identify ways to promote diversity and prevent discrimination in their own workforce (S1-1).
⛓ Diversity in the value chain (ESRS S2): Similarly, ways to promote diversity and prevent discrimination among suppliers and partners along the value chain must be reviewed for diversity policies.
These standards are mandatory and must be disclosed from 2024 by all companies that fall under the Corporate Sustainability Reporting Directive (CSRD); almost 15,000 companies in Germany.
Voluntary diversity measures
The ESRS provide guidance on how to respond to the Disclosure Requirements in detail. These instructions are called Application Requirements (AR) and are the counterpart to the Disclosure Requirements. The disclosure requirements have a more theoretical character. They are strategy-oriented and describe measures that are planned. In contrast, the ARs explain to companies how they can implement these theoretical concepts in practice. With regard to diversity, they can rather be seen as motivation and signposts to more diversity in company structures. The following application requirements should be seen as a reference to ESRS S1-2 (Diversity in one’s own workforce):
🤝 How the company interacts with people at risk or in vulnerable situations (e.g. whether specific approaches are taken and special attention is paid to potential barriers).
👐 How the company considers potential barriers to the inclusion of people in its workforce (e.g. linguistic and cultural differences, gender and power imbalances, divisions within a community or group).
💬 How the company provides people in its workforce with information that is understandable and accessible via suitable communication channels.
🗣 Any conflicts of interest that have arisen within its workforce and how the company has resolved them.
🌈 How the company endeavors to respect the human rights of all stakeholders involved, such as the right to privacy, freedom of expression and peaceful assembly and protest.
Conclusion
In this article, we have explained what is behind the concept of diversity and its significance in the context of the European Sustainability Reporting Standards (ESRS) and the Corporate Sustainability Reporting Directive (CSRD).
Diversity refers to the recognition and appreciation of diversity among people, both in organizational and socio-political terms. The ESRS place particular emphasis on diversity in relation to top management, the company’s own workforce and the value chain. Companies must disclose quantitative and qualitative data on diversity in administrative, management and supervisory bodies.
Good diversity management offers various benefits, such as higher profitability, talent attraction, employee retention, more creativity and innovation, better decision making, higher productivity and improved corporate image.
Companies can take steps such as developing inclusion policies, diversity and inclusion training, targeted recruitment and setting diversity targets to promote diversity.
Overall, diversity is therefore an important aspect for companies that is not only required by law, but also leads to economic success.
Contact us if you need support with the sustainability reporting obligation and the guidelines it contains! We will guide you step by step to your ESRS-compliant sustainability statement.
