Ethnicity Pay Gap Reporting: Key to demonstrating an ESG-aware culture

I have intentionally sat on this article…waiting for the right moment. I think this time has come following a recent webinar hosted by the Diversity Project for the #IAM campaign. The webinar was moderated by Darren Johnson with panellists Marisa Hall, Justin Onuekwusi and Gavin Lewis sparked many thoughts and emotions around how far society has come and how far we still have to go in terms of the diversity and inclusion (D&I) agenda.  Whilst it may at times feel like D&I is “flavour of the month”, I believe momentum is generatingto change that.  With the 2017 introduction of mandatory gender pay gap reporting, we awoke to some of the realities that exist between men and women on the pay front.  This was happening as ESG metrics also had a light shined on them as the investment community began to probe further into what really drives value for stakeholders (not just shareholders) of a company.  (Stakeholders include employees, suppliers, investors, regulators, public interest groups and the general public.)

Whilst initially subject to some apprehension as to the results and feared backlash, executives and Boards have found empowerment in knowing about their gender pay gap and gaining empirical evidence to support investment into reducing and eliminating this pay gap.  I believe the time has now come for Ethnicity Pay Gap (EPG) reporting to follow suit.  It’s actually not that difficult! A recent poll on Ignites Europe around EPG reporting indicated that over 90% of respondents were in favour. A petition of more than 125,000 signatures has also reached Parliament to ensure there is discussion on the topic of mandatory EPG reporting. More generally, there is a real opportunity for companies to report on their efforts in areas such as reverse mentoring and the mechanisms they use to measure a company’s cultural awareness, cross ethnicity employee satisfaction and loyalty. I think the timing is now right (if not a bit overdue!), and hereare a few personal thoughts as to why:

1. Many companies are already starting to compile this dataand are using it to shape policies and to take targetedaction where needed e.g. Natwest, Axa.
2. Stakeholders are interested in knowing about a company’s D&I agenda across all areas of how it does business.
3. Transparency is becoming a de facto requirement across our industries and EPG reporting is a great mechanism to demonstrate openness and responsibility.
4. Companies have seen that investors and stakeholders expect change and are in some cases looking to hold back investments preferring to invest in companies that take the “S” in ESG seriously within their own firms.Investors expect action in proactive timeframes).
5. Regulation is going to require it – eventually!
6. Good governance, transparency and openness is a sign of a sustainable, profitable company and ESG returns on those best in class are starting to demonstrate it.
7. Sustainability reporting frameworks are starting to point to it so companies will increasingly become penalised by ESG rating agencies if companies don’t disclose this information.

The Big Four in coordination with Bank of America and World Economic Forum released a consultation paper in February 2020 with the aim of creating a common set of core and enhanced metrics that all companies could report against.  This comparability is much needed and EPG reporting should be added to this laudable (yet achievable!) list of metrics.  But it’s not just about reporting – there are real benefits for companies.  Here are just a few:

1. Unconscious bias removal – We are increasingly recognising that unconscious biases litter the business environment and we are starting that process of rectifying biases and their impacts through unconscious bias training for staff. Including metrics on EPG and GPG are visible demonstrations that companies are keen to address these biases and begin to remove them.
2. Alignment of actions to purpose and culture – It is difficult for a company to genuinely ascribe to a social purpose whilst operating in an environment that doesn’tleverage the benefits diversity and inclusion can bring. Reporting on EPG and internal measures around culture is yet another mechanism to help demonstrate how a company contributes to equality and fairness in society.(UN Sustainable Development Goals 5 and 10 amongst others.)
3. Leadership in issues such as D&I helps generate reputational and financial rewards – Companies that are brave enough to disclosure on both their “positive”AND “negative” impacts are increasingly seen as the next generation of corporate “heroes” that are needed to build back to a better world.  Companies such as those that have recognised “Juneteenth” in the USacknowledge history, accept the present and actively engage to change the future.  These companies get more press, hit the radar of inspiring, energetic, and talentedminds that want to work with companies that will make a difference, and ultimately gain the capital backing of longer term thinking institutional investors and financial institutions that are keen to back the leaders.

What I know…

I am white. I am Canadian and British. I feel blessed to have had the parents that I had.  I have also spent more than a decade in Latin America and have witnessed the rawness of social and economic inequality.  I cannot control any of these facts. However, I am also learning every day. I recognise that the more I know the less I know. I know change begins at a microlevel in each of our lives, our professional and familiar circles. I know I won’t change the world with this article…but if you have read to this point, I hope I have at the very least planted a seed both for: 1) increasing transparency on ethnical pay as one of many steps we as responsible businesses should take; and 2) perhaps provided some food for thought on whateach of us would like our role to be in promoting equality in every sense of the word.

Please feel free to add your thoughts on what other benefits ethnical pay gap and broader corporate culture reporting might bring to us all!

Feature Picture Credit: FreePik

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Troy is a Sustainability and Responsible Investment professional with over 20 years of experience assisting companies and participants in the Asset Management industry to enhance their governance, risk and responsible investment practices. Troy is the former Director, Head of Sustainability and Responsible Investment for KPMG.

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