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The impact of DEI policies on the financial performance of companies: A case study from different industries.

The DEI organizational framework, designed to promote diversity, equity, and inclusion, is becoming increasingly popular because of the potential benefits to organizations. But how does this strategy affect the financial results and other key aspects of the company's business?

The impact of DEI policies on the financial performance of companies: A case study from different industries.

O DEI

A strategy to maintain and develop values such as diversity, equality and inclusiveness in the company is not just a plan that seeks to attract an employee and fulfill financial objectives. This trend did not come from nowhere, it arose thanks to broad social changes; over the years, social movements have taken up topics relevant to workers such as: racial justice, gender equality or the availability of jobs due to age.

Progress in the development of inclusiveness and diversity in the world's workplaces is measured by the Inclusion Index (compiled by Kantar) in 13 countries (not including Poland). The results of the 2022 report show that the global value of the index did not increase, but stopped at the level of 2020 and decreased compared to 2019. For illustration: Italy recorded the largest decrease in value (-11 points) and the largest increase in Mexico (+15 points). Poland, not included in the ranking of decline/increase in value between 2019 and 2022, reached 53% of the index value for 2022.

According to Global Industry Analysts forecasts, by 2026, DEI will reach a market value of $15.4 billion, a two-fold increase compared to 2020. These forecasts point to the development of DEI programmes; investments promoting diversity, for example through training or consultation, but also to the development of the market for services and products related to diversity.

An important aspect of DEI is that, thanks to the implementation of good practices related to this strategy, the company simultaneously fulfills one of the 3 important elements related to CSR (Corporate Social Responsibility), namely ESG (Environmental, Social, Governance), that is, the factors on the basis of which non-financial evaluations of companies are created. However, fulfilling the social element (Social) can also be beneficial for the company in terms of revenue, however, this usually happens in a further and indirect consequence.

Financial results

Most employers see the benefits of a diversity of human resources, including financial ones. In 2022, 59% of respondents agreed that diversity and equal treatment have a positive impact on companies' financial performance. This means that the knowledge gained through research is becoming more and more accessible to employers.

Although there has been a decrease since 2011 - then 67% of respondents saw the financial benefits of adopting the DEI strategy, this is still more than 50% of the respondents. It should also be borne in mind that both studies share more than 10 years, during which there have been major economic changes, including the coronavirus pandemic in 2020. Another important aspect is that positive financial results are noticed much more often by large companies, which may be due to their capital, also cultural capital, which in its tradition has longer referred to diversity management. Large companies, especially Western companies, tend to have sectors that manage DEI and established values focused on inclusivity.

The financial, insurance and related industries are most aware of diversity management with the real estate market. This also translates into activities for the development of DEI, in addition, they are undertaken by industries such as industrial processing, finance and insurance, and hospitality and catering (According to the report of the Responsible Business Forum of 2023)

The 2023 McKinsey study shows data on the area of ethnic and gender diversity. It follows that companies In the upper quartile of ethnic diversity, on average, show a 27% financial advantage over companies with lower levels of diversity, and the representation of women exceeding 30%, gives a company better financial performance than those with a lower percentage of women. In this fourth edition of the report, the data set included as many as 23 countries from 6 different regions, which highlights the high representativeness and broad scope of the study.

Industry-specific DEI results

Real Estate Industry (Global Real Estate DEI Volume III 2023). The global study of the level and impact of DEI in real estate included, among other things, the issue of employer-relevant outcomes. The data were compared with the year 2022 - the previous edition of the study.

The research sample included 236 people:

  • 187 people from North America (79.2%)
  • 28 people from Europe (11.9%),
  • 21 people from the Asia-Pacific region (8.9%).

Results of the study:

In two of the three issues raised, respondents expressed improvements (employee engagement/productivity and better decision making/company performance), which shows a positive trend in the inclusion of DEI in the companies' agenda. The improvement in engagement and productivity shows that (following the idea of DEI) a diverse work environment contributes to a better use of the potential of employees and group action. If a team can work in a permanent or similar composition and, as the results showed, employee retention increased by 6.6%, this positively affects the culture of the organization and indicates favorable working conditions. At the same time, it is necessary to note a decrease in the category of “better decision making/better company performance” by 4.5%, although these results still remain at a high level. It is worth remembering that the mere establishment of a DEI, which will be for the company only the sum of passwords, will not translate into an improvement in the conditions prevailing in the organization and even more so on better financial results.

Increased employee engagement/productivity - 60,5% (2022), 64,7% (2023)

Increased employee retention - 42,5% (2022), 49,1% (2023)

Better decision making/better business performance - 46% (2022), 41,5% (2023)

In two of the three issues raised, respondents expressed improvements (employee engagement/productivity and better decision making/company performance), which shows a positive trend in the inclusion of DEI in the companies' agenda.

Financial sector

Saxo Bank has presented on its website a table that shows the companies that have a plan to incorporate women in their activities, also including them in management positions. The requirement to be on this list is at least 30% of women who occupy senior management positions and have ESG risk assessed as low or negligible.

An example of one of the companies from the financial sector (data taken from the publication StrefaInWestorow.pl, 2024):

Company: financial sector

Rate of return from 1 year: 56,60% 

Analyst Average Target Price: 700,68 

Potential return to analysts' target price: 9,53%

  • A high rate of return may indicate a good financial condition of the company and effective management.
  • Analysts forecast that Intuit Inc.'s share price will average $700.68, suggesting a positive outlook for the company.
  • The projected increase in the share price of 9.53% indicates the expected further success of the company.

In the table, which can be seen on the site

https://strefainwestorow.pl/strefa-global-market/spolki/kobiety-gielda-finanse, most gender-balanced companies are more efficient, perform better financially and are more attractive to investors.

Food industry

An interesting example of a slightly differently used DEI strategy in its industry is the success of the Finnish candy brand, which in 2020, for the 50th anniversary of its company, decided to create an advertising campaign in different languages. Hiring an advertising, media agency and using the help of Aakkoset brand planners developed a media message that referred to the contemporary multicultural nature of Finland as well as the fact that their organization employs people who speak different languages and come from different parts of the world. The basic premise of this activity was to promote inclusive values, which was helped by consultants from Inklusiiv by creating a campaign called Play Aakkoset (Common Alphabet), under which bags with sweets were signed, among others, in Russian, Estonian and Arabic, English and Swedish. The event not only opened a social debate, but also the importance drew attention to the product itself offered by the brand.

The results of the implementation of DEI in the company's campaign:

  • The market share of the Aakkoset brand increased by 15%, and the promotional campaign increased the sales of all brand products, not just newly launched ones.
  • The campaign raised two key indicators related to positive brand perception:

- intriguing character - an increase of 56%.

- confidence in the brand - an increase of 38%.

  • The number of people who saw ads and liked the brand increased by 245%.
  • Within a week of the launch of the campaign, the brand was mentioned in the media almost 20 times
  • From May to June 2020, the campaign reached 8.2 million people, and after taking into account paid advertising, the reach increased to 12 million people.

Aakkoset Company Example it does not refer only to the financial result; it also shows very significant, positive developments both in the area of social impact and in the growth of interest in the product. Finally, the company succeeded in increasing sales and became an interesting example of innovative and modern advertising campaigns and a business model using the DEI strategy.

Summary

More research is needed to accurately determine the direct financial benefits an organization can bring to the application of a DEI strategy. However, it is worth remembering that DEI is primarily an area related to organizational culture, legal conditions of a given region and accepted values. It is a strategy that is based both on the development of the so-called soft competences and on concrete actions of the company aimed at increasing equality and inclusivity. The above examples from three different industries show how DEI can be used in different contexts and in different ways - each of these industries has achieved satisfactory results and, most importantly, has paved the way” in this dynamically developing field of business.

Sources

https://www.kantar.com/campaigns/inclusion-index

https://www.prnewswire.com/news-releases/global-diversity-and-inclusion-di-market-to-reach-15-4-billion-by-2026--301600777.html

https://www.pwc.pl/pl/artykuly/rosnace-znaczenie-zarzadzania-roznorodnoscia-di-w-organizacji.html

https://odpowiedzialnybiznes.pl/wp-content/uploads/2023/01/FOB_Zarzadzanie_roznorodnoscia_raport_10lecieKR.pdf

https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-matters-even-more-the-case-for-holistic-impact?&referral_domain=www.google.comNaNhttps://www.google.com/

https://www.google.com/url?q=https://realpac.ca/product-category/diversity-equity-inclusion/dei-research/&sa=D&source=docs&ust=1721832366352417&usg=AOvVaw0rJe3pPphrnMaxuVZMyO4k

https://strefainwestorow.pl/strefa-global-market/spolki/kobiety-gielda-finanse

https://inklusiiv.com/candy-brand-aakkoset-added-inclusivity-into-candy-bags-advertisement-likeability-grew-by-245/

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