Why DEI Is the Soul of ESG?

If a company plants a thousand trees but silences half its workforce, is it truly sustainable?

If it invests in green tech but ignores racial pay gaps, has it earned its ESG credentials?

It’s a question more investors, regulators, and stakeholders are finally confronting. Because when it comes to Environmental, Social, and Governance (ESG)—the “S” is no longer the silent middle child.

At the heart of the “Social” pillar lies DEI: Diversity, Equity, and Inclusion.

And today, it’s not just a moral imperative—it’s a business one.

The Missing Link in ESG Reporting

Let’s call it out: DEI has long been undervalued in ESG strategies.

While carbon disclosures and board structures dominate ESG scores, DEI metrics are often vague, voluntary, or missing entirely.

Yet:

• Companies with diverse executive teams outperform competitors by 36% (McKinsey, 2023).

• Firms with strong DEI cultures experience 25% lower turnover and 21% higher innovation revenue (Deloitte, 2022).

• More than 80% of Gen Z job seekers now say DEI policies influence where they apply and stay.

So why is DEI still treated like a bonus chapter in the ESG book?

Because measuring culture is hard. But not measuring it is riskier.

DEI Is Not a PR Campaign. It’s a Risk Strategy.

In 2020, when Black Lives Matter protests swept the globe, dozens of companies issued solidarity statements. Many added Chief Diversity Officers. Some launched listening tours.

But by 2023, a significant number of those roles had been quietly eliminated, and DEI budgets cut—especially in the face of economic headwinds.

This short-termism is dangerous.

Why?

Because DEI is now intertwined with litigation, brand equity, investor confidence, and talent acquisition.

• In the US, companies are facing shareholder lawsuits over gender pay gaps.

• In the EU, under CSRD and CSDDD, social indicators—including workforce diversity—are mandatory.

• In India, SEBI’s BRSR framework requires companies to disclose workforce composition and inclusivity metrics.

DEI is no longer optional. It is a compliance concern, a legal exposure, and a governance responsibility.

Case Study: Nasdaq’s Board Diversity Rule

In 2021, Nasdaq mandated that listed companies must have at least two diverse directors—or explain why they don’t.

Since then, more than 75% of companies have added diverse board members, significantly improving representation.

More importantly? Their stock performance has not suffered. In fact, many have seen improved analyst ratings and investor interest.

This shows that diversity is not disruptive—it’s an enhancer.

What Does DEI in ESG Look Like in Practice?

True DEI strategy means going beyond checkboxes. It means:

• Representation at every level—not just entry or symbolic roles

• Pay equity audits and transparent disclosures

• Inclusive procurement—supporting minority- and women-owned businesses

• Employee Resource Groups (ERGs) with actual budgets and board access

• Equity in AI and tech design—bias audits, inclusive datasets, accessibility

It also means CEOs being willing to say: “We’re not there yet”—and showing their roadmaps, not just their ratios.

Take Action: How Boards and Investors Can Lead

This isn’t just HR’s problem. It’s a boardroom and bottom-line issue. Here’s how leadership can start:

1. Mandate DEI metrics in ESG disclosures—alongside emissions and executive pay.

2. Link executive compensation to inclusion outcomes.

3. Embed DEI in risk registers and scenario planning.

4. Conduct third-party DEI audits—and publish the results.

5. Train directors on inclusive governance—not just financial oversight.

The companies that lead on DEI today will be the ones resilient, trusted, and thriving tomorrow.

The Soul, Not Just the Score

Let’s return to our opening question.

You can reduce your carbon footprint, optimize your governance, and meet your compliance checklists.

But if your workplace doesn’t reflect the world it operates in…If your leadership doesn’t listen to those who experience exclusion…Then your ESG report is just that: a report. Not a reality.

DEI is not the cherry on top of ESG. It is the soul of it.

Because sustainability without equity is survival for some—and sacrifice for others.