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Unlocking the power of diversity: why embracing inclusivity reporting is the key to business success in the UAE and beyond

Author: Hanadi Khalife, Head of Middle East, ICAEW

Published: 05 Mar 2024

As stakeholder capitalism accelerates the environmental, social and governance (ESG) agenda, more companies are recognising the crucial need to integrate ESG considerations into their business decisions and operations.

In recent years, there has been growing recognition of the importance of human capital disclosures as a key component of ESG reporting, particularly regarding diversity and inclusion (D&I). Research shows that diverse and inclusive workplaces create a competitive advantage, enhance productivity and innovation, and mitigate risks related to turnover, legal and regulatory compliance, and reputation. The UAE's leadership also recognises the importance of a diverse and inclusive workforce to the country’s long-term economic and social development. It has introduced several policies and initiatives to lead the region in this regard. D&I is now a reporting issue, and chartered accountants have a key role in ensuring that stakeholders' expectations both inside and outside their organisations are met.

While diversity and inclusion are distinct concepts, they are closely interconnected. Diversity refers to the differences among people, such as race, ethnicity, gender, age, disability status, among others. Diversity brings people with different perspectives, experiences and skills together in the workplace, leading to greater creativity, innovation, and productivity. Inclusion, on the other hand, refers to the practices and behaviours that ensure all employees feel valued, respected, and empowered to contribute to the organisation. An inclusive workplace is where people feel they belong, can be themselves, and are supported in their personal and professional growth. An organisation can have a diverse workforce, but if it does not create an inclusive environment that values and respects all employees, it may not fully realise the benefits of diversity.

 According to research from the Boston Consulting Group, companies with diverse leadership teams report that 45% of their revenue comes from innovation, compared to 26% for less diverse teams. Additionally, gender-diverse executive teams are 21% more likely to generate above-average profits. That’s why investors and financial institutions are increasingly using ESG metrics, including diversity and inclusion, to evaluate the sustainability and performance of businesses. Prioritising D&I initiatives is not just a moral imperative but also a crucial aspect of a strong ESG strategy.

Neglecting D&I initiatives in the workplace can lead to potential financial risks for a company. For instance, if a company does not create an inclusive environment that values and respects all employees, it may struggle to attract and retain talent. This can result in a loss of productivity, increased turnover, and higher recruitment costs. Incidents of discrimination or bias could result in legal liabilities, reputational damage, and decreased customer loyalty. Companies are now accountable to a broader range of stakeholders beyond just shareholders. Failing to prioritise D&I can have long-term negative impacts on a company's financial performance and sustainability.

Policy is also playing a part in bringing D&I reporting into sharp focus. In 2020, the Securities and Exchange Commission (SEC) adopted new rules that require public companies to provide disclosures related to their human capital management practices, including reporting on diversity and inclusivity within the workforce. In the UAE, the Securities and Commodities Authority (SCA) and Dubai Financial Market (DFM) have similar requirements for listed companies, whose annual reports must disclose metrics like employee turnover, training and development data, gender and nationality diversity, and health and safety measures.

Governments around the world are increasingly incorporating diversity and inclusion into their broader policy frameworks and decision-making processes. One significant initiative in the UAE is the Gender Balance Council, launched in 2015, which aims to promote gender equality and empower women in all areas of society, including the workplace. Additionally, the UAE Cabinet has approved a National Strategy for empowering people with disabilities to promote inclusion and equal opportunities in the workplace. Just this month, UN Women launched a new gender equality campaign to create a better environment for women in the private sector, offering businesses guidance on advancing gender equality.

Despite the growing recognition of the benefits of diversity and inclusion, many companies' D&I initiatives are still falling short. A recent report from behaviour change consultancy Mind Gym, which works with several  clients from the FTSE 100 and S&P 100, suggests most corporate diversity strategies are no longer fit for purpose. Companies with the best intentions but with the wrong approach can actually impede D&I progress. All too often, leaders think if they apply greater effort or more resources, given time things will change. What is often lacking are data-driven insights. Without these, D&I initiatives are based on assumptions about their effectiveness. Getting it wrong can be very costly for a business.

This is where the finance team can help by adopting a data-led approach to scrutinising D&I initiatives. Chartered accountants, in particular, are well-suited to take on this role as they have the analytical skills and financial expertise to evaluate the impact of D&I initiatives on a company's bottom line. By collecting and analysing D&I data, finance teams can identify areas where the company is falling short, set measurable targets for improvement, and track progress over time. This can help ensure that D&I initiatives are well-intentioned and effectively promote real organisational change. Finance can also help allocate resources to D&I initiatives and ensure they align with the company's strategic goals.

Achieving meaningful change requires companies to be bold and transparent in their commitment to diversity and inclusion. They must set measurable goals and frequently report progress. By doing so, they can build a diverse and inclusive culture that contributes to their long-term success and sustainability.