Reframing the business case: From diversity to equity and inclusion

The report finds limited evidence supporting direct causal links between diversity and improved business performance. Instead, it highlights that equitable and inclusive organisational conditions are the drivers of both diversity and performance. Focusing solely on diversity without ensuring inclusion can lead to tokenism, where non-dominant groups feel pressured to conform, undermining their contributions and the intended benefits of diversity. A more effective approach is to target equity and inclusion, which provide the structural support for diverse talent to thrive.

Our model for effective diversity, equity and inclusion (DEI)

Three key organisational conditions form the basis for effective DEI: equitable employment practices, supportive culture, and de-biased decision-making. Drawing on a model by Associate Professor Lisa Nishii, these factors collectively enable fair, safe, and open environments. Inclusive organisations are 3.6 times more effective at addressing performance issues. Equity requires addressing formal processes, while inclusion relies on cultural and interpersonal dynamics, including mechanisms for employee feedback and adaptation.

Review of the evidence

Empirical research and theoretical analysis support the link between equity and inclusion and improved performance. Key evidence shows that inclusive leadership, a supportive DEI climate, and psychological safety are associated with better outcomes. Companies should self-assess against these attributes, which function as prerequisites for diverse teams to perform effectively. Investors should look for signs of management attentiveness to these indicators.

Testing our model for effective DEI: Reviewing inclusive leadership

Practitioners highlighted inclusive leadership as critical. Effective leaders exhibit traits such as visible commitment, humility, awareness of bias, curiosity, cultural intelligence, and collaborative ability. These traits align with each model component—equity, culture, and decision-making. For instance, visible commitment to inclusion strongly correlates with employees’ sense of inclusion, with leadership accounting for up to 70% of variance in employee perceptions.

From theory to implementation

Equitable practices and inclusive decision-making can independently drive performance. DEI climate and psychological safety, being subjective, require qualitative insights, especially from non-dominant groups. Analysis should consider intersectionality and avoid assumptions about support needs. Oversight mechanisms such as board-level policy, clear accountability, and inclusive behaviour KPIs are recommended to embed DEI structurally. A cited statistic notes that 39% of employees who witness exclusion become less creative and less helpful at work.

A blueprint for good practice

The report proposes that DEI strategies should address both business and social goals, prioritise the most critical gaps, and be adequately resourced. Interventions should reduce bias in recruitment, promotion, and decision-making processes. Examples include competency-based hiring, anonymised CVs, and 360-degree feedback. Supportive culture practices include inclusive conflict resolution and clear conduct standards. Decision-making should incorporate diverse perspectives and transparency. Monitoring should assess implementation, fairness, and inclusivity through staff feedback and behavioural data.

Measurement that matters

Quantitative diversity metrics are useful but insufficient. The report recommends six types of indicators: internal demographics, external benchmarks, behavioural data, attitudinal data, implementation metrics, and outcome measures. Triangulation of these metrics helps identify root causes rather than symptoms. For example, lower female representation in senior roles may stem from systemic biases rather than lack of interest. Interventions should be shaped by diverse employee experiences, not top-down assumptions.

Afterword

Efforts focused narrowly on diversity risk being counterproductive. Tokenism may falsely signal progress while reinforcing power imbalances. True DEI requires addressing systemic bias and distributing organisational power more inclusively. For investors, attention to DEI’s foundational conditions is essential to avoid misdirected engagement and to identify future performance indicators.