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Before we proceed any further, let's define DEI. A widespread misperception is that diversity equals gender. In reality, genuine DEI entails incorporating individuals from diverse origins, genders, sexual orientations, ages, disabilities, cultures, races, and religions. While it is often assumed that our workplaces should mirror our society, there are several obstacles to attaining diverse workforces. One of the most serious difficulties is unconscious bias, which occurs when outside factors such as a person's past, experiences, and surroundings alter their decisions, leading them to favor or discriminate against others without realizing it.

When ignored, unconscious prejudice has a significant influence on workplace personnel choices, especially in terms of recruitment and promotion. organizations with a high level of prejudice struggle to promote workplace inclusion, which has an effect on overall profitability, according to a 2019 McKinsey research, which revealed that diverse organizations outperform their rivals by 35%. Unfortunately, unconscious prejudice is unlikely to be totally removed, but there are some techniques that may be used to reduce its impact. These include training, gender-neutral employment advertisements, and blind recruiting, a practice that has proven successful for UK water business Severn Trent. Severn Trent, one of only two FTSE 100 firms with a female chair and CEO, intends to be a diversity leader by removing name, grades, university, gender, and ethnicity from CVs to decrease hidden prejudice and attract applications from all backrooms game backgrounds.

Why should investors prioritize DEI?
Investment enterprises play a vital role in advancing DEI for all segments in society. Using money more effectively to create good change will lead to more equitable opportunities and better access to finances. In this approach, strategy may be utilized to bring about broad social change. Furthermore, investment firms that emphasize DEI reap a variety of extra advantages, including:

Research suggests that investing with comparable partners leads to poorer performance and less risk. An analysis of data from every venture capital organization in the United States since 1990 discovered that the success rate of acquisitions and IPOs was around 11.5% lower on average for investments by partners with similar educational histories than for those by partners from separate schools. Investments made by partners of the same ethnicity had a greater effect, with a 26% reduction in investment success rate.

Evidence suggests that diversified organizations are seeing higher cash flow and profitability. From a 2019 study by the Boston Consulting Group, which found that companies with diverse management teams produce 19% more revenue, to Fast Company, who discovered that having women in the C-Suite results in a 41% increase in revenue, to Deloitte's research, which found diverse companies have 2.3 times more cash flow, it's clear that the increased innovation and ability to think outside the box that diverse teams have, brings in more income, resulting in a better return.

DEI is crucial for multinational firms seeking to expand into new areas. Understanding diverse cultures and how to interact with them is critical for businesses looking to sell to emerging markets in Asia and Africa. To overcome cultural prejudices and preconceptions, businesses must have staff who speak various languages or have life experience with other cultures. A Harvard Business Review study indicated that a team with a member who shares a customer's ethnicity is 152% more likely to comprehend that client.

Increased retention rates.
Many businesses are suffering the effects of the "Great Resignation," a phrase used to characterize the rush of employees departing their employment as a result of the COVID 19 epidemic, while organizations that prioritize DEI have greater retention rates and more engaged workers. Deloitte discovered that 83% of millennials are actively engaged when they feel their company fosters an inclusive working atmosphere. When there is no inclusive culture, this figure reduces to just 60%. With millennials expected to account for 75% of the workforce by 2025, it would be foolish to overlook this demographic.

Measuring DEI using KPIs
Investment firms must understand that intention does not equal execution, and the only approach to guarantee corporations have a demonstrated commitment to diversity is to monitor achievement using KPIs. Metrics for measuring might include:

Evidence of how businesses attract, retain, and promote diverse talent across all areas, not just the board level.
Examine supply chain diversity, including product effect and DEI integration. Collect data on workforce diversity categories such as disability, LGBTQ+, and cultural backgrounds.
Examine pay systems, giving special attention to gender pay gap reporting.
Several institutional investors have recognised the need of dedicated DEI policies, notably Goldman Sachs, which declared in 2021 that it would no longer take any business public unless it had at least two diverse board members, one of whom should be a woman. David Solomon, CEO of Goldman Sachs, commented on the decision, stating, "This is an example of our saying, 'How can we do something that we think is right and helps move the market forward?'" in clear awareness of the cultural shift required to propel the industry forward.

However, the most successful policies go beyond just reviewing the board level. Ursula von der Leyen, President of the European Union, emphasized the benefits of diversity at all levels during her remarks at the European Women on Boards' Gender Diversity Award. She said, "If we look beyond boards and into top leadership positions, only 7% of the largest European companies are led by a woman." Boards are one thing; the knock-on impact is what counts. More diverse boards employ more diverse CEOs, who in turn recruit more varied management.

Conclusion
There is obviously a strong rationale for investors to include DEI into their portfolios. As the multicultural economy changes, failing to include DEI while making investments is a key risk. Over the next few years, the industry should expect regulatory pressure as well as societal expectations of what constitutes best practice; it is critical to view diversity as an opportunity rather than an impediment, and to ensure that processes, procedures, and infrastructure all support a strong DEI agenda to ensure future-proof, profitable investment.