In the current cost-challenging environment, businesses might be tempted to act on short-termism and cut investments in diversity, equity & inclusion. However, leaders need to look at DEI strategies as part of their plan to navigate through recession and position the business to recover and grow when economic conditions improve.

Insights for What’s Ahead

• Consider DEI as a strategic imperative for long-term business success. This shift of mindset must be embedded in a company’s business model, culture, and vision.
• DEI strategies can improve company performance during and after recession. Even during an economic slowdown, labor shortages will persist because of the underlying reasons for the lack of workers. Companies need to be more open in terms of type of hires and tap into a broader pool of workers to alleviate labor and skills shortages.
• DEI is an important part of ESG reporting—and external scrutiny will continue, regardless of recession. DEI is a large part of the social component (S) of ESG, which is becoming increasingly important and integrated into a company’s business model. With scrutiny from investors and society intensifying on this matter, it is not time for organizations to take their foot off the pedal.

There Are Convincing Reasons Why DEI Is a Business Imperative

DEI strategies can benefit the bottom line

Having a workforce of diverse workers (age, gender, culture, ethnicity, economic background, cognitive skills) in an inclusive culture that creates equity and belonging yields tangible business results. Diverse companies significantly outperform less diverse firms on profitability: the likelihood of financial outperformance is 25 percent higher for the most gender-diverse companies, and 36 percent higher for top companies in terms of ethnic and cultural diversity, compared to the least diverse ones.^.[1] This suggests that when done well, DEI efforts more than pay for themselves and make an impact on the bottom line—and in recessionary conditions, companies need every chance they can get to enhance financial performance.

DEI strategies can improve company performance during and after recession

With a succession of economic setbacks over the last two decades, there is sound evidence that companies with robust DEI strategies fare better than others in times of recession. For example, while the S&P 500 suffered a 35.5 percent decline in stock performance from 2007–2009, companies whose key employee groups reported very positive experiences posted a 14.4 percent gain in performance, and companies with consistently inclusive workplaces thrived before, during, and after the Great Recession, earning a 4x annualized return.^[2] Results like these point to DEI playing a key role in helping navigate economic downturns and accelerate recovery.^[3]

DEI strategies can alleviate labor and skills shortages

Unprecedented tightness in labor markets in developed economies is another reason companies should not just protect their DEI budgets but also consider ramping up their efforts. Labor shortages will persist because of the underlying reasons for the lack of workers. For example, the labor market in Europe remains tight, despite declining hiring intentions, due to a shrinking working-age population and lingering effects of the pandemic, requiring employers to be innovative when it comes to talent attraction and retention.^[4]

DEI leaders can encourage their companies to be more flexible and open in terms of type of hires and take more energetic steps to tap into a broader pool of workers to alleviate both labor and skills shortages. Flexible work is a major lever for recruiting and retaining diverse workers as it allows businesses to attract workers who are usually disadvantaged by rigid policies about when and where to work, such as those with caring responsibilities, retired workers, and people with disabilities. There is also evidence that rising inflation is causing some older workers to consider returning to the labor force, and this group historically prefers more flexible work including part-time work and self-employment.^[5]

People with disabilities, who represent more than 15 percent of the EU population and whose unemployment rate is twice as high as the overall unemployment rate, can also be better integrated in the workforce thanks to flexible work arrangements.^[6] Offering location-agnostic roles can help attract and retain employees who will decide to relocate to less expensive areas due to the increasing cost of living, hence avoiding a loss of diversity for organizations. Finally, revising educational requirements is another strategy that can help attract candidates from underrepresented groups who might have relevant skills but unconventional talent profiles.