Disability is the Forgotten Frontier of Inclusion & Diversity for ESG Investors

Can We Afford Charity-based Approach to Corporate Disability Inclusion?

This Summer’s RI DigiFest had no shortage of reflection-worthy moments. Yet, it was an undoubtedly brilliant (and equally as provocative) contribution by Alex Edmans that left me with an ever-growing urge to respond. While being in favour of [disability] inclusion for moral reasons, Professor Edmans stated: “I don’t know of any evidence showing that if you are more inclusive to disabled people, your returns will go up”.

This charity-based approach to disability inclusion prevails even within the progressive ESG and CSR circles. In part, it’s precisely because our industry is forward-thinking that the call to be inclusive simply “because it’s the right thing to do, not because of the McKinsey study” lands well here. Yet, it’s also about the perceived lack of data. Since the PRI’s Fiona Reynolds proclaimed disability inclusion to be “the next frontier” in ESG Investing, just days before the pandemic, heightened interest in these issues is not just a new phenomenon, but also a disrupted one.

However, a stark reminder why investors cannot rely on their moral compass came from the US a week after the RI Digifest Plenary. The Department of Labour (DOL) proposed a rule for fiduciaries which clarified that “[p]roviding a secure retirement for American workers is the paramount, and eminently-worthy, ‘social’ goal of ERISA plans; plan assets may not be enlisted in pursuit of other social or environmental objectives”.

The proposed rule accumulated 8,737 comments with many pointing to the DOL’s mischaracterisation of ESG Integration as “non-pecuniary”, and others concerned over the increased scrutiny of ESG Investments. International commentators went further by noticing that “The proposal… could set a poor precedent internationally”.

Yet, it isn’t just about setting precedent for the investment community. In the age of ‘fake news’ and people ‘being tired of experts’, mischaracterisations of ESG factors are also about setting a wider cultural precedent that spreads far beyond the intended purpose and audience of the proposed rule. This provides a clear case for referring to hard data, when talking about financial materiality of such ESG factors as Disability Inclusion.

Civil rights launch pad: Why it’s now or never for robust data and evidence-based disability inclusion

Since the COVID pandemic hit, countless number of experts dubbed 2020 “the year when ‘S’ factors rose to [greater] prominence”. Jonathan Neilan et al. (2020) even argued that ‘S’ within ESG should now stand for “stakeholders”. The list of stakeholders gets gradually more nuanced as we move through the pandemic year. For instance, Morningstar was quick to connect the increasing attention to ‘S’ factors with the growing support for the Black Lives Matter movement.

Observing how the senseless killing of George Floyd triggered civil-rights-based approach to some dimensions of corporate diversity is inspiring, to say the least. However, as I’m cheering on for minority rights and inclusion, I can’t help but notice that the world’s biggest minority isn’t necessarily as engaged in setting common Inclusion & Diversity (I&D) agenda.

Pre-pandemic data from the World Bank and the World Health Organisation shows that over one billion people (or about 15% of the World’s population) live with some form of disability.  Moreover, due to such common chronic conditions as diabetes, cardiovascular disease, cancer and mental health disorders, each of us has a chance of “transitioning” into this minority group over the course of our lifetimes. Furthermore, as medical researchers discover that the bio-chemical effect of being COVID-positive may result in many young people developing a wide range of severe chronic conditions, the prominence of this diversity dimension is likely to continue rising in the upcoming years.

Meanwhile, the pandemic puts us in a unique position to – as the World Economic Forum would put it – “reset” I&D integration, because it brings attention to diversity and inclusion issues in a variety of different ways:

1. Communities and stakeholders pull together to fight the COVID threat, which happens to be ageist and ableist by design. This brings greater visibility to elderly and vulnerable;

2. The pandemic has not just re-exposed social inequity issues, it also personified them and made them feel deeply personal

2.1 First, the killing of George Floyd laid bare racial and ethnic inequities and remobilised stakeholders around the BLM-driven diversity agenda;

2.2 Then, the peculiar political, cultural and ideological circumstances surrounding Ruth Bader Ginsburg’s legacy SCOTUS succession resulted in similar revitalisation of dissent against injustice. While there were some early attempts to reduce dissent mobilisation to “white feminism”, prompt dismissal of such reductionism indicates readiness for more integrated, holistic and intersectional conceptions of social equity, diversity and inclusion.

Searching for ‘S’ Data Hidden in Plain Sight?

While the current environment could enable a more intersectional approach to I&D integration, in which disability inclusion could feature more prominently, this dimension feels like the forgotten frontier of the ‘S’-driven ESG landscape right now.

Looking at the widely cited McKinsey study, which was once “the firm’s most downloaded publication on diversity”, it’s easy to see why. Even its 2018 follow-up defines diversity as “a greater proportion of women and ethnically/culturally diverse individuals”. Considering that the study had to rely on a limited sample size of just six countries even when it comes to ethnic diversity issues, the omission of a disability dimension is likely to be a data availability issue (especially since disability is still featured as anecdotal evidence in a sidebar on “delivery examples”).

Popularity of the aforementioned study relative to other topical coverage might reinforce the cognitive bias that the data simply isn’t there.  The irony isn’t lost on us that this happens against the backdrop of the so-called ‘Greta Effect’ caused by climate campaigner Greta Thunberg. To put it bluntly, being more inclusive of just one inspiring, openly neurodivergent young lady has resulted in 78% of CSR professionals being more aware “of sustainability/energy issues within their business”.

But disability inclusion data has been providing us with interesting evidence long before The Greta Effect; after all,  it’s not only on moral grounds that investors representing $2.1trn signed A Joint Investor Statement on Corporate Disability Inclusion. The world’s largest minority holds tremendous purchasing power. For example, the discretionary income for working-age Americans with disabilities is about $21bn, which exceeds even those of the African-American and Hispanic market segments combined. In addition to that, as early as of 2005, 87% of Americans either “agreed” or “strongly agreed” that they prefer to give their business to companies that employ disabled people. In more recent days, companies that champion disability inclusion reportedly enjoy 28% higher revenue and 30% higher profit margins than their peers.

Discussions about evidence and data availability are as relevant in terms of disability and inclusion as they would be in regard to just about any other ESG factor. At the same time, our departure from the charity-based approach to disability inclusion has been long overdue.

As the pandemic created an enabling environment that could accelerate us through the civil-rights-based approach, we are perfectly positioned to not just build upon available data, but also to rethink I&D integration as a more intersectional process that features disability along other dimensions.

An article by Yelena Novikova, YGC 2017 & 2018.