Inclusion as a Litmus Test for Supervisory Oversight(1/6)

Inclusion requires more than metrics.

The societal and political context surrounding ESG, diversity and inclusion is changing rapidly. Regulations such as the CSRD and ESRS increasingly require organisations to report transparently on diversity and inclusion-related topics. KPIs are being introduced, dashboards developed, and diversity is appearing more frequently on the agenda of boards and supervisory bodies.

But what remains when external pressure begins to fade?

What happens when legislation is relaxed, media attention shifts, or economic turbulence reshapes priorities? Which topics remain genuinely embedded in culture, governance and oversight — and which gradually move into the background?

For Supervisory Boards, this is a crucial question.

Inclusion is more than a reporting obligation or a reputational issue. It is a litmus test for the quality of governance and oversight.

Inclusion as a governance issue

Miranda Haak, Director of DUFINCO, recently completed the Nyenrode Supervisory Board Programme with a paper on inclusion and diversity as an integral part of governance, oversight and organisational culture.

At the heart of the paper lies one central question:

How can the Supervisory Board effectively oversee inclusion, including ethnic diversity, as part of governance, culture and decision-making — both within the CSRD/ESRS framework and in contexts where legal enforceability decreases and professional judgement becomes more important?

This distinction is highly relevant.

Within the CSRD/ESRS framework, indicators, reporting requirements and assurance provide a certain level of structure. In more voluntary frameworks — such as the VSME or within many SME organisations — there is greater room for interpretation and organisational choice.

In those contexts, it becomes the responsibility of both the management board and the supervisory board to determine what inclusion genuinely means for the organisation — and how this is embedded in governance, culture and decision-making in practice.

Within the CSRD/ESRS framework, indicators, reporting requirements and assurance provide a certain level of structure. In more voluntary frameworks — such as the VSME or within many SME organisations — there is greater room for interpretation and organisational choice.

In those situations, it becomes the responsibility of both the management board and the supervisory board to determine what inclusion genuinely means for the organisation — and how it is embedded in governance, culture and decision-making in practice.

KPIs Do Not Automatically Create Inclusion

Inclusion is increasingly translated into KPIs, quotas and ESG indicators. That is understandable. Measurement can help organisations understand where they stand and may encourage progress. Quotas, too, can serve as an important lever. But they do not automatically create an inclusive culture.

What happens when inclusion is primarily justified through performance metrics or economic return?

Alex Edmans, Professor of Finance at London Business School, has shown that the relationship between diversity and financial performance is difficult to measure and highly context-dependent. This does not mean that business cases lack value. However, they do not provide a sufficiently robust foundation on their own — particularly when economic pressure increases or organisational priorities shift.

KPIs show who is at the table. But they say little about whether everyone is genuinely heard.

They measure composition, but not psychological safety.

They show diversity, but not inclusion.

This is precisely why inclusion is such an important litmus test for governance and oversight.

It requires professional judgement — not just data.

It requires attention to culture, group dynamics and decision-making: topics that cannot be fully captured in dashboards or indicators.

Inclusion therefore also exposes the limits of measurability.

Not everything that is measurable is important.

And not everything that is important is measurable.

Over the coming months, DUFINCO will publish a series of articles exploring inclusion as a core component of effective governance and oversight. Topics will include:

• professional judgement and supervisory ethics;

• culture and psychological safety within boards;

• selection and appointment processes;

• societal alignment and responsibility;

• and how oversight can remain effective when regulatory expectations evolve.

Inclusion is not a temporary theme.

It remains an ongoing challenge for both management and supervisory boards — and precisely for that reason, a true litmus test.

— Miranda Haak, DUFINCO