Author: Maha Khan Phillips
Diversity, Equity, and Inclusion have become key issues for the global investment industry, but there is still a long way to go, particularly on the ‘equity’ component, says Maha Khan Phillips.
A growing number of investment organisations have made Diversity, Equity, and Inclusion (DEI) a key strategic focus this year. DEI initiatives have been gaining momentum, with organisations like the Principles for Responsible Investment (PRI) urging investors to integrate it into their investment and ownership decision-making, arguing that DEI is a human rights issue. It is no surprise then, to see high profile asset owners start to hold their managers to account on DEI.
However, there is still a long way to go, say industry experts. According to one Nasdaq report, 54.07% of key professionals at firms reporting data to eVestment are white males. The second largest group is Asian males, at 12.44%, followed by white women at 9.11%. Black males only made up 1.73% of key professionals at firms reporting data, and black women only made 0.55% of key professionals.
While the figures are stark, investment practitioners are increasingly highlighting the need to focus on fairness over diversity - tackling the ‘equity’ component of DEI as a way of moving beyond box ticking exercises.
“We are focused more than ever on equity than on diversity. That means we are specifically focused on the gender pay gap at multiple levels of the organisation, retention efforts including promotion policies and career development opportunities, and fair practices such as maternity, paternity, anti-harassment policies, to address the ‘E’ component” says Audrey Kaplan, Senior Portfolio Manager at Robeco.
Diana Glassman, Director of Engagement and EOS at Federated Hermes, the world’s largest independent provider of stewardship services, highlights the importance of equity as well. “Equity is the impact, the outcome of diversity and inclusion and what companies should be driving towards. It is grounded in principles in fairness, removing barriers so that all persons have the same opportunities to achieve their potentials. Equity is important because it goes a step further than equality in offering various levels of support depending upon the need to achieve greater fairness of outcomes,” she says.
While investment groups may think about the challenges in different ways, equity is fundamentally about having access and exposure, says Chandran Fernando, founder of Matrix360, the talent and recruitment consultancy that focuses on DEI. “Not every individual and every group have equal and equitable access and exposure to opportunities for growth. What we need to do is move away from understanding what biases are, and start focusing on what assumptions and stereotypes are and how they interplay with our opinions and ability to interact with others who may not look or sound like us,” he says.
He believes the investment industry needs to challenge itself to work harder. “It’s not just about representation, it’s about the systematic changes and transformations that need to happen. If you think about the financial, private equity, and asset management world, the influence we hold as organisations and industries is huge. We need to start looking at and addressing the real impact that we want to have as an organisation, team, or as a person.”
Fernando cites the need to change not only hiring processes, but also advancement opportunities, and the way investment talent is fostered. Sometimes, he says, getting it right is not that clear cut, for example in the case of using blind CVs to ensure people are fairly treated.
“A lot of people think that using blind resumes makes a lot of sense, but it doesn’t, because eventually, an individual needs to sit down in front of another person, and if that person hasn’t addressed their own [behaviour around] stereotypes, they will look at the candidate’s credentials, what school they went to, and the colour of their skin. If we are truly going to address equity, we have to unpack what we are all individually carrying around and how that influences our ability to hire and promote. We have to look at supply chains, investment opportunities, the communities we are building and the partnerships we are developing. We have to bring all community partners and underrepresented groups to the table to see whether we are providing enough space to listen actively,” he argues.
Building momentum for equity will require addressing several challenges. Robeco’s Kaplan highlights the importance of data. “Even in countries that now require pay gap reporting, it is still difficult to access and review the information. For example, France has legislation that requires companies with over fifty employees to privately report the results on their gender pay gap. Yet sixty-six percent of French companies still do not publish the differences between salaries of male and female employees at the multiple levels of organisation. Ninety-two percent of US companies do not report their gender pay gap. Ninety-six percent of Japanese companies do not report their gender pay gap,” she highlights.
She also points out that overall, companies that report data are the ones that tend to have the most favourable data to report. “…We must consider how best to identify and encourage companies that are lagging to improve.”
This year, Robeco is launching engagement efforts on DEI specially to focus on companies that lack disclosure on principal adverse impact indicators related to diversity. It is also trying to shift the needle via proxy votes, voting 100% in favour of gender resolutions. It has also supported other related proposals such as corporate proxy votes on companies providing independent investigation on harassment, says Kaplan.
Another key challenge around increasing equity is changing cultures and identifying and overcoming potential unconscious bias, says Glassman. “It is important to have open, sometimes difficult conversations across the firm. These are critical to surfacing underlying assumptions to build understanding of valuable differences in perspectives and the sense of inclusion that is needed so that all employees can maximise their contribution to their companies and their own career and personal development,” she says.
Federated Hermes is actively engaging with DEI in financial services. In the US and UK, it expects boards to have 40% total diversity, including 30% minimum female diversity. It expects to tighten its policies going forward, increasing the percentage to 50%. “In the US, we were early supporters of racial equity audit shareholder proposals filed in the US in 2021 and 2022 proxy voting seasons. These provide third-party assessments that can help boards of financial services companies and others better understand root causes of complex underlying issues and determine how effectively their programmes are,” says Glassman.
Fernando says it is also about trying in corporate bonuses and profit sharing into equity initiatives. “We need to build diversity into the business strategy, not just the HR strategy. We need to take diversity and equity and belonging and connect it back to the business strategy of operations and finance. Until we start looking at some of the ways of thinking, until we look at our assumptions and our bias and at the barriers that are in place, we are not going to get there,” he says.
Audrey Kaplan, Senior Portfolio Manager, Robeco.
Chandran Fernando, Founder, Matrix360.
Diana Glassman, Director of Engagement and EOS, Federated Hermes.