Author: Maha Khan Phillips
Industry think tank and advocacy group City Hive has launched a new framework for measuring the corporate culture for investment companies. Founder Bev Shah talks to Maha Khan Phillips about the diversity greenwash in investment management, and the need to take a holistic approach.
The fact that the UK asset management industry has a diversity problem is not new. Stats from Bloomberg reveal just how far the industry still has to go. There is a 29.4% gender pay gap, and less than 1% of asset managers are Black, despite the ethnic group making up 13% of London’s population. Asset managers are lagging behind on LGBTQ+ inclusion, and on social diversity.
There has been a myriad of initiatives in recent years to tackle the problem, as investment firms become increasingly aware that clients expect them to perform better on Diversity, Equity & Inclusion ESG issues. But how effective are these initiatives, and how can investors who want to vote with their feet tell the difference between box ticking exercises and legitimate efforts? Moreover, how can companies themselves measure their progress?
These are questions the industry is now grappling with, and why the launch of initiatives such as CFA Institute’s DEI Code (US & Canada) have been so important. Different organisations have taken different approaches to measuring DEI, but the challenge becomes whether a ‘one size fits all’ standard even makes sense.
In May, City Hive launched its standard, ACT, to create cultural change and enable professional fund buyers to drive a movement towards diverse, equitable, and inclusive firms, it says. Moreover, it wants the standards to help reduce diversity greenwashing, going beyond the product level to assess an entire company. But how big is the scale of the challenge?
“There are all these great conversations happening about how to create change, and how asset owners are holding people to account. But the reality is, not a lot can happen because capital can’t move, big mandates can’t really move once they are in place, and asset managers know it. So the incentive isn’t there,” says Bev Shah, Chief Executive and Co-Founder of City Hive.
She believes it is not about shaming any particular company, but about transparency. “At the end of the day companies are still commercial entities and they have a right to behave how they want to. What they shouldn’t do is greenwash any subject. If DEI is in your DNA, then show us. If all you care about is profits that’s fine - but tell your clients that. We create the framework to help asset managers demonstrate what they are doing,” she says.
ACT, which stands for ‘Action, Challenge, and Transparency’ allows companies who complete the framework to publish the mark in annual reports, financial reports, pay reports and fund fact sheets to publicly demonstrate measurement developments in corporate culture. It is designed for any size or type of firm regardless of global location of structure, says City Hive.
“How do you compare one firm to another? If you are an old and large company, how do you unpick centuries of history? The framework helps firms in their own journey, it's not about completing it question by question, but it’s about senior leadership reflecting on where they are doing well, what the gaps are, and how they are aligned with what they believe in. It’s very holistic,” says Shah.
The holistic aspect is important, she argues. “It’s about taking the focus away from numerical data and to something that is also qualitative. As an industry we love numbers, it makes our life easier, but true investors will tell you that investing is an art not a science. The first question with our framework is what do you stand for? How are you living up to that?”
Founding signatories to the framework include Schroders, M&G and Aviva Investors, with companied assets under management of $6.5 trillion. There were 15 founding signatories in total.
While institutional investors are looking for standardisation, a less prohibitive, more holistic approach makes sense, given the scope of the challenge. Shah is optimistic that things are moving forwards, albeit slowly. “The market of professional investors will push this in the right direction. We saw that in the early years of the Principles for Responsible Investment, getting people to commit to a set of principles. Every year there’s more and more reporting. People feeding into the ACT framework are on the front lines on a daily basis. They will ensure that the direction of travel is aspirational, but also achievable,” she says.