Investors up pressure on companies failing to address diversity and inclusion

diversity

Diversity and inclusion have become a priority for institutional investors in the UK, two thirds of which say their firms are excluding companies from their investment portfolios if they fail to meet certain thresholds.

According to an annual Edelman survey, the Trust Barometer Special Report: Institutional Investors, 63 per cent of UK investors are applying exclusionary screening on the basis of diversity and inclusion metrics.

A further 64 per cent of UK investors have started to put portfolio investments that do not meet their thresholds on watchlists. 

The research, based on a survey of 600 investment professionals globally, including 100 participants in the UK, represents firms that collectively manage over USD20 trillion in assets under management across six regions. 

In a panel discussion regarding the survey’s results, Stephen Bird, CEO at Standard Life Aberdeen, pointed to the “strong evidence that these factors are improving risk management, and hence improving investment returns”.

In June, Morningstar data revealed that the majority of sustainable investing funds delivered higher returns than their conventional equivalents over the past decade.

Jeremy Taylor, CEO of Lazard Asset Management, added: “Companies with a more diverse board and are more likely to have broader diversity of thinking, are more likely to be thinking about all stakeholders, and are going to be making more efficient decisions.”

Former member of the Shadow Cabinet, current executive director and head of ESG at Edelman, Chuka Umunna, says this ups the pressure on the investment management industry to address its own chronic lack of ethnic diversity. 

“In order to make these demands of corporate issuers, the City – that is investment banking and asset management itself – needs to get its house in order on these issues,” said Umunna. 

In July, research revealed that out of 650 senior investment bankers in the City of London, only three were Black. “I actually think I know all three of them,” Umunna added.

Across the UK’s large and mid-cap companies represented in the FTSE 350, 59 per cent had no ethnic minority representation on their company boards in February 2020, according to the Parker Review. “That’s unacceptable in 2020,” says Umunna.

Edelman’s survey also found that 87 per cent of investors in the UK believe that in the current environment, companies that are making profits should be expected to do more to address ESG issues than companies that are underperforming or struggling. 

Shareholder activism also remains on the rise, with an overwhelming majority of respondents in the UK believing that it is acceptable to launch a public activism campaign amidst the current Covid-19 pandemic.

This is a trend expected to continue, with 87 per cent surveyed stating that they expect shareholder activism to increase as we recover from the pandemic.