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Supplements » ESG Report Winter 2020

Roundtable: Pursuing ESG and pursuing financial returns is exactly the same thing

Funds Europe – In terms of gender and race diversity, the funds industry is not representative of the global society for which it manages vast sums of capital. A survey by Funds Europe earlier this year revealed that just 8% of respondents considered ethnic diversity to be important enough to target. What is your priority when it comes to diversity and achieving diverse additionality in your organisation and investment outcomes?

MacDonald-Brown – There’s a widespread recognition that diversity of thought is vital, and the last thing that you want is lots of people who have emerged in the same path. We have to be careful because often these conversations around diversity can be limited in a number of ways, including what we have data on, so we know that it’s much harder to get data around ethnicity than it is around gender and educational backgrounds, but this is where the work that we have done is clearly targeting not only the data that we have, but also encouraging people to reveal as much data about themselves as they are willing to do to enable us to have a better picture of what we’re doing. We have done a lot of work around training people and recognising that we’re all full of unconscious bias, and it is inevitably harder for us to hire people where there isn’t that immediate connection from a common background. We also have to recognise that what we are trying to achieve is that diversity of thought, and it’s really important, because the last thing you want to do is find yourself in a room because you’re the token woman in the room, that is awful. You want to know you’re there because it is what you bring to the room in terms of what comes out of your mouth and the opinions you bring that are really important.

Marshall – We think about it in three areas of our influential sphere. One is in the portfolio, so the companies we directly own and invest in, and most of our work there is done in our analysis of the stock or the credit, particularly from a governance perspective, the ability of the key decision-makers at the company to have cognitive diversity and for the recruitment, retention and training programmes throughout the organisation to make sure they’re drawing on the biggest talent pool that they can. We look at it from an analysis point of view, but we also look at it very closely from an active ownership point of view, so we’re longstanding members of the 30% Club Investor Group, we have voting thresholds (casting oppose votes where our thresholds are not met) which are at the moment different in different regions in terms of gender. The biggest challenge to most investors is where do you expand the diversity question? It’s on two dimensions: how you go beyond gender and how do you go beyond markets that are already receptive to the diversity message? We have different thresholds in different markets, higher for the UK than for the US, higher for the US than Japan, and so how you ‘level up’ in those different regions is obviously the challenge for most investors. 

The second part is people policy, and this is a key part of our people strategy from recruitment to training to pipeline development. We are well positioned compared to peers, but there’s more that we can do. We publish our gender pay gap and there is a gap, but it’s going in the right direction year on year, and it is key at an executive level as well as bottom-up. 

The third part would be any capital that we allocate to external fund managers. It’s important to approach ‘team’ not just from a traditional fund selection approach, where you’re looking for the stability of the team and a lack of turnover is sometimes seen as a good thing, but to seek genuine diversity, not in a tokenistic or ersatz way, but to look for appreciation and understanding by the fund manager (or chief investment officer that’s sitting above the strategy you’re considering investing in) of the benefits that diversity brings, the business case for diversity and why it’s being done, not just that it has to be done because it’s been commanded from above. We think that fund managers that grasp these opportunities are likely to have superior cultures and make better investment decisions on behalf of our members.

Nazarova-Doyle – We set and announce our stewardship priorities every three years and this year we’ve announced the new set for the next three years, which is climate and board cognitive diversity. Cognitive diversity is so important, particularly now in the UK, where we’ve pretty much tackled gender diversity on boards and are making progress on racial diversity, but we haven’t figured out how to measure cognitive diversity properly yet. So, we thought if we take it as one of our two stewardship priorities, we’ll be able to really focus on it for the next three years and do research and understand what could be done and make a difference. 

On the other hand, as an organisation ourselves, we have done well on gender diversity – we have good representation across all levels of the organisation, the firm is very supportive and flexible, our job adverts use inclusive language, so we’ve done a lot of work to make sure that we attract the right talent and it’s a good place for women to work, we win awards and we are doing quite well on gender. In terms of race, we’ve recently announced our new race action plan and it was the first time in history that Moody’s actually said that’s credit rating positive, so that was becoming relevant in the financial sense in terms of credit rating agencies. We’ve committed to increasing our representation of black, Asian and minority ethnic colleagues in senior roles from the current 0.6% that we have to at least 3% by 2025, so that is representative and aligns with the UK labour market. We have also set up the advisory board made up of black, Asian and minority ethnic colleagues to advise us on our diversity policy, so we’re making sure we have those listening sessions and they actually tell us what we need to do as an organisation to do better at this. We’re publishing our ethnicity pay gap alongside our gender pay gap report and doing practical things, such as every recruitment shortlist having to have diverse candidates. 

Mascotto – Diversity, equity and inclusion (DE&I) is an area of primary focus for us. We believe our workforce should represent a diversity of backgrounds, experiences and thought. We also believe companies lacking transparency in this area or trailing their peers’ efforts may see negative impacts to their long-term competitiveness, brand reputation or financial condition. Therefore, when evaluating companies for our portfolios, we consider DE&I to be a sector-agnostic key issue and include it under both the social and governance pillars of the ESG equation. In addition to identifying potential risks associated with companies’ lack of meaningful DE&I, our ESG framework also helps identify investment opportunities to help advance DE&I. For example, current long-term growth trends and improving corporate practices in emerging markets (EM) are providing various investment opportunities. Several EM companies are making positive social impacts by contributing to the SDGs, including goal 5 (gender equality).  We serve as a founding member of NICSA’s Diversity Project, an initiative focused on increasing diversity within the asset management industry. We have signed the CEO Action for Diversity & Inclusion pledge and are partnering with Girls Who Invest, a non-profit dedicated to increasing the number of women in portfolio management and executive leadership in the asset management industry. Internally, we provide employees programs that offer female-centric resources for career advancement, firmwide exposure and holistic advice. Accelerate – the firm’s business resource group for women – provides opportunities for involvement in DE&I policy initiatives and the RISE (Reach, Inspire, Support, Empower) mentorship programme.

Shihn – Our approach to diversity is to think of our teams a little bit like investment portfolios. What you want is to diversify, and so you don’t need to find the best person for a specific task, but you want to find the best person to improve the aggregate team. You want to fit the gap that you don’t always know that you have. Ultimately that comes down to cognitive diversity, and this is naturally a hard thing to measure because there are so many different soft factors that determine it. So, you do end up reverting back to metrics that are observable and measurable, like gender and ethnic background as a first pass. We look at things like universities attended and places of study which can offer an insight into the background of an individual or what opportunities they were availed at a particular point in time. 

For graduate intakes, we have 50/50 hiring of male and female candidates, and the hope is to keep and retain talent as you progress in equal proportions; that has been harder to achieve to date but we’re trying to resolve that.

We’re also looking at the diversity metrics across the fund managers we allocate to and have been undertaking studies to look at their set-ups in terms of gender and ethnic diversity backgrounds. We’ve been asking managers for data on this for a few years and it forms part of how we assess them at the key decision-maker level and within the broader team. What we’ve found is that there are some parts of the market where it is harder to find an even gender balance within teams, particularly in the hedge fund and alternatives space, which tend to be quite male-dominated, and that’s an area we want to see the most improvement and are pushing to find that change. Diversity and thoughts about it within the investment team features into how we assess culture within an organisation and its willingness and want to evolve and improve practices. 

Nazarova-Doyle – I think we should be starting to take 60/40 or 70/30 of women if we want the 50/50 split to then continue through the organisation, because we know we are going to lose 10% to 20% easily, if not more.

Schiendl – We deem ourselves as sustainable and diversity has not been a major issue per se. In our company we have had four more female heads of department than male heads of department for some time, and I like the point on cognitive diversity because it is about having better discussions, better results and better decisions because of this.