Investors have a key role to play in driving change on diversity, equity and inclusion (DE&I) according to a new report from the UN-backed group the Principles for Responsible Investment (PRI).
The report underlines that DEI issues are human rights issues, and calls for investors to give this area the same attention that they give to climate change. It adds that investors can not only change how DEI issues are viewed in their own companies, but more widely across society.
The PRI report says that to date, much of the focus within DEI initiatives has been on gender. The PRI says that while progress has been made on this front there is still considerable work to do. However it says it is “vital” that the DEI focus expands beyond this one issue and encompasses race, sexual orientation and a broader spectrum of diversity issues.
The report says there are a number of drivers for investor action on this topic, including both increased regulatory focus on DEI issues and the potential for improved business and investment outcomes.
It adds that the benefits of improving DEI are well understood and demonstrable – including but not limited to the avoidance of “groupthink,” positive impact on employee engagement and performance, reputational gains among stakeholders, greater reflection of beneficiary preferences and increased access to untapped markets.
The report adds that strong evidence exists to suggest that systemic inequality on a national and international scale can not only have a detrimental effect on individuals’ own financial wellbeing but can also stymie economic growth. Addressing DEI issues stands to grow the workforce, improve productivity, and therefore drive economic growth and global innovation.
It concludes that investors should seek to drive change on DEI issues across three key areas
- Inclusive corporate cultures: this means embedding DEI principles across the business’s workforce, rather than solely focusing on representation at board. It says this is needed in order to address structural barriers faced by underrepresented groups.
- Inclusive business models: this means incorporating DEI considerations into the design of a firm’s products and services, as well as pushing for this incorporation in underlying value chains.
- Inclusive societies: this entails investors working for coordinated change across relevant policy areas, as well as acting in concert to realise progress on DEI across all industry sectors.
It says that action taken by investors, particularly those managing large institutional assets and pension funds, may be similar to the work undertaken on issues such a climate change. For example a passive investors may want to look at bespoke indices that take DEI factors into account when weighting constituent companies. Meanwhile active investors may consider screening processes, to set a firm ‘floor’ for portfolio companies DEI standards.
The PRI report also calls for more effective engagement on these issues within the public policy sphere. Investors may consider lobbying on issues such as mandatory DEI disclosures and associated legislative developments which could positively impact the DEI sphere.
Elena Espinoza, senior specialist, human rights and social issues, at the Principles for Responsible Investment says: “DEI has a clear basis in human rights and is a core tenet of the United Nations Sustainable Development Goals.
“As such, responsible investors have a duty to embed the goals in their investment activity, and we’re calling on them to do more on the issue of DEI specifically.
“With this report, we’re encouraging investors to closely consider the issues at hand – namely, that addressing diversity must also entail addressing equity and inclusion too – in order to affect long-term systemic change. We’ve shown clearly the benefits of addressing systemic DEI issues, including to individuals, firms themselves, the communities most affected and the wider economy and society. Now, we’re asking investors to consider steps they can take to enact meaningful change.”
