Paper 1: Diversity toolkit for investors

This paper, the first in our research series to build a Diversity toolkit for investors, is the introduction to why more corporate diversity reporting is not yet leading to informed decisions or better outcomes for investee companies, and what needs to change.

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There is a huge variation in diversity reporting from listed companies – from the barest of the bare minimum through to companies producing reams of extensive detail on multiple aspects of diversity. All stakeholders in the DEI discussion, and particularly investors, want to see more consistent qualitative and quantitative information about diversity progress.

A succinct and practical toolkit of questions on diversity topics could improve engagement between asset managers and the companies in which they invest and drive sustainable change in diversity, equity and inclusion.

1. To improve transparency and consistency in corporate DEI reporting

There is a huge variation in diversity reporting from listed companies – from the barest of the bare minimum through to companies producing reams of extensive detail on multiple aspects of diversity. All stakeholders in the DEI discussion, and particularly investors, want to see more consistent qualitative and quantitative information about diversity progress.

2. To join the dots between companies and their investors

Corporate diversity reporting should seek to satisfy the strategic needs of both the investee company and its various audiences, yet there is limited understanding between these groups. Investment decision-making is not the forte of DEI specialists, nor are investors experts on the latest developments in diversity – both can benefit from learning more about each other’s patch in order to improve reporting and how it can be used more effectively.

3. To drive a focus on materiality

Investors’ understanding of the material impacts of DEI (beyond board and leadership composition) are as yet nascent, but as reporting and data analysis improves and streamlines, that understanding will develop and become more focused. Meanwhile, corporate diversity reporting teams are spending more time managing inconsistent demands for data and DEI information, rather than focusing transparency on why, what and how DEI relates to their business strategy and its execution.

4. To build a fuller picture

Diversity is moving from being an operational silo in HR to being strategically driven from the heart of the business through employee, customer, supplier, community and other partner activity. This shift towards enterprise-wide diversity execution and impacts, as well as how diversity-related risks and rewards are identified and managed and by whom, needs to be coherently reflected in reporting and understood by investors. DEI practitioners are the custodians of this story, and they are best positioned to bring it together and communicate it saliently to wider audiences.

5. To rise to the challenge of data

Within the evolution of corporate reporting, DEI data (particularly anything beyond numbers on female representation) is a long-term challenge that requires consistent effort. Investors lament the lack of consistent standards and comparability across DEI strands, company sectors and geographies, yet they extrapolate from incomplete datasets in other areas of investment decision making. But we shouldn’t wait until we have the perfect data set to take action.

Acknowledgements:

Thank you to our members and contacts for their contributions, and particularly the speakers and attendees of our virtual Toolkit event series; to Columbia Threadneedle Investments, London Stock Exchange Group and S&P Global for sponsoring this research; and to our collaborators at the 30% Club Investor Group, particularly Clare Payn with whom we conceived the idea of the Toolkit.