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Investors remain unconvinced on financial benefits of diversity

Some major asset owners remain unconvinced about the importance of diverse workforces, according to research by think tank New Financial.

In a report published this month – Diversity from an Investor’s Perspective – the organisation said it had found a notable division in mindset between those that believed diversity was important and those that did not.

“Despite pressure from government, regulators, peers and society to challenge a lack of diversity in the workforce, there is still a widely held and deeply entrenched belief in the investment industry that improving diversity compromises returns, and/or comes at a cost that is not worth paying,” it said.

Some “believers” saw diversity as part of their fiduciary duty, New Financial said, but others feared a focus on diversity could be a violation of fiduciary duty.

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Progressive asset owners and the most forward-looking firms from other parts of the investment sector were developing and refining their messages to bring round sceptics, it said.

“For those asset owners in our sample that said diversity enhances financial performance, the business case is clear,” the report said.

However, many among the unconvinced wanted to see hard data showing that using diverse fund managers would improve returns. “Such a data set is a tricky proposition and the evidence is unclear,” New Financial stated.

Fearless Girl

State Street’s ‘Fearless Girl’ statue was moved from Wall Street in New York to Paternoster Square in London, close to the London Stock Exchange

The group’s report analysed responses from 100 asset owners around the world, and built on previous research into the subject published last year. The 2018 report found “broad consensus across the investment industry that diverse voices enhance investment performance by increasing diversity of thought, which in turn improves decision making, investment idea generation and guards against group think”.

The 2019 report found that the most commonly cited reasons for improving workforce diversity were:

  • to improve decision-making;
  • to attract and retain talent;
  • to innovate and compete;
  • to reflect members and communities; and
  • to enhance financial performance.

New Financial said these reasons were “not mutually exclusive; rather they overlap and reinforce each other”.

Research for the 2019 report – which was conducted with the UK’s Pensions and Lifetime Savings Association and supported by law firm Pinsent Masons – gathered information on asset owners that had been identified as “the most progressive on diversity”.

European pension funds surveyed include the Greater Manchester Pension Fund, Alecta, Railpen and Rabobank Pensioenfonds.

 

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