Pensions for Purpose calls for DEI to become a ‘red flag’ topic, urging asset owners to divest from companies that don’t take the issue seriously.
A new Pensions for Purpose report has uncovered a lack of engagement on Diversity, Equity and Inclusion (DEI) by some asset owners in their underlying portfolio companies, highlighting a surprising discrepancy between the scrutiny given to the topic within their own organisations, compared with their investments.
The organisation was partnered by Jupiter Asset Management, and found that while pension funds often start by examining DEI within their own organisation and service providers, some are only just beginning to think about DEI in their underlying portfolio companies.
Speaking to Impact Investor, Pensions for Purpose co-founder Karen Shackleton said she would like to see DEI become a ‘red flag’ topic causing asset owners to divest, depending on the severity of the issue. This is something that many asset managers are not doing themselves.
“I think there has been an assumption that the asset manager would automatically be prioritising DEI as part of their ESG analysis of their underlying investments. Yet most of the managers we spoke to said it would never be a ‘red flag’ causing them to exit an investment. Rather it could be an engagement topic,” said Karen Shackleton.
The report was based on data and interviews from 21 organisations, including pension funds, professional trustees, asset managers and investment consultants, based in the UK, Europe and the US.
DEI best practice for asset owners
To address this discrepancy, asset owners must increase the level of pressure and scrutiny on asset managers, asking them to give examples of engagement on DEI and evidencing improvement, said Shackleton.
“This is definitely a call to action for investors. Most of those we spoke to considered that good DEI would lead to better business performance and ultimately that would lead to better returns. So, this is something that is in their interests to do,” she said.
While the research shows commendable progress and significant areas for deeper engagement with DEI, it is, surprisingly, not yet impacting underlying investments significantly, Shackleton stated.
“We found commitment to DE&I is growing among asset owners, who realise there is more to be done, and the overall trajectory for DEI, especially looking beyond gender, is positive. We would expect future research on this topic to show progression,” Shackleton added.
The research outlines universal DEI best practice considered applicable across asset owner organisations.
One of the key recommendations made in the report includes incorporating DEI considerations in the manager selection process, as well as making certain investment consultants understand how asset owners wish to consider DEI factors in their investments.
Abbie Llewellyn-Waters, lead investment manager at Jupiter Asset Management said: “It is our long-held view that companies which balance the needs of three key stakeholders, planet, people, and profit, are well placed to generate attractive returns over the long-term.”
