Targets, allocating to diverse managers and acting on calls for change from diverse staffers are just some of the ways asset owners are boosting diversity in their own organisations. Investors at the Kresge Foundation, AP2 and AIMCo talk about their diversity, equity and inclusion action.

The $4 billion Kresge Foundation, which works to expand opportunities in America’s cities through grant making and investment, has pledged to have 25 per cent of its assets managed by diverse investment management firms by 2025.

Speaking at “Sustainability Digital; A Planet in Trouble,” Adrian Ohmer, who joined Kresge as investment director in 2020, said that moving the needle involves much more than “calling up” diverse managers. It also means Kresge must shine a bright light on its own diversity record.

“Diverse firms know if you are just dialling for dollars and diverse GPs are just as annoyed as we would be if we were on the other side. It is also hard to have conversations if it is not a two-way street.”

Ohmer said that researching and allocating to diverse managers has involved breaking out of Kresge’s small network and unconscious bias, to find managers that it would fit into its normal hiring practices but it may never have come across before. It requires more intentionality.

As for internal efforts to boost diversity, Ohmer works with headhunters to identify candidates and hire at a senior level. It involves clear guidance on the number of diverse candidates the firm wants in the final pool. And echoing previous panel sessions, including comments from chief executive of IFM Investors David Neal, he stressed the importance of inclusion.

It means listening to diverse candidates, and not expecting them to change their behaviour to accommodate typical corporate behaviour they may feel uncomfortable with.

“It is incumbent on you as a leader to find something to bring them into the loop. Expecting a diverse person to change their behaviour to accommodate you, exacerbates the problem,” he said.

Diversity is one of four focus areas that sits within sustainability at Sweden’s AP2 and has been a priority since 2001.

The pension fund has focused on increasing the proportion of women on boards and in management positions, said Ulrika Danielson, head of corporate governance at AP2.

“Diversity is much more than gender, age or background,” she said. “Gender diversity is easier to measure, but we need to broaden our work to include all aspects of diversity.”

Danielson added that AP2 still has much work to do improving its own diversity record. Having said that, 34 per cent of the fund’s employees are female, 33 per cent of the executive management team are female and 44 per cent of the board are women. Elsewhere she highlighted internal mentorship programs and diversity training as key policies.

Diversity at Canada’s C$119 billion AIMCo is evolving from “picking low hanging fruit” gifted by Alberta (where 90 per cent of the fund’s employees live) being a frontier and diverse province.

“Hiring a diverse group is not difficult,” said chief executive, Kevin Uebelein. Now the asset owner is striving to do more in a plan driven by human resources and owned by all executives that is shaped around what he calls relentless measurement of diversity within the firm, and among its partners.

Uebelein also noted the particular challenge of building gender diversity given more women than men fall away.

“It’s stopping the fund from moving the needle,” he said.

Strategy to boost diversity includes interaction with investee companies and third-party managers – AIMCo manages over two thirds of its portfolio internally.

And regarding investee companies, Uebelein said AIMCo is turning up the heat on board diversity, demanding 30 per cent women on boards.

Uebelein also argued his preference for engagement and staying invested in both investee companies and with fund managers to best effect change. Importantly AIMCo has set goals for diversity and inclusion at senior management level among its third-party managers.

For example in private equity, conversations with GPs dominated by white males involves tough questioning and targets he said.

“We ask if they believe in the power of diversification and if diversity adds to potential returns. We ask them what they are prepared to do about it,” he said.

Moreover, because AIMCo will invest over a seven-year period it can chart and push for change ahead of re-upping.

“This is a language they speak, but you have to back it up with action,” he said.

Integrating diversity in investments

AP2 integrates diversity in its investments via internally developed indexes with exposure to ESG factors including diversity.

And over the last five years companies with women in senior positions within the index have shown strong returns, said Danielson

“This factor contributes to positive returns, particularly in developed markets,” she said.

Elsewhere AP2 invests in a debt fund that lends to female entrepreneurs and has invested in social bonds issued by the World Bank to fund diversity and projects to support women and girls. AP2 evaluates sustainability in its private equity portfolio using 25 assessment points that includes diversity and inclusion.

Meanwhile panellists noted that investors in different regions think differently about diversity, necessitating a thoughtful approach.

Uebelein said how his priority is to unleash the power of AIMCo’s diverse employees to really find out what they think. It involves setting up resource groups and forming councils to tap their expertise.

“Once you ask for that assistance, they will make demands on the organisation,” he said.

He also flagged the importance of cognitive diversity, warning that institutions often hire diverse candidates that still think and behave the same as all other employees.

“Cognitive diversity is messy and makes decision making harder. But it gets better results and outcomes,” he concluded.

As a global macro investor, our goal is to build a deep understanding of how economies and markets work, and to convert that understanding into high-quality solutions for our clients’ most important priorities. Because environmental, social, and governance considerations affect how economies are evolving and how markets are priced, we seek a deep understanding of the ESG issues that are pertinent to our investment approach.

Below is a selection of research on ESG-related dynamics that are important to our understanding of global economies and markets.

Click here to view more on sustainable investing from Bridgewater

The ultimate goal of economic policy is simple and timeless—to ensure prosperity and maximize living standards. Broad macroeconomic measures such as GDP growth, the unemployment rate, and inflation had for decades been a good proxy of rising prosperity, so they have dominated economic policy making and are enshrined in most central bank mandates. But even before the COVID-19 crisis, it had become clear that traditional economic measures have increasingly diverged from social outcomes. The economic expansion of the past decade was a success according to traditional measures of full employment, but it was accompanied by deteriorating social conditions across a variety of measures (inequality, health and safety, educational attainment, infrastructure quality, housing affordability, and so on). With the COVID-19 crisis, the pressures have come to a head as the worst economic downturn in decades is hitting the most vulnerable the hardest.

Click here to read the full paper.

Integrating impact alongside risk and return is a revolution that will see more diversification among investor allocations to asset classes such as commodities. Elsewhere, it requires using multiple data sets to analyse stocks and sovereign bond allocations to see the real-world impact of a company’s product or services, and which governments are heading to net-zero. Bridgewater’s head of investment research Karen Karniol-Tambour explains.

A key first step in integrating impact in public markets is for investors to assess what real world outcomes they actually want to impact. It involves a shift to think about investment not just in terms of risk and return, but also in terms of impact.

Karen Kaniol-Tambour, head of investment at Bridgewater, the world’s largest hedge fund, explains that integrating different types of risk is now normal and deeply engrained. However, shifting to also think about impact as deeply and rigorously as risk and return is nothing short of “a revolution.”

Assessing the real-world outcomes investors want to impact involves looking at the services a company provides and how it behaves making those goods. As for investing in fixed income, investors should look at the actions the sovereign government is taking to shift outcomes in the real world like climate change.

In commodities, investing for impact means choosing to invest in commodities that will build carbon free economies like charging infrastructure and electric vehicles, or investing in clean and sustainable mining processes.

“This is the framework, and these are the relevant questions to ask,” said Karniol-Tambour who oversees an investment team of 150 proffessionals. From this process she said it is possible to see what assets have the most impact, and which have the least, and give impact as much credence as risk and return within a portfolio.

Expanding on the process within equities, she outlined how looking through an impact lens could lead to investment in a utility for its real-world impact on clean water and sanitation.

“This is an example of how you might measure a company,” she said. In the bond market impact investors could tilt to a government developing a low carbon economy for example.

Investors can apply risk, return and impact to the issues they care most about from climate change to biodiversity or labour rights, across their entire portfolio. With climate change, investors can look at stocks and analyse companies’ emissions and the products they make. They can also look at externalities and analyse “if a company was charged real money against the damage done, would their profit drop.”

Karniol-Tambour said that measuring impact is still in its infancy – “like risk many years ago” – but she said progress is accelerating fast because more investors are making it a priority. In a few years we will see a whole other level of being able to measure impact, she predicted.

“It is very undeveloped and has tremendous potential,” she said, citing developments like the work of Harvard Business Schools’ Impact-Weighted Accounts Leadership Council of which she is a member. Moreover, demand for impact is also being driven by the huge government stimulus to counter the effect of the pandemic, much of which is going into the transition.

Data is crucial

Bridgewater uses data from between five to 10 providers, picked from an initial pool of around 40 based on their ability to answer key questions around measuring impact. She also stresses the importance of triangulation or using more than one method to collect data on the same topic. This helps prevent the risk of personal opinions seeping into the measuring process.

“None of us are true experts on these topics,” she says.

As for interesting patterns emerging from the data, she said investing for impact in equity doesn’t require a new level of diversification. An experiment that took fewer than normal (around 50) of the best performing stocks from an impact perspective, found diversity levels didn’t fall away. Conversely, investing in commodities for impact does result in greater diversification given investors typically hold oil more than any other commodity. Investors wanting to impact the green transition need to expand away from oil to invest in commodities like copper or aluminium, she said.

“From an impact lens there are lots of commodities that need to be ramped up while carbon is phased out,” she said, adding that the most important source of diversification is towards environments investors are not exposed to.

“Put another way, investors should think what impact options they should add. Think what kind of environments you are not well diversified towards,” she said.

Index construction

Karniol-Tambour explained to delegates that many equity indices try to achieve ESG goals by “demanding” the sector mix stays the same as the underlying market mix. It means the index often ends up being the same as the market.

“In our view this is limiting your impact,” she said.

Bridgewater has built equity indexes shaped around the SDGs without these constraints. Instead “back-end checks” monitor the extent to which the index incorporates a sector tilt, for example. The process has revealed that passive investment, which changes all the time due to shifts in a company’s market cap or a sector market cap, has a bigger effect on how bias plays out in a portfolio than impact.

Finally, she counselled on the importance of finding ways to apply measurements systematically.

“If we can only make a qualitative assessment on one company we are limited and assessments need to be scaled up,” she said.

She also reiterated the danger of bias in qualitative assessments, stressing the importance of “as much opinion as possible.”

Achieving diversity requires data, new recruitment practices and nurturing inclusion. And the financial industry must get its own house in order to better put pressure on investee companies.

“Inclusivity is more important than diversity. Don’t underestimate how hard it is to understand what an inclusive culture looks like,” David Neal, chief executive at IFM Investors, told delegates at the “Sustainability Digital: A Planet in Trouble” last week.

Neal, who has led the  the investor-owned fund manager was citing a key challenge inherent in solving the diversity problem within financial services organisations.

He was speaking alongside Helena Morrissey, chair of the Diversity Project and founder of the 30% Club which seeks at least 30% representation of women on all boards and C-suites globally, and Jason Lamin, founder and chief executive of fintech Lenox Park Solutions. They agreed that hiring diverse employees must be accompanied by inclusivity so that people feel able to voice their opinions and be part of the corporate culture.

Delegates heard how granular data helps reveal where firms are losing diversity in their workforce, enabling companies to “zero in” on challenges like retention. Elsewhere, asset owners need to hone clear and consistent messages and view tackling diversity in the context of change management overseen by strong line managers.

Data: the challenge and the solution

More asset owners are drawing on high end data to increase gender diversity, said Lamin visible in the growing number of investors using Lenox Park’s scoring and methodology data over the last year. Using metrics that assesses and measures factors like board diversity amongst investee companies and asset managers, asset owners can tilt allocations to those that score highest and “move the needle.”

He says that assessing, managing and changing diversity, equity and inclusion is set to become the data issue of the 2020s, as investors turn their attention to the power they have to advocate for change in the companies they invest in, and the firms that manage their money.

People have discussed the importance of diversity for decades and everyone understands the social good inherent in diversity. Yet the catalyst for change has only come since investors started looking at diversity through a risk lens.

“This has provided a different motivational factor,” said Lamin, citing diversity risks like group think, the inability to attract the best talent, or the reputational risk that comes with discrimination or staff harassment.

IFM’s Neal reiterated the risk of group think and the importance of “different life experiences” to help solve “complex problems.”

Moreover, the COVID-19 pandemic and growing evidence that the impact of the pandemic is more keenly felt amongst women, requires a “big” push.

“If we are going to contribute capital and build back better, we have to pay attention to diversity and inclusion,” he said.

IFM is working with researchers at the University of Sydney for insight on investing through a gender lens. Neal told delegates that changing the fund manager’s investment process requires “asking the right questions.”

When David Neal was chief executive of the Future Fund, a position he held before joining IFM last year, his team engaged in a mapping of the cognitive diversity of the group.

Now he has expressed his hope that investor appetite to address diversity will gather the same kind of momentum now seen in climate where he noted a similarly “slow response to clear evidence.”

“I am hoping momentum will also build around investing with a gender lens,” he said.

Neal added that asset owners’ ability to push firms on gender equality depends on the ownership level of the investee company.

“One hundred per cent ownership gives a different level of control,” he said. “It makes it easier to build an inclusive culture and set up the right employment policies to encourage women and minorities and make sure the board and executive level are diverse.”

“We try and get into the organizations we invest in as deep as possible – in the same we way we manage issues ourselves, in our own organization.”

Getting our own house in order

Panellists stressed the importance of asset owners and the wider investment community ensuring diversity within their own ranks before they take the message to investee companies.

“We have to get our own house in order,” said Morrissey.

“We can’t go around lecturing people when the financial industry is not diverse.”

She urged investors to change recruitment processes and rely on data. For example, data reveals when and why diverse candidates leave a company or if diverse candidates are being promoted. She also highlighted the importance of grass roots initiatives around diverse recruitment and encouraging people who might not have considered a career in finance into the industry.

“We need their representation,” she said. As well as building diversity in early careers, she said more needs to be done around return-ship and encouraging women back into work.

No more all white boards

Panellists also sounded a note of optimism and pointed to recent progress. Like the fact there are no all-male boards left across the FTSE 350 in a victory for the 30% Club.

“We are thrilled with the progress around more women on boards,” said Morrissey who observed how men are helping push gender diversity in new trends in allyship. This has pushed the conversation beyond gender equality and the boardroom she said, noting “there are so many underrepresented groups.”

Progress in other areas like racial diversity will also require a “painful journey” that “takes a while” and involves “steps back,” she said.

Morrissey also reflected on how the 30% club would have failed if it had begun with a broad scope. The organization’s success is rooted in its narrow focus on female boardroom representation, she said.

 

In a fireside chat, Gloria Steinem – often called the world’s most famous feminist who has been advocating for women’s rights for 55 years – reminds us why diversity is such an important issue for investors to understand, why it impacts society, business and investments so fundamentally, and why there is still so much work to do.

Speakers

Gloria Steinem is a writer, lecturer, political activist, and feminist organiser. She is particularly interested in the shared origins of sex and race caste systems, gender roles and child abuse as roots of violence, non-violent conflict resolution, the cultures of indigenous peoples, and organising across boundaries for peace and justice. She now lives in New York City, and is the author of the travelogue My Life On The Road.
In 1972, she co-founded Ms. magazine, and remained one of its editors for 15 years. She continues to serve as a consulting editor for Ms., and was instrumental in the magazine’s move to join and be published by the Feminist Majority Foundation. In 1968, she had helped to found New York Magazine, where she was a political columnist and wrote feature articles. As a freelance writer, she was published in Esquire, The New York Times Magazine, and women’s magazines as well as for publications in other countries. She has produced a documentary on child abuse for HBO, a feature film about the death penalty for Lifetime, and been the subject of profiles on Lifetime and Showtime.
Her books include the bestsellers My Life On The Road, Revolution From Within: A Book Of Self-Esteem, Outrageous Acts and Everyday Rebellions, Moving Beyond Words, and Marilyn: Norma Jean (on the life of Marilyn Monroe), and in India, As If Women Matter. Her most recent book, The Truth Will Set You Free, But First It Will Piss You Off!, was released in October 2019. Her writing also appears in many anthologies and textbooks, and she was an editor of Houghton Mifflin’s The Reader’s Companion To US Women’s History.

Steinem helped to found the Women’s Action Alliance, a pioneering national information center that specialised in nonsexist, multiracial children’s education, and the National Women’s Political Caucus, a group that continues to work to advance the numbers of pro-equality women in elected and appointed office at a national and state level. She also co-founded the Women’s Media Center in 2004. She was president and co-founder of Voters for Choice, a pro-choice political action committee for 25 years, then with the Planned Parenthood Action Fund when it merged with VFC for the 2004 elections. She was also co-founder and serves on the board of Choice USA (now URGE), a national organisation that supports young pro-choice leadership and works to preserve comprehensive sex education in schools. She is the founding president of the Ms. Foundation for Women, a national multi-racial, multi-issue fund that supports grassroots projects to empower women and girls, and also a founder of its Take Our Daughters to Work Day, a first national day devoted to girls that has now become an institution in the US and in other countries. She was a member of the Beyond Racism Initiative, a three-year effort on the part of activists and experts from South Africa, Brazil and the United States to compare the racial patterns of those three countries and to learn cross-nationally. As links to other countries, she helped found Equality Now, Donor Direct Action and Direct Impact Africa.

Moderator

White is responsible for the content across all Conexus Financial’s institutional media and events. She is responsible for directing the bi-annual Fiduciary Investors Symposium which challenges global investors on investment best practice and aims to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. She is the editor of conexust1f.flywheelstaging.com, the online news and analysis site for the world’s largest institutional investors. White has been an investment journalist for more than 20 years and has edited industry journals including Investment & Technology, Investor Weekly and MasterFunds Quarterly. She was previously editorial director of InvestorInfo and has worked as a freelance journalist for the Australian Financial Review, CFO, Asset and Asia Asset Management. She has a Bachelor of Economics from Sydney University and a Master of Arts in Journalism from the University of Technology, Sydney. She was previously a columnist for the Canadian publication, Corporate Knights, which is distributed by the Globe and Mail and The Washington Post. White is currently a fellow in the Finance Leaders Fellowship at the Aspen Institute. The two-year program consists of 22 fellows and seeks to develop the next generation of responsible, community-spirited leaders in the global finance industry.