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How companies fail at diversity – and why investors should care

BUSINESSES often promote workplace diversity to investors as a key performance driver. But a new report from responsible investing leader Regnan finds diversity strategies mean little without equity and inclusion. 

  • New research report analyses diversity, equity and inclusion as indicators of company performance
  • Diversity programs won’t improve business performance without equity and inclusion 
  • The report offers a blueprint for Diversity, Equity and Inclusion (DEI) programs that deliver both social equity and business performance. 
  • Download: Beyond Diversity: Equity and inclusion as an overlooked opportunity for investors

NEW RESEARCH from responsible investing leader Regnan suggests investors should be asking tougher questions about diversity practices among listed companies.

Diversity has long been promoted by responsible investors as a way to contribute to creating just societies as well as improving business performance. 

But the Beyond Diversity report from Regnan’s Insight and Advisory Centre suggests diversity programs can fail to deliver unless companies place equal importance on equity and inclusion.

The work suggests investors should reconsider the indicators they use to evaluate company performance when it comes to Diversity, Equity and Inclusion (DEI) practices.  

What are Diversity, Equity and Inclusion?

Diversity: the representation of different kinds of people 

Equity: fair arrangements that enable all people to access opportunities 

Inclusion: workplace conditions that enable all individuals to make their fullest contributions at work 

It’s more likely that equity and inclusion are the factors driving business outperformance, concludes Regnan. 

“This finding suggests that investors need to reconsider how they evaluate and engage with companies, increasing their focus on equity and inclusion,” says Regnan co-author and Head of Engagement, Alison Ewings.

The report, Beyond diversity: equity and inclusion as an overlooked opportunity for investors, is based on wide-ranging analysis of the academic literature on diversity, equity and inclusion, as well as interviews with practioners and a review of leading organisations. 

The work has identified organisational conditions critical to boosting both diversity and business performance and provides a framework by which they may be considered.

For example a study by Deloitte found that “inclusive” companies were 3.6 times better at dealing with performance issues.

Inclusion framework 

The conventional wisdom in responsible investing is that diversity is a driver of performance and, as a result, investors can focus purely on measures of an organisation’s diversity when evaluating investments. 

Regnan offers a new framework for judging equity and inclusion, drawing on research by Cornell University’s Lisa Nishii. 

The framework highlights three essential pre-requisites for effective DEI: 

  • Equitable employment practices: eliminating bias at all stages of the employee lifecycle through recruitment, retention and progression. 
  • Supportive culture: ensuring that employees can make their fullest contributions at work, without fear of negative consequences.  
  • De-biased decision-making:  focusing on the ability of the organisation to elicit, understand and adapt itself to feedback from its people.  

The report then offers a blueprint for how this approach can be best implemented. 

“Organisations can self-assess against these pre-requisite conditions to identify potential areas of strength or weakness in their current approach,” says Ewings. 

“Further, there is an opportunity for investors to consider the presence of these factors as an indicator of the likely contribution of the DEI efforts to the improved performance of investee companies.” 

Download Regnan’s Beyond Diversity: Equity and inclusion as an overlooked opportunity for investors

About Regnan 

Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance. 

Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group. 

Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems. 

Regnan Credit Impact Trust (available in Australia only) invests in cash, fixed and floating rate securities where the proceeds create positive environmental and social change. 

Both funds are distributed by Pendal in Australia. 

Visit Regnan.com 

Find out about Regnan Global Equity Impact Solutions Fund 

Find out about Regnan Credit Impact Trust 

For more information on these and other responsible investing strategies, contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at jeremy.dean@regnan.com. 

The information contained in this document has been prepared by Pendal Institutional Limited (ABN 17 126 390 627; AFSL 316455) (Pendal) and is current as at 9 July 2021. “Regnan” is a registered trademark of Pendal Group Limited ABN 28 126 385 822 (Pendal Group). This document has been prepared by Pendal exclusively for institutional investors only. It has not been prepared for retail investors and is not to be published, or otherwise made available to any person other than the party to whom it is provided. This document is for general information purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not intended as professional advice or to be regarded as a securities recommendation. The information in this document may contain or be based on material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information in this document is complete and correct, to the maximum extent permitted by law neither Pendal, nor any other company in the Pendal Group accepts any responsibility or liability for the accuracy or completeness of this information.

The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund.

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