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.
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:
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.”
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.
For more information on these and other responsible investing strategies, contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at email@example.com.
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