A leading British specialist provider of diversity and inclusion (D&I) data has warned that financial institutions are failing to use available information to heal social divisions.
The comments came after the UK financial regulator published a damning condemnation of efforts by the nation’s businesses to address D&I in their workplaces.
While Anders Rodenberg, chief executive of Denominator, welcomed the Financial Conduct Authority’s (FCA) report, he said it had failed in itself to address problems with D&I within financial institutions.
“Unlike most other industries, the financial service industry has a unique opportunity to drive D&I via its investments and create a much larger impact,” Rodenberg told ESG Insight. “We wished this topic had also been included in the FCA’s analysis given the unique position of financial services industry.”
Scrutiny has fallen upon how well ESG investors are serviced for data on such issues as companies’ gender pay records, racial equality measures and compensation policies. Many participants, including sentiment data provider Orenda, have bemoaned the shortage of social data as vendors and investors have largely sought information on environmental performance.A study by professional services giant KPMG recently found that social and governance data was being overlooked by more than half of reporting companies. It concluded there remained a “disconnect between the urgency of addressing climate change and social equity”.
Comparisons Drawn
In its report this week, the FCA said that companies it had surveyed across the UK economy had made only the slimmest of efforts to address D&I issues within their own operations and been unable to identify the correct data to help them monitor their own performances. This is the same data that investors would consider when deciding on which company to invest their capital.
Rodenberg said comparisons could be drawn between the report’s findings and financial institutions, which he argued made equally limited attempts to properly address the importance of D&I.
“Few financial institutions truly incorporate D&I into their investment strategies as many only look at gender representation at the board level,” he said. “D&I is driven mainly from executive and middle management levels so these seem more appropriate areas of focus for analysis.
“As noted by the FCA, D&I is also about much more than just gender. It is therefore important to have a holistic approach to D&I and analyse portfolios and investment products from the perspective of race/ethnicity, age, disability, sexuality, education and the many other D&I dimensions.”
New Services
Rodenberg said the shortage of D&I data was depriving investors of the sort of investment opportunities in the social pillar of ESG as they have in the environment pillar.
“Why is this not also the case for D&I? Why should the retirement money of a minority women be invested in companies than do not perform well on either gender or race/ethnicity?” he asked. “Including D&I into investment strategies and products is a unique opportunity for the financial services companies, where the impact will go much further than only addressing D&I in their own organizations.”
Data and technology providers have begun to offer social-focused services and products as investors and consumers demand more information on the performance of their investee companies. Data aggregator Rimes Technologies and investment management platform provider Finbourne Technology are among firms that have begun offering their financial institution clients with D&I data from Denominator this year.
Regulators are also taking notice of critics’ concerns. The European Union, for instance, has begun discussing the creation of a social taxonomy that will work in the same way as its green taxonomy to identify what socially significant factors are material to companies.
Rodenberg said he was optimistic that change was happening, thanks largely to the awareness younger investors have of D&I’s importance.
Financial institutions have started to react to this demand and the granular D&I investment data is available,” he said. “The financial institutions that best implement this will not only create a bigger D&I impact but will also be able to secure the funds and revenue of the future.”
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