The importance of diversity is expected to rise even further. 71 per cent of pension fund investors believe that by 2030 ethnic diversity will rise on the scale of importance and be a key determining factor in an investment case. A further 69 per cent state gender diversity will become more important.
Management Firm warns that corporate boards unable to develop diverse talent pipelines, or identify and recruit talent from minority groups, risk missing out on vital investment.
However, organisations wishing to secure investment have a large amount of work to do within a short timeframe. Green Park’s Leadership 10,000 found that six in ten (58 per cent) main boards in the FTSE 100 are yet to have ethnic minority presence. This goes against the Parker Review recommendations that FTSE 100 boards should have at least one director from an ethnic minority background by 2021, or 2024 for FTSE 250 boards.
The research reveals it is not just the investment case that diversity impacts, there is a belief that pension funds will increasingly use their financial influence to drive changes in corporate behaviour within existing firms that they hold a stake. Over half of pension fund investors (56 per cent) believe in the next 12 months UK pension funds will follow the trend of their US counterparts and seek to directly influence corporate policy to improve boardroom racial diversity. An additional 54 per cent believe UK pension funds will seek to put pressure on the companies in which they invest to improve gender diversity in the boardroom.
Moving forward organisations considering IPOs, mergers & acquisitions and new share issues, will need to be mindful of ensuring they have an inclusive recruitment and succession strategy if they are to attract pension fund investment. For many organisations, this may mean reviewing internal and procured recruitment practices and undertaking inclusion and cultural impact audits and assessments in order to understand, and strengthen, their employer of choice status in attracting diverse candidates.
Nearly a third (31 per cent) of the institutional pension fund investors believe UK pension funds that fail to demonstrate they are wielding their influence lobbying on environmental, social and governance (ESG) issues, will struggle to attract clients in future.
It is expected that there will be a shift in positioning over the next 12 months, with some UK-based pension funds becoming more interventionist like many of their American counterparts, shaping the policies of the companies in which they invest. Almost three quarters (72 per cent) of investors believe pension funds will take a proactive approach in the next 12 months, using their influence to lobby on environmental issues, while 65 per cent believe Corporate Social Responsibility will be an area to drive change.
Historically, UK-based pension funds have failed to wield their influence, with the greatest barriers identified as not having a history of activism and administrators not feeling it is their role to lobby the firms in which they invest (50 per cent). Other reasons cited include being solely focused on the performance of the firms they invest in and not on their corporate behaviours (40 per cent), in addition to investments not being as large, therefore not wielding the same influence as US firms (20 per cent).
Raj Tulsiani, CEO of Green Park, said: “With trillions of pounds under management, UK-based pension funds have the power to effect real change amongst the businesses in which they invest, if they value diverse leadership. US-based pension funds have demonstrably shown how their influence can be wielded on issues ranging from smartphone addiction in children, to the ethnic diversity of board nominees. Are the UK’s investment funds as forward thinking? It is yet to be seen.
“Recognising the power to effect change and the reputational benefits of doing so, we anticipate pension funds in the UK increasingly pressurising regressive firms to tackle issues such as gender pay disparities and board composition. Firms driven to improve diversity at board level, without a history of inclusive policies, will need to look beyond their existing talent pools and partner with expert consultants to identify and attract high value candidates that may previously have been excluded from consideration despite their skillset. However, unless businesses can build trust that they are not engaging in a ‘tick-box exercise’, they will not start to attract and retain top talent from the widest and most diverse talent pools.”
[…] This article was published in Marginalia on the 1st of June, 2018. To read the full Marginalia article, click here. […]