Diversity, Equity & Inclusion: Gender and Beyond

Diversity, Equity & Inclusion: Gender and Beyond

Background

DEI, or ‘Diversity, Equity and Inclusion’ has increasingly become an expectation of sustainable investment approaches globally. Two key viewpoints behind the investor consideration of DEI are a business case and a moral case. According to a variety of studies, DEI integration can be linked to improved financial returns as well as positive social and human capital impacts; however the topic continues to be contentious due to the concerns regarding the methodological robustness of the research in this area, and the prevalent focus on demographic diversity. A comprehensive approach which covers broader considerations of workplace equity and inclusion which benefit all employees while accounting for specific needs of groups or individuals (equity) and ensures a non-discriminatory environment where different perspectives can be shared (inclusion) could be more effective in facilitating cognitive diversity and positive business outcomes. 

Key takeaways

  • In writing this report, the Institute aims to broaden the scope of diversity for investors, to include identities beyond gender and to focus on equity and inclusion. We present key DEI considerations related to ethnicity, LGBTQ+, socioeconomic background, disability and neurodivergence, and analyse intersections of these characteristics, equipping investors with knowledge to assess potential portfolio risks and drive best practices through engagement.

  • Key drivers behind the growing investor attention to DEI include: DEI as a factor which can impact financial returns; stakeholder pressure increasing materiality of the issue (including the media, employees, stock exchanges, regulators and industry bodies establishing new and broader DEI reporting frameworks); moral considerations that building diverse, equitable and inclusive workplace is the right thing to do.

  • Newer DEI reporting frameworks are increasingly covering a broader scope of identities; some also consider elements of equity and inclusion. We cite frameworks from Nasdaq’s Board Diversity Rule, EU CSRD, the UK Financial Conduct Authority and the CFA Institute as examples that explicitly extend diversity reporting considerations beyond gender. Investor impacts from such frameworks may include both  greater DEI data availability and a corresponding increase in materiality.

  • In addition to outlining the key contexts, challenges and business benefits of broad DEI considerations, this report provides engagement questions to help facilitate risk assessment and best practices in portfolio companies. We also provide an overview of DEI practices in Japan and their demographic context.

Summary table

DEI category Challenges
Disability & Neurodiversity

People with disabilities continue to face employment and wage gaps; they are more likely to work part-time and underrepresented in senior positions;

Workers with disabilities face workplace discrimination driven by negative assumptions regarding their performance;

Neurodivergent employees can possess above-average skills in certain areas, however assumptions and stereotypical approaches carry risk;

Disability and neurodivergence is often under-diagnosed by medical professionals and underdisclosed by employees.
LGBTQ+

Evidence provided by employee surveys shows continuing LGBTQ+ inclusion challenges linked to wellbeing and workplace discrimination;

LGBTQ+ employees face challenges across the employment cycle, including unfair dismissal, lack of promotions, exclusion and verbal abuse;

Fear of discrimination leads many LGBTQ+ to not disclose their identity to their employer and not report discriminatory behaviour.
Ethnicity & Race

Ethnicity composition disclosure is typically voluntary and based on self-identification, with some jurisdictions prohibiting the collection of ethnicity data (e.g. France);

Race and ethnicity are linked to pay disparity as well as increasing gender pay gaps and the rate gender pay gaps close over time;

However the links between ethnicity and pay can be complex and should be analysed in the local context.
Socioeconomic background

Employee surveys show that many companies are not yet taking active measures to integrate socioeconomic considerations in their recruitment practices;

Socioeconomic factors can exacerbate challenges facing individuals belonging to other diversity groups – e.g. an ethnic minority person from a disadvantaged socioeconomic background can face more barriers in the workplace compared to a person of a same ethnicity but higher socioeconomic status.