Dechert on ESG: Diversity and Inclusion in Asset Management
In recent years environmental, social and governance (“ESG”) factors have become a key discussion point within asset management, with many managers now incorporating ESG considerations into their investment processes. One significant ESG factor is diversity and inclusion (“D&I”) which is, of course, also a broad topic in its own right. Indeed, a number of key ESG texts focus on D&I, including the United Nations Sustainable Development Goals (which cover both reducing inequality in general and improving gender equality more specifically).
D&I impacts the asset management industry at a number of pressure points and managers should expect it to arise with increasing frequency and in different guises. This is due to a long-term shift in culture (as demonstrated by the recent #MeToo campaign, for example), coupled with factors such as more millennials (who have grown up versed in these issues) moving into more senior, decision-making roles in the industry, both as investors and managers.
Key areas where the issue of D&I particularly impacts the asset management industry include: (i) investor-level focus on the issue, (ii) D&I’s potential impact on a fund’s downstream activities, and (iii) D&I’s impact on the ongoing management of the manager’s business (including as relates to economic return, legal obligations and human resource management). Various regulators are also beginning to focus on the issue.
As with many issues, it is important to understand the scope of a problem in order to be able to begin to address it and historically data on D&I has been patchy. The majority of available data regarding D&I in this area relates to gender, which will be the main focus of this article. However, many of the challenges and solutions to promoting gender equality are applicable to individuals who are diverse for other reasons.
Any efforts to improve D&I must be made in compliance with local law requirements (for example, quotas may be illegal in some jurisdictions, mandatory in others), which can be particularly challenging (but not unsurpassable) in an industry where businesses, structures and investments span multiple jurisdictions.