How institutional investors consider DEI when investing

– Investors are seeking more DEI information – and actions – from companies at an accelerating clip.
– Investors vary widely about how they define diversity.

Aon conducted this survey about how institutional investors think about diversity (gender, race, LGBTQ, etc.) in their investment portfolios. The report examines the potential challenges associated with diverse investing initiatives, as well as the following topics:

1. Reasons why investors pursue diverse investing initiatives
2. Current trends in institutional investor diversity policies/programs
3. Potential components of diverse investment programs
4. How diversity is defined and the pros and cons of those definitions
5. The ongoing impediments to launching diverse manager programs

Here’s an excerpt from page 11:

Ambiguity remains the name of the game, even as investors attempt to define diversity. Figure 8 shows that the vast majority of investors who have diverse investment policies or programs in place use woman or minority ownership as at least a partial indication of diverse status. Roughly 15% of those polled state that to qualify as “diverse” in their program, 51% or more of the asset manager must be owned by a woman or minority. Another 7% indicate that substantial ownership rather than majority ownership is required. No investors polled indicated that the presence of diverse investment management staff (regardless of ownership) would suffice to qualify a fund offering as diverse, while another 11% responded that diverse fund ownership and diverse investment management were required.

While an ownership requirement results in straightforward measurement and application, unfortunately, this approach has limits. Furthermore, it could potentially hinder the goal of increasing women and minority participation in investment management and sub-optimize efforts to achieve differentiated and/or excess returns, which are predicated on investment management diversity and not fund ownership.

Also it is notable that investors seem less focused on the demographic composition of the investment management decision-makers, despite such a high percentage of respondents citing cognitive and behavioral diversity for excess returns or differentiated streams of returns.