The D&I data imperative
By Dan Ornstein; Lauren Dickinson, Simmons & Simmons
Published: 19 June 2023
Asset managers are taking the diversity and inclusion (D&I) of their people more seriously than ever. Some are recognising the business value of a diverse workforce and leadership, others want to get ahead of predicted regulatory scrutiny, many are responding to institutional investor questions about the D&I of employees and leaders.
Whatever combination of factors are driving a firm to address its D&I strategy, or simply take stock of its current composition, data is likely to be one of the early areas of focus. D&I data is, broadly speaking, information about the diversity characteristics of the people who make up the organisation. This might include information about characteristics such as race, ethnicity, sex, gender identity, disability, caring responsibilities and socio-economic background. Some firms might also include measures of employee sentiment about whether people feel the environment is inclusive and whether they feel able to express their whole identity in the workplace.
There are a number of reasons why data is such an important part of the broader focus on D&I amongst asset managers:
- Firms need to understand their current position to set D&I strategy and identify areas of focus. It can be tempting to rely on industry generalisations such as there being fewer females in asset management. But this might not be the most pressing issue at any particular firm.
- Regulators are increasingly scrutinising diversity in the financial services industry and are likely to start requiring disclosure of certain metrics within the next couple of years. In the UK for example, at the time of writing the imminent release of the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and Bank of England (BOE) consultation on D&I is expected which is likely to include a requirement for firms over a certain size to disclose diversity data about their boards, senior managers and employees. It remains to be seen whether such requirement will be a public disclosure.
- Asset managers will need to disclose certain diversity data in some countries, now and or in the near future. For example, any firm with 250 or more employees must report its gender pay gap. The EU Directive on Pay Transparency will also within the next few years require firms with 100 or more employees in an EU country to report the pay gap between male and female employees. Certain firms will also be subject to other diversity reporting requirements depending on the type of entities they operate from.
- Institutional investors are regularly asking for information about D&I composition in due diligence (DD) questions and are declining to invest where minimum criteria is not met. There is a significant focus on board diversity in this respect.
- Firms who have or are putting diversity initiatives in place will need D&I data will for evaluating success of D&I strategy and communicating that success externally.
For asset managers with international operations, it can be challenging to even get off the starting block and decide what questions to ask employees about their diversity characteristics and what optional answers to provide.
Often, D&I data collection will be led from HQ. This presents challenges in other international locations. Diversity characteristics tend to be categorised differently or have different terms in different countries. One of the most challenging areas in this respect is asking about race and ethnicity. Most diversity surveys give respondents a range of options to choose from as to their race and/or ethnicity (as well as having a free text option and an option for employees who prefer not to say). That list will usually include the major racial and ethnic groups represented in the country in which it was devised.
Firms can come unstuck when they try to apply that same list of options in response to a race and/or ethnicity question to every country in which they have employees. Doing so has the superficial attraction of gaining a consistent data set internationally. But it is unlikely to be an effective approach overall. There’s a high risk that people in other countries will not recognise their own racial identity or ethnicity in the list. This can in itself lead to a feeling of not being included and alienated. On a micro-level, this might put someone off filling in the survey and lead to under-reporting of employees from minority groups. More significantly, it can leave individuals and whole groups of employees feeling that they are not recognised by the firm.
Often, the best approach will be to adopt government guidance in each country where the survey has been carried out. Usually, it will be good practice to use the options given in the national census as these should reflect the general population.
Firms are also increasingly asking employees about the socio-economic background of employees as this is being recognised as a key piece in the D&I picture. In the UK, it is expected that the FCA, PRA and BOE consultation on D&I in financial services will include some draft requirements in relation to collecting data about socio-economic background. Such questions are however inherently country specific so international firms will need to consider how they are applied in different countries.
There are also country to country differences in what diversity information employees are asked to provide. In some countries, certain questions are considered particularly intrusive, such as asking about sexuality or marital status. There are also outright restrictions on asking for certain information in some countries.
In almost any country in which a firm intends to collect D&I information about employees, it will need to consider data protection and privacy issues. Much of the data is likely to be specially protected in law. For example, in the UK and in EU countries, data about racial or ethnic origin, religion, health and sexual orientation are special category personal data and more stringent rules apply in relation to collecting it.
One option some firms take to reduce data protection issues is to collect data anonymously. This can be appealing because it is in many ways a more straightforward and easier option. There are a few drawbacks firms should be aware of:
- It can be difficult to ensure true anonymity. In small to medium sized organisations, there may be certain characteristics which only one individual possesses and therefore can be identified – for example they may be the only person of a particular race. This challenge is amplified if certain types of diversity are already low.
- It is increasingly recognised that understanding intersectionality is important in understanding and addressing diversity and inclusion issues. Intersectionality refers to the interaction of two or more diversity characteristics and the unique dynamics this may create. It is difficult to do this on an anonymised basis as it would likely lead to identification of individuals.
- The most effective D&I initiatives are likely to address how certain diverse characteristics impact career progression, talent retentions and pay. It is very difficult to track this on an anonymous basis.
Asset managers will realise value in getting their D&I data collection in order sooner rather than later. Collecting data regularly (annually), in a carefully considered way and reporting back to employees on areas that are being addressed creates a virtuous cycle of engagement and improvement. Firms may find themselves in a difficult position if they have to provide hastily collected data to a regulator or investor which shows a lack of diversity.