CalPERS chooses carrot over stick on DE&I

Two large institutional investors – $490 billion CalPERS and $270 billion Office of the New York City Comptroller – described their approach to increasing diversity, equity and inclusion in the asset management industry as part of a discussion for affiliate title Responsible Investor’s RI USA 2021 virtual event on Wednesday.

The investors are going about achieving the same goal in different ways.

“The best carrot I think we provide to our external managers is that we’re going to be here with you. We’re going to help you through it. We’re going to engage with you. We’re not going to embarrass you,” Marlene Timberlake D’Adamo, CalPERS’ chief DE&I officer, said during the panel.

CalPERS is an influential private markets investor – its private equity and real estate programmes, for example, are among the 10 largest globally according to PEI Media rankings (subscription required).

CalPERS previously pushed divestment as its preferred method for dealing with GPs and portfolio companies that did not improve on expectations set for increasing board diversity, improving hiring practices, and improving carbon emissions. “We’ve realised that engagement is a better strategy for, essentially, getting folks to do what you want them to do,” Timberlake D’Adamo explained.

While she acknowledged that “engagement, as we all know, takes longer”, Timberlake D’Adamo added: “Part of what we are trying to do is understand what are the specific challenges that managers face and then help them through awareness, through experience.”

Different approach

Michael Garland, assistant comptroller for NYC’s pension funds, described a more stick-based approach in relation to the investors’ public company portfolio. He said NYC funds are among the most active institutional investors to file shareholder proposals with the Securities and Exchange Commission. For the 2021 proxy season, Garland said, the LP has filed proposals for 48 companies, with 42 related to employee or board diversity policies and disclosures.

Another initiative undertaken this year was to call on 68 S&P 100 companies that issued race, equity and diversity statements in 2020 to disclose their Equal Employment Opportunity reports, which break down the composition of a company’s workforce identity.

“Our effort was to hold these companies accountable for their statements,” Garland said. “Today, all 68 of our focus companies have either disclosed or committed to disclose their EEO [reports].

“We’re hopeful that disclosure is becoming a market standard, certainly among the largest companies,” he added. “There’s clearly strong investor demand for these disclosures.”