ILPA: Investors want your DEI data, good, bad or ugly

Institutional investors understand that many private asset managers don’t have strong diversity numbers to report. But limited partners continue to push for higher standards of data disclosure in order to establish a baseline, according to a senior representative of the industry group ILPA.

A manager’s “resistance to providing metrics” related to diversity, equity and inclusion often comes from “a supposition that my numbers look bad, and I will be penalised,” Jennifer Choi, head of industry affairs at the Institutional Limited Partners Association, said during a webcast hosted by PineBridge Investments. She added that LPs are “still very much in the mindset of ‘we’re level-setting here.’”

“We’re trying to establish a baseline. We know the numbers don’t look good […] it’s important that we own that,” Choi explained during the panel, part of a review PineBridge’s annual survey of general partners on ESG issues.

This year’s survey focused on DE&I and found that only around a third of the 68 GP respondents from across global markets regularly ask diversity-related questions when conducting due diligence.

“We want to make sure that this is not a conversation [for which] we continue to kick the can down the road, but really start to think about in terms of standardizing the metrics,” Choi said.

Reporting standards for overall ESG performance in private markets has lagged compared to more tightly regulated public markets investors. Firms have been quicker to adopt norms for collecting and disclosing environmental data than information related to hiring diversity, staff inclusion and equitable investing. A wide range of frameworks and initiatives now exist for tracking metrics like carbon emissions, but incorporating specific DE&I questions in due diligence requirements is still not common practice.

“We don’t have great quantitative information,” Choi explained. “But qualitative information is just as important, if not more right now, in those conversations between allocators and managers.”

ILPA, which began recommending that investors include diversity questions during due diligence in 2018, recently updated its guidelines to help investors collect “sensitive” diversity information from their managers. ILPA has moved away from country-specific race and ethnicity designations and added more options for sexuality and gender identification as well as people with disabilities.

“The messaging behind all of this is that the best practice really is to ensure that this is voluntary information, it’s self-identified,” Choi said. “Not everybody necessarily wants to ask the question, but we felt like it’s important to normalise the fact that these are aspects of how people identify. They do have a meaningful and material impact on the lived experience.”