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UK pensions create diversity reporting framework to monitor GPs

The Asset Owner Diversity Working Group unveiled a new initiative seeking to standardise diversity metrics that pension funds collect from fund managers.

A group of pension funds in the UK has agreed to implement a new reporting framework, unveiled on Monday, to standardise how fund managers disclose diversity metrics.

UK pension funds representing more than £1 trillion ($1.4 billion; €1.2 billion) in assets have signed a “diversity charter”. Created by the Asset Owner Diversity Working Group, the charter supports new reporting measures to evaluate GPs based on their inclusion of people from different backgrounds in the workplace, according to a statement the investors released.

The working group consists of six pension plans which collaborated on developing a framework for collecting diversity metrics from new and ongoing GP relationships. Their plan is to produce an annual report that will help standardise key diversity metrics, improve data disclosures and “hold firms to account for ongoing progress” towards including more women, people of colour, sexualities and socio-economic backgrounds, the statement said.

The Asset Owner Diversity Working Group comprises: Brunel Pension Partnerships, Lothian Pension Fund, Nest, RPMI Railpen, West Midlands Pension Fund and London CIV.

Diversity, equity and inclusion initiatives have been gaining traction throughout private markets, especially over the past year, as investors give greater priority to ESG, impact and sustainability best practices.

There is a growing body of research emerging that shows diverse businesses with leaders from differing backgrounds outperform their less diverse peers. A study conducted by the industry consultant McKinsey & Company was cited in the statement and reported that top-quartile companies in 2019 for gender diversity on executive teams were 25 percent more likely to generate above-average profitability. The top quartile of ethnically diverse companies outperformed those in the bottom fourth by 36 percent, according to the study.

Helen Price, stewardship manager at Brunel Pension Partnership, who is co-managing the Asset Owner Diversity Working Group, said investors need better standards and organisation to keep track of GP’s DE&I efforts “given the slow pace of progress in this area”.

“By asking for this information, fund managers will have to confront poor performance and begin taking much needed action on diversity,” she said in the statement.

A report published in March by the British Private Equity & Venture Capital Association found that women held 10 percent of all senior investment roles within the UK’s private equity and venture capital industry while Black and multi-ethnic individuals accounted for 1 percent. More than half of investment firms consist of all-white teams, according to the report.

David Hickey, a portfolio manager at Lothian and Price’s co-manager of the Asset Owner Diversity Working Group, said it’s “reasonable” for pension members to expect their money to be managed by people that “reflect the diversity in the scheme”.

“At the moment, this is not the case across pension schemes in the UK,” Hickey stated.

The diversity charter provides UK pensions with a questionnaire for fund managers to complete along with a supporting document to help with manager monitoring and selection. The following questions are included:

  • Please outline your approach to encouraging diversity, in all its forms, and healthy human capital. Please disclose current diversity projects and outline any specific commitments relating to these issues and how you measure and report on their success. (Include any supporting policies).
  • What actions have you taken in the last 12 months to improve diversity and inclusion within your organisation? What improvement have you seen?
  • What key steps are you taking to make progress against your targets? If targets have not been set, please detail why.
  • How do you ensure your recruitment process is as open and unbiased as possible?
  • How do you ensure that your annual review and promotion process is as open and unbiased as possible?
  • How do you ensure equal access to monitoring?
  • What training do you carry out/what processes have you put in place to minimise the risk of unconscious bias throughout your organisation?