Tackling the diversity data challenge

Strong Diversity, Equity, and Inclusion (DEI) practices are a sign of well-run teams and can lead to better investment outcomes. But the data availability varies between companies and regions, and this can lead to difficulties when assessing portfolios against DEI criteria. As interest continues to grow among investors, asset managers must find new ways to incorporate this emerging priority into their decisions.

Why inclusive cultures matter

Managers who embed DEI principles into their approach are seeing favourable results. Inclusive environments foster thoughtful debate, better decision making, and superior outcomes for clients. A more diverse talent pool can also boost employee engagement and improve stability. The most looked at characteristics are gender and ethnicity, but other attributes can be considered where the data is available.

How DEI is measured

DEI assessments tend to look at whether an investment team exhibits a diverse pool of knowledge and if these attributes are put to good use. The corporate culture of the organization will also be considered. Some clients seek to invest in strategies where the portfolio performance is driven by individuals from an underrepresented group, driving further analysis of ownership and product leadership.

The lack of consistent metrics means that sometimes more qualitative judgements are required. The way in which diverse views are integrated into investment decisions is important. Leadership style, tenure, and the job functions of underrepresented groups are also part of how inclusive corporate cultures are measured.

The importance of gathering this information must be balanced against the sensitivity that can come with identifying individuals’ gender and minority status. Given the data shortage, especially at product level, perfect transparency may be impossible. But investment managers and industry partners are working to improve the processes used to gather and assess DEI statistics.

Why gathering DEI data is difficult

The information required is personal and some respondents are reluctant to share. Responses tend to be greater for questions around gender rather than ethnicity. Also, the disclosure is greatest in the US, where the definition of ethnic minority is more established than some other countries

Improving DEI disclosure has been an issue throughout the industry. Asset managers are often more comfortable disclosing their DEI statistics in non-public platforms. The recent Russell Investments ESG Manager Survey included several DEI questions and was sent to 369 managers around the world. 92% provided a response to questions about gender diversity within their investment teams, and 73% for the ethnic minority status questions – a much greater response than on public platforms.


What the industry is doing to improve transparency

The Institutional Investing Diversity Corporative (IIDC) aims to promote greater diversity in the institutional asset management industry by advocating for access to data that would capture multiple dimensions of diversity. Members meet regularly to discuss key initiatives and specific action items that can encourage asset managers to offer more robust and comprehensive diversity data.

There is a need for a global standard in DEI data disclosure practice while recognizing legal limitations and definitional differences across countries. The IIDC continues to focus on traditional asset manager diversity data collection as a top 2022 priority and is also expanding its efforts to alternative asset managers.

Another example of industry engagement is eVestment, a global provider of investment analytics. In late 2020, it launched a consultant board including membership from a broad range of leading investment consultant clients. Board members provide strategic input to eVestment on the evolving data needs of consultants and have regular opportunities to discuss and analyse dynamic trends in the institutional market. A key focus for the board has been to develop strategies to influence and improve data disclosure amongst investment managers on ESG and DEI.

Progress has been made, but challenges remain

While considerable progress has been made in the last 10 years on ESG metrics, such as carbon emissions, DEI data remains sparse. A key driver of this discrepancy is differences in regulations: it is illegal for companies to collect and/or disseminate diversity-related information in some countries, notably within Europe. This makes it challenging to achieve consistent diversity data across a global portfolio, and this is a fundamental difference compared to carbon emissions.

Countries that allow, or even require, the collection of DEI data differ in whether that information needs to be publicly disclosed. For example, companies governed by the Canadian Business Corporations Act are required to publicly disclose statistics on visible minorities. In the United States, all corporations with more than 100 employees must collect and report racial demographics to the EEOC. A key difference in the US however is that none of this data needs to be disclosed publicly. While most companies already have the data at their fingertips, still the amount shared publicly varies considerably.

As of February 2021, MSCI found that 76% of US firms in their sample (MSCI USA IMI constituents) were disclosing their workforce gender breakdown but only 26% disclosed race or ethnicity figures1  - and these numbers have improved considerably over the last 5 years. In 2015, research from Sustainalytics2  found that only 9% of the 685 North American companies in their sample disclosed race or ethnicity data. By 2019, the same sample of firms was up to 39% reporting race and ethnicity stats. In Europe, the new Corporate Sustainability Reporting Directive requires companies to disclose board member representation and unadjusted gender pay gap, but not workforce diversity stats. To complicate further, in some European countries collecting workforce diversity data is illegal.

The bottom line

Strong organizations, including corporations and investment teams, benefit from a genuine emphasis on Diversity, Equity, and Inclusion. Due to very low coverage and different stats being available in different regions, it is challenging to provide meaningful portfolio-level reporting on diversity. The best way to solve the data problem is through effective engagement with both companies and industry bodies like the IIDC. We should anticipate considerable improvement in data quality in the future, especially given the meaningful progress made in just the last few years. 

Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.

1 Race & Ethnicity Disclosure: US Companies’ Rocky Start, May 19, 2021. Christina Milhomem, MSCI Research Investing in racial diversity:                                                                                                                         

2 North American equities, Aug 10, 2021. David Frazer, Nonvignon Kpadonou, Martin Vezer, Sustainalytics Research .