By Elena Espinoza, Senior Specialist, Social Issues, PRI and Shaska Chirinos, Relationship Manager, Signatory Relations, Americas, PRI

“Research shows that diversity is good for business. When companies build a diverse leadership team, workforce and inclusive culture, they better position themselves to innovate, attract better talent, reach more customers, and increase productivity. That’s why my office assesses the diversity, equity and inclusion (DEI) of its investment managers and consultants, while of course, simultaneously balancing considerations related to cost, investment strategy, performance and various other factors. This helps us better identify value opportunities and high-potential partnerships. I applaud the work of PRI to empower investors with best practices for due diligence and help create uniform DEI evaluation standards across the industry.”

Illinois State Treasurer, Michael Frerichs

Diversity, equity and inclusion impacts all of our signatories and their activities, from how they treat employees, investee companies and beneficiaries, to how they meet and exceed broader stakeholder and regulatory expectations.

DEI is a crucial tool to generate long-term shareholder value and minimise financial, material and regulatory risks, as outlined in our recent report, Diversity, equity & inclusion: Key action areas for investors. DEI needs to be at the core of any relationship between investment managers, consultants and institutional investors.

Implementing DEI

But how to go about it? Finding a way to quantify and assess progress on DEI can be a challenge for any organisation. Beyond categorising people and looking at diversity characteristics, it’s important we try to understand the working culture and the organisational policies and processes that can create equity for employees.

Asset owners need to know what questions to ask, and of whom. For example, how are investment managers assessing and monitoring investee businesses? How do investment consultants search for minority-owned investment firms? How do investee companies recruit, retain and promote women and other underrepresented groups? Our new DEI-focused due diligence questionnaire (DEI DDQ) provides a template to do just that.

This DEI DDQ is designed to help asset owners better understand how managers and consultants approach DEI within their own organisations through their investment activities or the manager research process. The questions are intended to be used as part of RFPs, during one-to-one manager meetings or as part of an ongoing monitoring process.

As a result, this document will enable asset owners to build trust with investment managers and to check that their practices align with asset owners’ own policies, values and commitments.

Mapping to other frameworks

The DDQ references existing frameworks, as developed by industry groups, asset owners and asset owner initiatives. We encourage asset owners to review the questions in the DEI-focused and asset class-specific DDQs and select questions they deem most relevant to include in their own DDQs. To facilitate this, we have mapped out questions in this DDQ to those in related questionnaires in an appendix.

The DEI DDQ is divided into four sections: all organisations, private and public market investees and investment consultants. In line with the UN Guiding Principles on Business and Human Rights, the DDQ promotes integrating DEI across all major asset classes and it will be published in different languages to cater to our global signatory base.

Gathering the data

Like most ESG issues, global DEI data remains difficult to monitor and analyse, as it tends to not allow for disaggregation on grounds such as ethnic background or disability. We hope increased guidance on how such intersectional data could be collected plays a part in encouraging a continued focus on DEI across the broader financial industry.

The DDQ should support wider information-gathering. Therefore, investors are encouraged to:

  • seek additional information and clarification from investment managers and consultants after receiving the completed questionnaire, where necessary; and
  • consider what additional resources are available to better understand and analyse investment managers’ and consultants’ answers.

Approaches to DEI are continually evolving. As such, we will regularly update this DDQ to ensure it reflects new standards and reporting requirements.

Read the DEI DDQ

This blog is written by PRI staff members and guest contributors. Our goal is to contribute to the broader debate around topical issues and to help showcase some of our research and other work that we undertake in support of our signatories. Please note that although you can expect to find some posts here that broadly accord with the PRI’s official views, the blog authors write in their individual capacity and there is no “house view”. Nor do the views and opinions expressed on this blog constitute financial or other professional advice.If you have any questions, please contact us at [email protected].