In addition to new data requirements, how asset managers consider DEI in their investment strategies and counterparties may also be creating change. Asset managers have been quick to institute proxy guidelines that push for greater diversity within public companies, even if that hasn't always been the case internally. Now, more asset managers are making sure their internal policies align with their proxy guidelines.
Changes to proxy policies have come on the back of moves by Institutional Shareholder Services Inc. and Glass, Lewis & Co., two proxy-voting firms that make recommendations on shareholder initiatives.
In 2021, Nasdaq Inc. changed its board requirements for listed companies, requiring that they have at least two diverse directors or explain in writing why they don't.
Abrdn PLC is one such asset manager in pressing for diversity in the companies in which it invests. In March, the firm, with £542 billion ($731 billion) in assets under management as of Dec. 31, announced that it would require the boards of companies that it owns in the S&P 500 and Russell 3000 indexes to have at least one racially or ethnically diverse member. The firm will vote against or withhold from the re-election of the nomination committee chair for firms that do not satisfy its requirements. It also requires boards of large-cap companies it owns to have at least 25% female representation, with an expectation to raise that threshold to 30% by 2030.
"We feel like these metrics are good ways for us to continue to engage with management and push for change," said Fionna Ross, Philadelphia-based senior ESG analyst-U.S. equities at abrdn. "At the start of the year, we wrote to the companies that we invest in and told them of the change and that we were aware of where they stood and we got a lot of good information about how companies plan to improve."
Abrdn also acknowledged that it was important to align its internal DEI efforts with its proxy guidelines for investee companies.
As such, the firm recently started reporting its EEO-1 data, a set of U.S. employment data that includes workplace demographics including data by race/ethnicity, sex and job categories, which is in line with its proxy policies.
EEO-1 data is used by regulators, investment managers and other investors to compare a company's efforts on DEI because it is a uniform set of data companies with more than 100 employees are required to report. Ms. Ross also notes that the firm's global workforce is approximately 46% female and its board is 45% female. Racial and ethnic diversity numbers have a way to go but are catching up. Abrdn has a target for ethnic minority board representation of 18%, which as of June 2021 was at 9%, according to its Diversity and Inclusion Report 2021.
"We are holding ourselves accountable. A few years ago, like our peer firms, the numbers weren't that great," she said. "But we are working to make improvements to our global workforce. We wouldn't have to vote against ourselves today, but there is still work to do."
Other firms are also looking at their vendors in an effort to build continuity with their diversity goals.
"I think there is an opportunity for everyone to do more. As a firm, we are working to improve, but asset owners could put more pressure on us and the industry as a whole — it will make the change happen faster," said Shundrawn Thomas, Chicago-based president of Northern Trust Asset Management, with $1.3 trillion in AUM as of Dec. 31. "I think the industry likes continuity, investors like continuity, but it's important that we aren't using that as an excuse."
In 2018, Northern Trust Asset Management instituted a diverse broker program to extend its diversity efforts into its vendor relationships. Mr. Thomas noted that the firm first set an explicit target of having at least 10% of asset management's overall business handled through the diverse broker program. In 2021, that target increased to 15%. Currently, approximately 18% of trading and execution is handled with diverse brokers. "We not only have been able to increase the number of participants in the program, but the amount of business we do with participants in that program has increased about sixfold," Mr. Thomas said.