Asset Owners See Diversity and Inclusion as the Most Critical Component of ESG Measurement among Managers

November 17, 2021 — Boston

About one-third (34%) of asset owners view D&I as the most important criteria used to evaluate managers on ESG

Asset owners are implementing initiatives that will shape equity and equality across the asset management industry, employing measures that track asset managers’ articulated mission and culture toward diversity and inclusion (D&I). About one-third (34%) of asset owners view this measure as the most important criteria used to evaluate managers on environment, social, and governance (ESG) offerings, according to a new white paper, Diversity & Inclusion, authored by Cerulli Associates and sponsored by Russell Investments. The research was compiled from interviews conducted from mid-July to mid-August 2021 with leading institutional asset owners and asset managers. It also leverages data and insights from Cerulli’s existing suite of research on the institutional asset management space.

Asset owners’ methods of evaluating and measuring diversity among third parties are continuously evolving, according to the findings. As their methods evolve, they generally look to incorporate a deeper and more exhaustive analysis of diversity at third parties. The research provides several examples of asset owners expanding their considerations over time, starting by:

  • Assessing managers’ ownership structures before broadening the focus to managers’ entire organizations
  • Evaluating manager diversity in select strategies before broadening to an entire portfolio
  • Expanding the evaluation of diversity from managers to underlying investment holdings

“It’s clear that asset owners place high importance on measuring D&I across the asset managers they work with, but developing an industry standard approach remains a challenge,” states James Tamposi, senior analyst.

Asset managers are also increasingly considering diversity when making vendor relationship decisions. The research highlights specific efforts taken to measure D&I across trading firms, operational support providers, and companies used for ancillary activities. It also uncovers product development themes managers are exploring, which include gender (67%) and EEO diversity (60%). “Product development initiatives pointed toward D&I as part of a larger emphasis on ESG are perhaps most salient for asset managers right now,” comments Tamposi.

As managers revamp their focus, many are formalizing their approaches to promoting diversity internally, building systems, devoting resources, and developing processes meant to enhance and sustain efforts. “Asset owners and managers need to invest in this initiative for the long term with continuous oversight of processes and results,” adds Tamposi. The research cites organizational efforts such as nominating D&I committees to spearhead efforts, hiring executive heads of D&I, and collecting viewpoints from across organizations through employee-run committees or annual engagement surveys. “This inside-out approach will help organizations elevate viewpoints from diverse perspectives and could evolve into implementing measures to promote and sustain D&I across partners, peers, and other industry bodies,” concludes Tamposi.

Founded in 2021, Russell Investments’ 10x10 Partner Innovation Lab is a discussion of perspectives among 10 institutional asset owners and 10 asset managers.

  • Institutional asset owner participants include: Fujitsu Global, Mazda Motor Company, Microsoft, Mitsubishi Electric, Nestle, Roche, Robert Wood Johnson Foundation, The Boeing Group, The New York Presbyterian Hospital, Thomas Jefferson University, Unilever
  • Participating asset managers include: BlackRock, Brevin Howard, Hamilton Lane, Oaktree Capital Management, J.P. Morgan Asset Management, Morgan Stanley, Putnam Investments, RBC Global Asset Management/BlueBay Asset Management, Wellington Management, Western Asset Management

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Note to editors

These findings and more are from Cerulli-Russell Investments 10X10 Part 1: Diversity & Inclusion.

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