Focus on the ‘I’ versus the ‘D’

In ESG Clarity Intelligence‘s September e-zine: ESG evolution explained: Unpacking the biggest developments in ESG and sustainable investing, Mitesh Sheth, Newton’s CIO of multi asset, talks about DEI and the investment industry.

Watch the full video interview above and read the transcript below.

Natasha Turner: To start us off, what does diversity inclusion mean in the context of the investment management industry?

Mitesh Sheth: I think the starting point is there’s been a mirror held up to the industry to say, how can there be so few women who are running money? I think it’s less than 10% in the UK that are actually named portfolio managers.

How are there so few black fund managers within the industry, and so on and so forth. That’s where the first kind of mirror has been held and the industry has gone: “Yeah, that can’t be by accident. There must be some structural reasons and/or barriers or kinks in the hosepipe that we need to address if we’re going to change that”. So that’s definitely where a lot of the effort has been that I’ve been involved with over the past few years.

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Beyond that, there’s the angle of, well in terms of the companies we invest in, how do we make sure that they are really tapping into these pools of talent and/or being more representative to their customer base and/or able to have a better governed team. And so there’s that kind of engagement piece in the companies we invest in.

And then there’s another level beyond that, which is, well, at the end of the day, we’re allocating capital on our clients’ behalf. How do we invest that capital in a way that leads to positive societal outcomes?

And that’s newer. I think impact investing is still a growing space and you’ll starting to see women’s empowerment funds, or you’re starting to see funds specifically targeted at a social issue. But I think that’s earlier.

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NT: So if you’re a fund selector looking at firms and wanting to assess how they were doing on any of those three ways of looking at DEI that you just mentioned, what would some of the things that they should look out for be? What would be some key words or actions that you would say show a positive attitude towards DEI.

MS: My number one hygiene factor question would be who is focused on the ‘I’ versus the ‘D’. So it’s one thing hiring more women in your graduate cohort, or bringing in more people of colour into your interview processes, or so on and so forth.

But the reality is we hear again and again that people that are minorities are coming into these organisations and not belonging, and not feeling like they belong and seeing a culture that doesn’t resonate with them, where their voice isn’t heard, where they are not able to speak up, where their differences aren’t valued.

And so that, for me, is the real acid test of whether a firm is taking this seriously – are they actually working on their culture.

The second thing I’d say is be wary of the data. Data is really important and I totally subscribe to the ‘what gets measured gets done’. But also data can lead to perverse incentives and skewed outcomes. And the data is still patchy. And the type of change we’re talking about is a change we haven’t made in all of human history.

And so we are probably not going to see massive changes year on year. And so I think there’s a lot of mis-expectation as to what might be, what change we might expect to see in a year or five years or ten years. And so again, in the time horizon of a fund selector, you’re just not going to see enough progress on the stats that you’re looking for.

But I don’t think you need to stop there. So last year, I worked with a group of amazing people who created the Asset Owner Diversity Charter and they brought together a variety of asset owners and then a variety of consultants and fund selectors to say, “What are all the questions you’re asking of fund managers in order to be able to see where they are on DEI“.

And we agreed that we could help the industry by asking a consistent set of questions so that you weren’t able to say, “But everyone’s asking for something different”, but actually drive consistency and therefore hopefully momentum to everyone knowing, okay, this is what people care about.