The Value of ESG: Why Box-Checking the ‘S’ Isn’t Enough

We asked our network how companies are actively creating more diverse workplaces

With much rhetoric around diversity and inclusion in the alternatives investment industry, managers are showing positive signs of making these efforts official policy. But there’s still room for improvement. Code of conduct policies and formal initiatives around broadening firm diversity are common among mid- to large-sized alternatives managers, while female board representation is less so.

A look at Preqin’s ESG Transparency Indicators shows that nearly two-thirds of managers globally with more than $1bn in alternative assets under management have formal code of conduct policies. Additionally, across that group, 44% can claim formal diversity policies, and only 25% have female representation on their board of directors.

As these social issues come more into focus, companies find that box-checking is not enough – they need to show real progress toward creating a more diverse workplace. Beyond ethics, GPs are realizing that these practices help significantly in recruiting and retaining talent. And, very likely, capital commitments.

To look beyond the data, we asked our Preqin Expert Voices network what progress they have seen in the alternatives industry, and where there’s room for growth.

Jenn Lundmark, Global Head of Distribution, Private Markets at Manulife Financial:

Cultivating a diverse, equitable, and inclusive environment helps all our employees to thrive. Manulife is committed to investing more than CAD 3.5mn over the next two years to promote diversity, equity, and inclusion (DEI). Today 46% of our independent board members are women, as are 43% of our Managers, Directors, and AVPs. We’ve established leadership goals to increase BIPOC representation in our leadership roles to 30% by 2025.

While we’ve made progress in some areas, we know we have more work to do and are committed to addressing the needs of our employees, ultimately fostering a culture of inclusivity within all communities where we operate.

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Laura Dietzel, Partner at RSM:

It’s been said that the 2020s will be known as the ‘decade of ESG.’ It’s no longer sufficient for managers to simply have a thesis around ESG. Investors and employees alike are looking for managers who have made investments in their organizations to drive results around their environmental, social, and governance initiatives. In doing so they recognize that in the market ESG provides an opportunity to connect with stakeholders and can ultimately drive superior results. 

The appetite of the current administration to push forward regulation around ESG is immense, and the question now is not ‘if’ but ‘when.’ While most managers understand the importance of ESG, we’ve been in an environment where public pressure continues to mount for industries to not only adhere to ESG initiatives, but also to track and report on their progress around these critical initiatives before these become required and managers are caught off guard.

The key to executing on a successful [ESG] strategy will be the ability to attract and retain diversity in talent not only by gender and ethnicity, but also through actively seeking diversity in thought. This focus will require corporate thoughtfulness and healthy conflict introduced into the C-Suite to ensure that leaders are not managing in an echo chamber. With women and minorities only controlling less than 2% (World Economic Forum) of US investments today, we have a long way to go.

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Shifra Ansonoff, Global Head of Research & Data Operations at Preqin:

In broad strokes, the industry is coming along. Things have changed a lot since the times when we wouldn’t talk about our private lives at work, as there were real biases against women with families at home. There’s been an increase in social awareness since COVID-19, as working from home saw equilibrium being found between partners in domestic tasks and responsibilities. Going to a system of hybrid working will hopefully allow some of this change to continue, as people of all genders can be more present in homecare responsibilities when commuting is a rarer occurrence. 

Recently, the SEC has approved Nasdaq’s push to require gender disclosures in its listing rules, but there needs to be outreach before a company’s board level. Change could be achieved at all levels in the industry through mentorship, and even more so through sponsorship (where sponsors actively champion their charges in the workplace). It’s pivotal that women have role models to inspire them and advocates to support them, especially in their formative years. 

If you’re a leader in the alternative assets sector, or an expert in your niche, we invite you to get more involved with our content, including reports and Preqin Expert Voices, our network of global thought-leaders with great ideas to share.