Nuveen’s Alex Prout on how investors are prioritizing DE&I

This article is sponsored by Nuveen

How important is DE&I for institutional investors when assessing a manager?

Different clients have different approaches when it comes to where they rank DE&I. But all of them are looking for value and performance. Our ability to deliver that starts with our people and how well we are able to develop a culture of excellence, inclusion and diversity within our organization. Diversity, equity and inclusion are fundamental to achieving that.

Are there notable differences in investor attitudes towards DE&I from a geographical perspective, or by type of institution?

Thankfully, I think the understanding of this issue is now pretty much universal. It started with the demands clients placed on their asset managers with the rise of ESG and responsible investing. Those clients are now saying that not only do we need to put their money to work in a responsible fashion, but we need to walk the walk internally as well. Part of that is ensuring that we are building best practices around DE&I in our own organization. We can’t just be holding the companies we invest in accountable by looking at diverse representation on their boards and in their senior leadership teams. We have to turn that lens on ourselves.

And, of course, we also believe that DE&I is linked to business and investment performance. All the studies show that diverse teams perform better, are more productive and more efficient. It makes business sense, therefore, that we are intentional about creating a level playing field and ensuring equitable systems and processes for all our talent.

Have the events of the past 18 months created additional momentum?

It has absolutely created a sense of momentum and of urgency. Initially clients’ focus on ESG began with the E component. It was all about climate and protecting the environment. After the summer of unrest of 2020, there has been a much greater focus on the social and governance components. The data around covid-19, in particular, clearly shows that women have been disproportionately affected and I think that has renewed clients’ scrutiny of how we are able to deliver a positive impact on our society whilst continuing to deliver investment results. And we have no doubt that there is complete alignment between those two goals.

Is a poor track record on DE&I now becoming a deal breaker for investors?

I think we are still at the start of the process and the emphasis is on accumulating data. As we progress, that may develop into a negative screening tool – a way to exclude managers – or it may become something that tips the scales where you have equally excellent investment capabilities on the table. If one manager is delivering financial results, alongside a focus on DE&I, hopefully that will become a tiebreaker.

Do investors still primarily think about diversity in terms of gender? How can we move the conversation on to incorporate less visible forms of difference?

Ultimately, we want to build teams and organizations that reflect the society that we live in. The hope is that we continue to expand diversity implementation as far as we possibly can, whether that involves gender, race or any other form of diversity, including age.

Our firm leads with inclusion as evidenced by the name of office of inclusion, diversity and equity. But, right now, the most obvious lens is gender. There has been a lot of research focused on gender pay gaps and the disparity in representation at a senior level, so I think gender is the launchpad. But obviously we have a great deal of work to do across the whole spectrum of inclusion, diversity and equity.

What kinds of questions are investors asking of their GPs?

I view this as your typical onion peeling exercise. It starts with looking at board level and management team diverse representation, and then extends to the wider organization. Some of our clients are focused on the corporate level, others take an investment team approach. But while transparency around that data is important, it is just as important for investors to understand where a manager is heading. What are they committed to and how are they going to achieve that? Those are the sorts of questions that are starting to emerge.

What appetite do you see for impact strategies with a gender or ethnic lens?

First and foremost, both ourselves and our clients are fiduciaries mandated to provide investment returns. That underpins everything that we do. But we do believe that looking at investments through a responsible investment lens is something that enhances our ability to understand risk and return. We also see that more and more clients are building impact into their investment allocations and we welcome the opportunity to work with them on that.

How can investors and managers collaborate to make further progress in improving DE&I within the asset management industry?

Our clients hold us accountable for delivering investment returns. And, with the evolution of ESG over the past 15 years, those clients have also begun to hold us accountable for ensuring their money is invested in a responsible fashion, whilst still delivering those appropriate risk-adjusted returns.

The same thing is now starting to happen with DE&I. Clients are saying that they want to work with firms that are building diverse, inclusive and equity-focused organizations and that are committed to creating a level playing field where every employee, regardless of a self-identified gender, race or ethnicity, can reach their full potential. That is something that our industry should be embracing, and we should be working collaboratively to make sure that happens.

What potential could enhanced DE&I in asset management ultimately have for the economy and society?

I think that we all understand that this is the right thing to do, and we now have the data to prove that diverse workforces are better performing entities. But there is still a long way to go. Our workforces, for the most part, do not represent the society we function in and so we have to work hard at every level, from the sourcing and hiring of diverse candidates, to providing that pathway to advancement and addressing unconscious biases, so that we can build a truly equity-based system where talent can rise.

Is that positive correlation between DE&I and performance now universally accepted by investors?

There has been some very interesting work done by the Thinking Ahead Institute. Their thesis is that culture equals investment alpha. Teams that outperform from an investment perspective are underpinned by a strong culture and diversity, equity and inclusion is one of the key measures they use to identify or quantify that culture. We participated in their inaugural survey and were one of the more highly rated firms. We would encourage more organisations to find that linkage, and to quantify it, because it is vital that we spend time developing our culture, values and people.