UE-EN Institutional

Lacking in diversity? No more excuses.

After the sea of change that was 2020, Nalini Feuilloley, Director of Responsible Investment (RI) and Rosa van den Beemt, Vice President, RI analyst at BMO Global Asset Management, give their assessment of why diversity and inclusion should be up on the corporate agenda this year.
January 2021
Nalini Feuilloley

Nalini Feuilloley

Director, Responsible Investment Team


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After the sea of change that was 2020, Nalini Feuilloley, Director of Responsible Investment (RI) and Rosa van den Beemt, Vice President, RI analyst at BMO Global Asset Management, give their assessment of why diversity and inclusion should be up on the corporate agenda this year – and what institutional investors globally can do to participate in this long-overdue industry shift.

Branching out on diversity

The topic of diversity and inclusion (D&I) has recently come to the forefront for institutional investors, and much of this can be attributed to an expanding school of thought. Where previously the focus was mostly on gender, D&I efforts have now expanded to focus on many other underrepresented groups globally. 2020 was a pivotal turning point: we saw COVID-19 have a disproportionate effect on vulnerable communities, while the anti-racism protests this past summer were together huge catalysts for bringing inequalities to light, underscoring the need to make D&I a greater priority.

The expectations for companies and asset managers alike have finally changed. Collectively, we have reached the point where society is not willing to stand for any more excuses, including weighing the relative costs of D&I vs. meritocracy.

The impact has been undeniable so far. Corporates (and their investors) are now more than ever under the microscope from a reputational risk perspective when it comes to prioritizing issues around racial inclusion, worker protections and pay equity. In such a short time, companies worldwide have already made a public effort to showcase their diversity, asserting commitments to address the tangible issues.

However, more transparency is needed to assess how well words align with actions. We want to witness the effects of D&I throughout every level of an organization – beginning from top board rank to the general workforce – which would ultimately support companies “walking the talk” and mobilizing around this broader definition of diversity.

Why it’s a corporate differentiator

Rather than being reactive, proactivity can go a long way in terms of addressing discrimination and the realities of D&I – and there is a business case to be made for it.

According to a recent McKinsey & Company study, the statistically significant correlation between business performance and diversity persists, and it’s not just about gender: companies in the top-quartile for ethnic/cultural diversity (e.g., LGBTQ; age/generation; international experience) on executive teams were 33% more likely to have industry-leading profitability.1 The research showed that diversity at all levels combats tunnel vision, fosters innovation and can lead to better identifying opportunities and risks.1 Those companies which are actively trying to move away from the “group think” mentality also tend to have better brand and employee engagement and healthier work cultures.

In addition, businesses in the bottom quartile for both gender and ethnic/cultural diversity were 29% less likely to achieve above-average earnings.1 As the diversity issue gains traction, a corporate that is behind the curve in terms of its approach may soon be seen as a laggard. This could negatively impact consumer, employee and investor perceptions, as evolving stakeholder demands have made diversity (beyond gender) a key corporate differentiator.

The challenges ahead – and how to engage

Greater progress needs to be made, and one of the most significant challenges of realizing this growth is the varying levels of (un) available diversity data. South Africa has historically been the only market where companies disclose more robust information on the topic, while the U.S. has seen recent strides as a result of regulatory efforts, particularly in California, where new law requires publicly-held companies headquartered in the state to include board members of underrepresented communities. Canada is quickly following behind, with the Canadian Business Corporations Act (CBCA) now requiring its listed companies to disclose data around board diversity of underrepresented groups (including women, indigenous peoples, persons with disabilities and other visible minorities).  

Still, the current reality is that racial or ethnic diversity in the workforce, particularly at corporate leadership levels, is significantly behind recent achievements made on gender representation (the latter of which is still not where investors want it to be). In Canada, where Indigenous people make up close to 5% of the population, they constitute far less than 1% of senior executives and board members.2 That indicates there are structural barriers to advancement.

The fact is that we have yet to fully unwind some of the old-school thinking and frameworks in terms of how board members and C-suite professionals are selected. This is where engagement comes in – from strategy setting at the top to defining measurable targets, which are then woven into hiring practices and other operational processes. Greater transparency, in the form of measurement and disclosure, are important first steps in being able to achieve further advancement. That is why we support programs like the Workforce Disclosure Initiative, encouraging companies to participate and provide more meaningful information on workforce management.

To help institutions determine what types of diversity to encourage at investee boards, senior leadership, and other levels of the organization, we’ve included the following questions to start the process, which can also be found on the RIA website:
  • What is the cultural or socio-economic context a company operates in and how are related challenges addressed?
  • What is the company’s geographic footprint and customer base, and is this reflected in its workforce and leadership?
  • Does the company’s workforce and leadership reflect the diverse make-up of society in the region it operates?
  • Are there sector-related material ESG challenges that a specific mix of diverse talent can better help address?
  • How does the company report on its diversity performance across the workforce, and on diversity and inclusion efforts?

Accountable to ourselves first

While engaging with and educating investee companies is a start, it’s also about examining ourselves as asset managers. The fact is that the diversity statistics in our industry are quite staggering and disappointing: despite the growing number of mutual funds and ETFs, the percentage of female portfolio managers hasn’t changed in 20 years, at 14% at the end of 2019, based on a global database of more than 25,000 fund managers.3

However, what we’ve seen over the last few years in particular has been an upward movement toward manager diversity, triggered by institutional investors putting pressure on us to report on our own stats as they relate to the issues. A decade ago, a typical request for proposal (RFP) was focused entirely on tangible performance results related to the product in question, whereas now we’re shifting to questions tied to corporate culture, and D&I numbers across our own organization. How many women are on our board? What is the LGBTQ representation in the workforce? What type of diversity programs do we have in place?

Finally, the industry is recognizing that we are just as accountable as the companies in which we invest. Amid this shift, our new normal has resulted in some silver linings that we believe will push us further into the future. For example, the flexible work-from-home approach that emerged post-COVID has exposed a new opportunity set for talent that was not able to contribute in the past due to rigid, out-of-date structures, including stay-at-home mothers.

Pushing forward

At BMO Global Asset Management, our RI team is firmly advocating for expanding the business case of diversity – helping to solidify the broader definition, and acknowledging it as an area of improvement not only for our investee companies, but for ourselves.
In response to George Floyd’s killing, we signed the U.S. Racial Justice Investing Coalition (RJI) statement, which commits us to embedding racial justice into our investment decision-making process and stewardship activities. This was followed by us working with Canada’s Responsible Investment Association (RIA), to develop the Canadian Investor Statement for Diversity & Inclusion, which commits us to engage with Canadian investee companies on the issues and prioritize D&I goals within our own organization.
Our mission is to tackle all aspects of diversity and push boundaries – we are not staying at this 10,000-foot view of gender alone. Our team is proactively working to create a tangible framework for engagement to reflect these other areas, including racial justice and LGBTQ representation. Specifically, we have looked to educate ourselves on Germany’s incredibly advanced processes for fostering true diversity and inclusion in the workforce, collecting information on best practices that address systemic racism and discrimination globally.
We believe that as investors, we can contribute through constructive dialogue with our investee companies to advocate for the adoption of these practices, reinforcing this through our voting rights where appropriate. However, there is still much work to be done when it comes to advancing female representation and equal pay, and this will continue to be an area of focus for us, alongside pushing for equality and inclusion of Black and Indigenous people, People of Colour and those who identify as LGBTQ+. As we move ahead in 2021, we expect companies to continue prioritizing D&I on their agenda, and moving the needle on their commitments.

Dedicated to diversity: Women in Leadership Fund

Though our approach to race is less well-established, we have long been engaged on gender diversity. In 2016, we launched the Women in Leadership Fund, which seeks to invest in companies with strong female leadership representation (30% of the Fund’s holdings have women in C-suite positions).4 This is based on our core tenet that these businesses will benefit from diversity of thought and innovation, particularly in an age of increased technological changes and disruption post-COVID.

An example of a portfolio holding that has made significant headway in gender pay equality is global software provider Adobe, which continues to invest in building a diverse and inclusive environment. As of October 2018, in all 40 countries in which the company operates, men and women are paid the same for the equivalent job. It also identified and coined the new term “Opportunity parity” to ensure its employees are offered equal opportunities to advance within the organization, regardless of gender or ethnicity – and has announced several initiatives to support this goal.
To learn more about our steadfast commitment to diversity and inclusion and other ESG issues – including our dedicated RI approach and solutions suite – please contact your Regional BMO Asset Management Institutional Sales & Service Representative.


This material is intended for institutional/professional investors; and is being provided for informational purposes only. The investments and investment strategies discussed are not suitable for, or applicable to, every individual.
Certain of the products and services offered under the brand name BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. This material does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investment involves risk. Market conditions and trends will fluctuate. The value of an investment as well as income associated with investments may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is no guarantee of future results.
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