Reboot – Senior financial services leaders align for greater transparency on ethnicity pay gap reporting

by | Jun 28, 2023

  • Asset managers can play a key role in making ethnicity pay gap reporting more widespread
  • Leaders suggest six steps to address racial inequality in the UK workplace 

Transparency of company employee data is key if UK companies are going to effectively tackle racial inequalities within the workplace, according to a panel of the UK’s top investors. 

In a roundtable1 hosted by Reboot, a campaign group of senior financial services professionals working to maintain the dialogue on race and ethnicity in the workplace, senior figures from leading investment and lobbying groups such as LGIM, Nest, State Street, Invesco, Newton IM, CIPD and others, discussed how the industry can better work together to support race equity. 

The roundtable highlighted the crucial need for transparency among UK businesses if it is to successfully address race inequities in the workplace, particularly through disclosure of ethnicity pay gap reporting. As this reporting is not yet mandatory, unlike gender pay gap, engagement from asset managers, on behalf of their clients, becomes a strong catalyst for adoption.

However, the industry itself needs to address its own issues with diversity. Reboot’s latest Race to Equality in UK Financial Services report2found seven out of ten (68%) of ethnic minorities had experienced bias at work in the last year, while nearly half of those surveyed, believe those from ethnically diverse backgrounds are not offered as many career opportunities as white colleagues.

Using insights from the discussion, the participants identified six critical steps for asset managers to help tackle the race inequality problem:

Next (six) steps

It is important to ensure momentum continues, here are six possible steps for asset managers to help tackle the racial inequality problem.

1.      Use your role as shareholders to actively engage with portfolio companies on their DEI data, including ethnicity pay gaps: where relevant and material, shareholders can engage on ESG issues with holdings in order to drive long-term performance. 

2.      Be consistent with the data/metrics you ask for: the approach should not be fragmented or burdensome on the company. The Asset Owner Diversity Charter is an example of asset owners, consultants and other fund selectors working together in a coordinated way to improve the quality and consistency of disclosures from asset managers. This could offer a valuable blueprint for investment managers to agree upon a consistent approach to receiving data from portfolio companies removing fragmentation and the burden of companies having to collect data in multiple ways

3.      Make it a board level priority: ethnicity challenges should be assessed and measured in the same way as gender pay gap reporting has been embraced within UK board rooms. 

4.      Engage and educate your own employees on the role of data collection: ensuring employees not only know the benefits of self-identification, but that they feel comfortable doing so. According to Reboot research, one-fifth (17%) of Financial Services employees said they felt they were unable to self-identify within their workplace, with almost half (45%) claiming that the lack of purpose is preventing them from doing so.

5.      Maximise the data you have to identify and tackle the gaps:  understand and research resources available (see below). What is important is to produce and publish an accompanying narrative and action plan as to how the pay gap will be met. While this may seem implicit or obvious, experience and research suggest that unless it’s emphasised and highlighted, companies are likely to just to publish the data with no action to address. 

6.      Lead from the top, and don’t be afraid to talk about race and ethnicity: Many companies fear if they are proactive to support this cohort, they will have a reputational issue because their numbers do not reflect a diverse employee base. This is counterproductive as not many organisations have a truly diverse employee base at all levels. We encourage corporates to be allies and take real action by reporting on it as this a step in the right direction. 

Key insights from roundtable participants:

Justin Onuekwusi, co-founder of #TalkAboutBlack and Reboot ambassador, commented: “There is not one solution to this challenge, it is complex. #TalkAboutBlack has identified the kinks in the hosepipe4. 

“If you’re going to help un-kink the hose, you need to know what the kinks look like. Over the years, the kinks have a cumulative effect: those children who have no role model, who don’t get the mentoring they need and who never make it onto the corporation’s radar or wish list, do not get hired or promoted. Unkinking one kink isn’t enough. The central premise is that every single one of those kinks needs to be addressed or, still, no water will flow.”

Stephanie Butcher, Senior Managing Director & Co–Head of Investments at Invesco, commented: “Making continued progress in DE&I in our industry is going to be key to ensure future success. There is no doubt that a more diverse and inclusive asset manager will be in a stronger position to serve its clients and deliver better outcomes. We’ve had several initiatives focused on advancing women in the past decade and are broadening our focus to ensure equity and advancement for employees of colour. As organisations begin to collect demographic data on their employees, ethnicity pay gap reporting could serve as a useful tool in identifying and addressing potential gaps to ensure we create a more equitable industry in the future.”

Noreen Biddle Shah, Founder of Reboot and Head of Corporate Communications at Numis, commented: “By leveraging the considerable influence large investors have through shareholder engagement, they can play an important role in improving standards within companies. However, the industry also needs to look at its own DE&I practices in tandem with this and show it is equally as committed within its own workforce. 

Ethnicity pay gap reporting will bring to light the discrepancies on a wider scale, but it is how we respond to it – through tone from the top, quotas, practical actions, better integration/understanding between minorities and the majority etc, – that we will start seeing sustainable and tangible change.”

Mitesh Sheth, Multi-Asset CIO at Newton Investment Management commented: “The Asset Owner Diversity Charter is a great example of collaboration across asset owners, consultants and fund selectors who have come together in a coordinated way to improve the quality and consistency of disclosures. This an important step in helping the industry to address diversity issues and support race equity on a much larger scale.The Charter could offer companies a valuable blueprint for consistent reporting, helping remove the often difficult and complicated process of collecting data in multiple ways.”

Rick Lacaille, Global Head of ESG, State Street, commented“There is a growing awareness in the financial sector that more light needs to be shed on pay equity in order for better practices to develop quicker. This has the potential to improve corporate performance, investment returns and the credibility of the financial industry in the UK overall”.

Sachin Bhatia, EMEA Head of Consultants & UK Pension at Invesco, commented: “While it is good to see discussions like this taking place and attention being paid to this issue, it is clear there is more that needs to be done across the financial services industry. Recent ongoing discussions and developments at a legislative and Government level will definitely help in keeping the momentum going around this topic. However, we should not just focus on the data, but also the cultural and behavioural issues which persist in our industry. We should seek to find ways so we can collectively address these to ensure good talent is recognised, rewarded accordingly and able to progress.”

Diandra Soobiah, Nest, commented: “At Nest we want to invest our members’ money into resilient companies, ones which employ people from a diverse range of skills, backgrounds and experience. Companies which represent the wider population should be in a better position to meet the needs of their customer base and adapt to challenging environments, allowing them to remain profitable. 

“Ethnicity Pay Gap reporting is an important metric which we’ll be using to understand how diverse a business is. Any company unwilling to share data on their diversity is a red flag for us – we want to hear how companies are being proactive in overcoming any barriers, not shying away from addressing them.”

Charles Cotton, Senior Policy Advisor Performance and Policy, CIPD, commented: “The CIPD is proud to support ShareAction’s Investors toolkit and welcomes the adoption of our recommendation of aligning ethnicity pay gap reporting to gender pay gap reporting. The CIPD encourages employers with more than 250 staff to ensure that as part of their wider equality, diversity and inclusion strategy, ethnicity pay gap reporting is used to tackle workplace inequalities. The reporting must also include a narrative and action plan for it to help deliver improvements in equal pay outcomes.”

Amelia Tan, Head of Responsible Investing Strategy, Legal & General Investment Management, commented: “LGIM have been long-standing advocates for cognitive diversity through a mix in skills, experience and perspectives as a critical driver of long-term success in companies. While some progress has been made in gender diversity, we recognise that there is still much to do, particularly in ethnic diversity. 

“Since 2020, we have been engaging with companies on their commitments to ethnic diversity and have sought more transparent reporting. We believe that our industry should hold ourselves to those same standards. Our Count Me In initiative, as part of Legal & General Group, has seen 81% of employees sharing their ethnicity information, and we are supplementing these with qualitative insights to better inform our diversity and inclusion strategy. These are early days, but it is our belief that these initial steps are important to our firm, our industry and our society.”

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