Diversity and sustainability: a powerful combination for competitiveness
Both are needed for the future of the asset management industry and its ability to serve clients
There are currently several important disruptive trends in the asset management ecosystem. Some of them, such as pressure on fees, are clearly linked to the atypical current macro-economic environment with “lower for longer” interest rates. Some are linked to longer term trends unfolding methodically and paving a new path for the industry, such as demographics, technology and climate change. Because of their long-term nature, those trends are often disregarded until they become “today’s reality”.
As far as diversity and sustainability are concerned, I believe that the day of recognition has finally come: not only are both needed for the future of our industry and its ability to serve clients, but they can also create a powerful combination leading to enhanced competitiveness for firms who can leverage them in an authentic way. With over US$80 trillion in assets represented by United Nations-supported Principles for Responsible Investment (UNPRI) signatories, the message from asset managers and asset owners is clear.
An acceleration of ESG investing
The new normal in asset management is here, and it is about sustainability. Climate change and technology are the basis for an acceleration of the change towards sustainability, and environmental, social and governance (ESG) investing. Interests from clients, asset owners and asset managers are all converging. Given systemic climate risks and the potentially disruptive pressure points ahead, it is likely that adopted benchmarks will increasingly reflect tomorrow’s sustainable opportunity sets and, therefore, accelerate change in the way assets are managed.
The power of diversity
Authenticity and alignment are, as we know, keys to success. Therefore, it is critical that asset management firms not only provide their clients with sustainable investment solutions, but reflect on their own sustainability, management style and diversity. If not, they risk failing in this new normal environment.
As the definition of success on the board level moves from shareholders’ to stakeholders’ returns, which include those of shareholders, employees and the community, harnessing the powerful combination of sustainability and diversity becomes critical for those asset management firms playing the long game. This ultimately rests on the ability to shape corporate culture, which can provide a systematic process where diversity of thought, gender, ethnicity and socio-economic background are not only accepted but also celebrated.
Taking the case of gender diversity, studies by the International Monetary Fund and institutional investors have shown that gender diversity, at all leadership levels and across asset classes, is a powerful engine of performance. McKinsey in their “2018, Delivering through Diversity” report showed that top quartile firms in gender diversity in executive teams were 21% more likely to outperform on profitability and 27% more likely to have superior value creation.
Yet, as reported by the Harvard Business Review, while women have made considerable progress in reaching executive leadership positions, they only control one to 3.5% of assets under management, depending on specific asset classes. I would volunteer that two major factors are at the source of this gap in asset management, namely the glass ceiling and pipeline issues.
Building the pipeline for the future of asset management
Building the pipeline to integrate more gender diversity into the investment profession is important to the success of asset managers and will not only be increasingly shaped by millennials, but also by heightened awareness of the impact of behavioural finance in investment decisions. Many have said that with regard to women, the pipeline is thin in asset management, unlike in other professional fields with long working hours, such as law and medicine. The asset management industry somehow seems to be losing a large percentage of female talent after children are born. Returner programmes have been put in place in some organizations with measured success.
As millennials indicate their preference versus older generations for new ways of working, including being employed in the “gig” economy, they might create a path where flexibility, with regard to time and location, for example, becomes more widespread and is not stigmatized. This might help many women, for example, with the dual goal of managing their asset management careers and having young children.
Interestingly, the current coronavirus grip on the global economy demonstrates that flexibility and remote working provide more than the ability to “work on weekends or while traveling”. It is fast becoming a real practical experience that will shape the way towards a durable evolution in asset management, post-coronavirus crisis. This, of course, can only work in a trusted environment promoted by confident, visionary leaders who can also facilitate the promotion of sustainability.
Supporting organizations, such as the Bloomberg Women's Buy-side Network that highlights a firm commitment to diversity, in general, and gender diversity, specifically in asset management, are important, along with clear outcome-orientated strategies and ongoing fact-based reflections in organizations. As our network is expanding its scope with the opening of our Hong Kong Chapter, we welcome new members to join and look forward to your thoughts at some of our future events.
Virginie Maisonneuve is a former CIO of Eastspring and founding partner of the Bloomberg Women's Buy-side Network
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