Why the $ 30 billion ESG craze is leaving LGBTQ + workers

Investors and companies are plowing ahead of regulators to make their workplaces more LGBTQ + -inclusive in an effort to please shareholders as pressure rises to incorporate more factors into environmental, social and managerial goals.

Interest in ESG issues has increased among financial service companies this year – which has sent huge flows to ESG-related funds. Morningstar’s global data on sustainable fund flows showed that inflows almost doubled in the six months to the end of September to a record $ 3.9 billion.

Eventually, financial technology company Broadridge sees ESG fund assets reach as high as $ 30tn. It opens up the risks of greenwashing, which is fast becoming a growing concern amid tightened disclosure standards and increased control by regulators.

However, the inclusion of LGBTQ + issues and its impact on staff has so far been a largely ignored part of the ‘S’ of the ESG. Experts say that failure to act on this front risks leaving a key problem behind.

READ The city’s ESG infatuation in five charts

Now the municipality is leading the charge, where public bodies are falling down. The business sector got its first LGBTQ + -focused connection with the UK government in September, while the investment industry has been applauded by people like Sir Elton John for stepping up its leadership on the issue.

Iain Anderson, the UK Government’s LGBT business manager and chairman of Cicero, said that while some urban businesses are still “capacity building” their inclusion strategies, investors are increasingly demanding more visibility into how companies meet key ESG targets.

“[Companies] has rightly gotten an awful lot of pressure from customers, gotten an awful lot of pressure from staff, and interestingly enough to get a lot of pressure from investors now, “Anderson said. Financial news last month.

“What I really want to explore while wearing this hat is this idea of ​​how this conversation really is the fundamental part of the ‘S’ part of ESG.”

Of the three parts of the ESG, the ‘S’ has had the slowest progress, mainly due to the lack of measurements to track diversity and inclusion. Many indicators, such as sexual orientation, ethnic background, and gender identity, rely on employees to voluntarily disclose their information.

While the UK Financial Conduct Authority announced a consultation on diversity and inclusion at the board level in July this year, it acknowledged that it focused primarily on gender and ethnicity.

“We recognize that by focusing on women (including those who identify themselves as women) and ethnicity in our proposed list rules, there may be concerns that we overlook the importance of other minority groups and protected characteristics,” he said. FCA’s hearing. in July.

The regulator said companies should be the ones to increase focus on the “broader diversity agenda”, which includes LGBTQ + people, those with disabilities and those with lower socio-economic backgrounds, within their internal policies. The FCA said, however, that it will outline how to build on its own proposals for firms in relation to these “in due course”.

“Five, certainly 10 years ago, LGBT was in some ways the canary in the coal mine,” said Simon Kerr-Davis, a recruitment lawyer at Linklaters. “So if the company was good, especially for trans rights, you knew it would be good for gender and race. It was used as a key symbol that companies were serious about diversity more generally.”

“It has changed,” Kerr-Davis added. “The emphasis now on inclusion means that you really have to push on all fronts and look at all the protected characteristics and some unprotected characteristics as well as class and social background. Companies see all this as a symbol of the ‘S’ rather than any string that stands out more than the others. ”

An industry first was set by the Financial Services Skills Commission and Financial Services Culture Board last month when they announced the creation of a city-wide inclusion benchmark to be published in the spring of 2022.

However, a report published by the Financial Reporting Council last November, which examined companies’ performance in terms of LGBTQ + inclusion, found that “it is still far from guaranteed that all LGBTQ + people will find the corporate culture as a welcoming environment that provides give them the opportunity to be themselves, and thus be their best in the workplace ”.

The FRC recommended that companies develop policies and procedures that protect staff from discrimination and globally offer benefits such as parental care for relatives, regardless of sexual orientation.

But a year later, it added in a follow-up report last month that companies had so far provided “minimal information” on how diversity and inclusion policies were linked to their overall business strategy.

“Investors are the regulators here – we have no powers, though that may change in the future,” said David Styles, the FRC’s director of corporate governance and stewardship, in a statement following the November 25 report.

READAccounting regulator criticizes diversity errors in company reports

Another problem the city is now facing is the lack of coherence across regulators in how to ensure companies adequately track LGBTQ + inclusion as part of ESG requirements.

“Governments come and go, but companies are forever, and they want to make sure they get it right because it’s business,” said Rachel Reese, founder of the trans- and non-binary inclusive consulting firm Global Butterflies. “They are not all saints; they do it because it’s a good business, they have to have that customer base.”

Reese, who was also previously vice president of the Law Society’s LGBT division, said incorporating LGTBQ + diversity into reporting requirements would make it “embarrassing” for firms that failed to match up, as well as increase the visibility of queer executives within for financial services.

“What the city really needs is to get all the regulators around the table and someone who lays it out and what the requirements should be,” she added.

Measurements put to the test

Unless regulators become more involved in the process, the lack of metrics with which companies track LGBTQ + inclusion and the voluntary nature of disclosure will create additional barriers.

A study published in February by an alliance of organizations, including LGBT Great, a body focusing on inclusion in the investment and savings industry, found that there was a “startling lack of understanding and implementation of LGBT + -related sustainability considerations in their [investment firms’] products and frameworks for active ownership ”.

The report said that 85% of the 25 investment firms surveyed between August and December last year had no LGBTQ + considerations as part of their decision-making. The other 15% had made “some attempts, but found that the lack of measurements and a relevant framework for active ownership were significant obstacles”.

Data collection is also a challenge when looking at employee ethnicity, which has made it difficult to calculate a company’s ethnic pay gap. In contrast to the reporting of gender pay gaps, which has been mandatory in the UK for companies with more than 250 employees, ethnic pay gaps are reported by companies on a voluntary basis.

“Many employers feel they would have a good story to show if, over the last five years, they could track how their workforce has changed, and especially track career paths for people from minority groups,” Kerr-Davis said.

“But the data is really hard to manage and get hold of,” he added, explaining that the GDPR makes it challenging for companies to include sensitive personal information.

To contact the authors of this story with feedback or news, send an email to Emily Nicolle and Bérengère Sim

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