Why Wall Street’s latest DEI efforts are already falling short

Investors must stop trying to tackle Diversity, Equity and Inclusion issues by counting heads, and start allocating capital differently, argue Patience Marime-Ball and Jenn Kenning

The release last month of a new study, Women in the Workplace 2021, by McKinsey & Company and Lean In was a code red about the ongoing challenges women face when it comes to getting ahead in their careers – especially those who juggle the additional responsibilities of childcare.  

Overwhelmed by today’s ‘always on’ remote culture, and the struggle to balance the demands of their personal lives – all made worse by the pandemic – many women are exhausted to the point of opting out altogether and changing careers. The numbers are even worse for women of colour.  

While we embrace the spate of financial commitments to diversity, equity and inclusion (DEI) initiatives and changes to corporate cultures that have been announced with fanfare since the George Floyd demonstrations last year, we’re clearly already falling short. From an investment perspective, in particular, there is much more we can do to address these challenges and create a more equitable society, while still generating market rate returns. 

But before we go further, let’s first get this out of the way. This is a column written by two investment professionals: one a black woman and the other a white woman. But our thoughts are meant for everyone – especially men! Ensuring that women and black, indigenous, latinx and people of colour (BILPOC) gain equal access to the levers of opportunity and power can only happen with the men in the room. To solve these challenges we need every ally. 

How our financial system can do more to drive better DEI outcomes 

As investors, we should all care about investing in women and BILPOC communities, because we would be using capital more effectively to drive the change we want to see in ways that promote equal opportunity and access to capital. Not because it’s the right thing to do and certainly not because it means putting women and BILPOC before investment returns.  

Unfortunately, so much of what we’re doing in the investment industry is checking boxes. It’s great that the current conversation at big wire houses and banks – two of the centers of gravity in finance – has shifted to include talking about women and DEI. But most stop at counting heads, a sign of ambivalence about just how far they are willing to go to promote greater diversity.  

What about the outcomes of your investments? They can be driving a DEI agenda, as well. We have far too many challenges to be allocating capital without giving thought as to how the investment strategy itself will provide inclusive access to more people, including those who don’t look like you. And the excuse of your having to settle for lower returns in order to be using a DEI lens will no longer fly. The research is already there. As Paul Donovan, Chief Economist of UBS Wealth Management, remarked recently, bringing in people with different viewpoints and life experiences leads to better decision-making.  

There is more than one way to do this. It might mean investing at the nexus of gender and race and some of today’s biggest environmental and social challenges. These could include climate change, healthcare or tech, or exclusionary strategies focused on eliminated private prisons or civilian firearms.  For an organisation with gender at the core of its mission, every investment must have an underlying thesis that ties to the creation of solutions that elevate and include women. So it’s gender AND strategy. For example, Kyte, an app-based car rental company that leapfrogs the booming ride-sharing sector while simultaneously promoting better climate outcomes (you no longer need to own a car); and better gender safety outcomes (they’ll bring the car to you and pick it up). 

Similarly, for an investment management or advisory firm with a focus on impact investing, the starting point is the social or environmental problem you are seeking to solve, but you can then interrogate how a strategy is inclusive of women and BILPOC communities. For example, Enterprise works in affordable housing with wraparound services in a starved part of the country, so it meets our impact threshold and it is also a women and BILPOC-led firm. 

In this sense, there’s a spectrum of how firms can drive the women, DEI and environmental agenda in ways that complement one another’s strategies. 

The bottom line is that if we want to capture real alpha and improve our understanding of risk, then we need a better way to invest – one that looks through a lens of inclusivity as well as a lens of financial performance. Investment managers who are not using a DEI lens on top of their investment strategy are very possibly settling when it comes to their decision-making and evaluating risk. The traditional investment firms and wire houses still stuck on counting heads are already behind – not just the inclusivity conversation, but optimizing returns in ways that can also drive an inclusive agenda.  

But they are now on notice. Caveat emptor: sophisticated investors should start to hold their fund managers accountable – on both how they are running their firm and in how their investments are driving outcomes for women and BILPOC communities. Or risk being left behind. 

Patience Marime-Ball is the Founder and CEO of the mission-driven Women of the World Endowment 

Jenn Kenning is co-Founder and CEO of advisory house Align Impact