- You mentioned the gender strategy of Ireland Strategic Investment Fund (ISIF). Can you please share the discrete elements of strategy with us? What are the short term and long-term goals under this strategy? Also, what (if any) are intended outcomes?
Empirical evidence shows that promoting gender balance is not just the right thing to do, but also produces enhanced outcomes for shareholders.
With this in mind, ISIF reviewed the gender balance in its investments. We were disappointed to see that the sample data suggested that levels of female representation were limited, particularly on boards and executive teams.
In response, we developed a gender diversity action plan which set a minimum target of 30% female representation on the boards of ISIF investee companies across our Irish Portfolio for both existing and new investments.
We wrote to all our investees and fund managers to reiterate our commitment to promoting gender balance, notifying them that ISIF is becoming more active in its approach to diversity and encourage them to continue to review gender diversity across their governance structures.
Data collection was the starting point. The power of asking the question can make a significant difference, but it won’t be enough on its own. As part of our action plan, we are now (1) asking the question of every investee company, (2) asking them to commit to our minimum 30% target, (3) asking for tangible plans to get there and (4) using our influence and board representatives to ensure the target is met. Progress is reviewed annually.
ISIF’s approach involves focusing on the areas we can influence most, where there is significant scope for improvement. Our direct equity investments present the best opportunity to achieve our 30% target, given we can nominate board representatives and observers. Gender diversity is now a key consideration of our internal nominations process and nomination panels must be gender balanced.
This has already led to significant progress. ISIF’s internal director nominations increased from 0% to 33% female and internal observer nominations increased from 0% to 44% female in less than two years. ISIF is also working with an executive search firm to identify suitable female external non-executive directors. The percentage of our Irish Portfolio investments with at least one woman on the board has increased to 50%, up by a third compared to first measurements, and the number of female CEOs in our Irish Portfolio doubled. There is still room for improvement, but the data shows we are moving in the right direction. We plan to continue to regularly measure and report on diversity, deeply embedding diversity considerations across the whole investment lifecycle, engaging with investees to enable progress, and ensuring we lead by example.
In addition, ISIF set a target of 30% gender diversity within its Senior Team. To support this, we are working with recruiters to ensure strong female candidate representation at all levels within the organisation, enhancing our use of targeted social media campaigns and ensuring our job descriptions make clear that we are actively encouraging women to apply.
- With respect to institutional investors, have you identified any specific approaches that they have undertaken at both the board & executive levels to give effect to broader gender diversity goals?
ISIF has engaged with both peer funds as well as investment managers to understand best practice in relation to filling direct equity board seats, including improving diversity..
A simple yet effective approach has been rethinking the recruitment process, addressing unconscious bias and engaging with specialist recruiters to source a diverse slate of candidates. The feedback we, and our peers, often get from investees and investment managers is that, while they believe in the benefits of diversity, finding diverse candidates with the right experience can be difficult. Challenging this notion and providing support to investees to change how they approach recruitment is often the first step to reaching diversity goals.
We have also seen the development of robust inclusion and diversity policies, championed by senior leadership, become much more mainstream. Putting diversity strategy and commitments in writing, often publicly, holds managers to account to implement changes, review and improve policies and deliver on promises. This also takes the form of making commitments and reporting to international diversity standards/initiatives. Some investment managers we work with have signed up to initiatives such as the Women in Finance Charter, Future VC or other programmes aimed at developing female talent.
- How do you anticipate diversity (whether ethnic, racial, gender) as a corporate strategy and its impact on the governance and investment performance of an investment fund?
Just as a diversified portfolio can generate better risk-adjusted returns than a single asset class, the same can be said for diversification in boards and senior leadership. Teams that are diverse are stronger, more resilient, and more sustainable than teams that aren’t. It’s easy to miss risks and opportunities when decision makers all think alike.
Empirical evidence from a broad range of studies robustly supports this notion that diversity in leadership lowers risk. Research also found that diversity also improves financial returns. Other studies found better gender balance leads to better governance which, in turn, leads to better investment performance.
Given this evidence, investors should expect their investee companies to have a corporate strategy to incorporate diversity across their organisation. It’s not just the right thing to do, as investors our long-term returns depend on it.
- How can we measure the effects of a gender diverse policy in terms of operational and investment performance? Are there any specific KPIs that would help to substantiate the impact?
While the relationship between listed equity returns and diversity can be robustly quantitatively measured, as the vast amount of academic research on the subject has shown, this is harder to do in practice in a highly diversified portfolio. Thus, as of now, we have monitored diversity KPIs using (i) quantitative analysis: soliciting regular demographic data from investees and (ii) qualitative analysis: engaging with management during our annual monitoring process.
Quantitatively, we set an industry best practice target of 30% female representation on the boards of our investee companies, as well as in our own leadership team, and focused on building a robust data set of diversity metrics across our portfolio, resampled annually. This is then analysed over time to measure progress against our targets. The key takeaways are included in our internal reporting and monitoring frameworks.
Qualitatively, financial, operational and ESG issues are addressed on a post-investment basis as part of the investment review process. Predominantly male boards and executive teams are discussed and addressed on a case-by-case basis, usually as part of wider board composition concerns. This approach encourages engagement and helps start the gender diversity conversation with investees. We work with investees to understand reasons for lack of diversity. This allows us to understand the challenges and the areas where we can help.
“A lack of diversity and inclusion at senior management and board level in organisations is a leading indicator of elevated behaviour and culture risks.”- Irish Central Bank in 2008