Although the majority of UK asset owners agree that diversity, equity and inclusion (DE&I) correlates directly with business performance, research from Pensions for Purpose has found a “surprising discrepancy”, with a marked lack of engagement in underlying portfolio companies.

The report, sponsored by Jupiter Asset Management, found that institutional investors have made positive progress in embedding DE&I principles within their own organisations and in interactions with third-party investment consultants and asset managers.

In particular, it found that pension funds have "significantly" advanced their DE&I strategies over the past two years, integrating these principles deeply into their operations, from manager selection to organisation-wide training and communication.

According to the report, a number of pension schemes have also established specific DE&I action plans, scoring systems and criteria for voting, evidencing a holistic approach to embedding DE&I in their decision-making.

DE&I is also set to become central to manager selection, integrated with environmental, social and governance risks.

Looking forward, asset owners said that they expect to enhance their DE&I strategies by focusing on high-quality data and broader disclosure, such as the gender pay gap, while expanding their DE&I efforts beyond board-level to include the entire workforce.

Indeed, the report pointed out that there has also been a move to develop DE&I initiatives more broadly across markets and to increase diversity in senior positions, positioning DE&I as a parallel priority to challenges like climate change.

The report also suggested that DE&I strategies will continue evolve in future though, with ambitions to set clear key performance indicators for progress and extend diversity efforts beyond gender to address broader issues like disability and socio-economic disparities.

And despite varying views on DE&I's part in asset allocation, the report found there was a "unanimous conviction" around its growing importance in engagement and stewardship activities.

However, the report found that gaps remain, suggesting that, beyond headline policies or statements, there appears to be a "mismatch" in understanding how these policies translate into practice on the ground.

Given this, Pensions for Purpose challenged investors to deepen their DE&I engagement, to extend beyond surface-level commitments to ensure meaningful implementation across all investment tiers.

Key recommendations outlined in the report included initiating mandatory internal DE&I training, incorporating DE&I considerations in the manager selection process, engaging with managers on DE&I, and reflect DE&I in voting and stewardship.

Pensions for Purpose founder and chair, Karen Shackleton, said: “The common belief in the potential of DE&I to boost business performance is a great starting point to raise awareness of the importance of the topic.

“Our research shows commendable progress and significant areas for deeper engagement with DE&I. Surprisingly, it is not yet impacting underlying investments significantly.

“However, we found commitment to DE&I is growing among asset owners, who realise there is more to be done and the overall trajectory for DE&I, especially looking beyond gender, is positive. We would expect future research on this topic to show progression.”

Adding to this, Jupiter Asset Management lead investment manager, Abbie Llewellyn-Waters, said: “It is our long-held view that companies which balance the needs of three key stakeholders, planet, people and profit, are well placed to generate attractive returns over the long-term.

“We recognise the challenges stemming from data availability and consistency; however, we are encouraged by the ambition this report highlights to align interests and provide clarity for asset owners on the real-world social outcomes of their investments, which is also why we spend a considerable amount of time in reporting on these outcomes in our sustainability reports, so that the individual members can understand how their long-term savings support social equality outcomes.”

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