ESG Investors Find That Diversity Data Is Hard to Come By

ESG Investors Find That Diversity Data Is Hard to Come By

Calls for racial diversity at every level of the corporate world have inspired socially conscious investors. It’s a powerful group, with more than $30 trillion in global assets backing companies that prioritize environmental stewardship, social impact, and good governance, known by the shorthand ESG. But when it comes to how integrated companies are—or aren’t—the data are painfully limited. “I would be surprised if we have full transparency on this topic,” says Remy Briand, head of ESG at index provider MSCI Inc.

The reason? “Companies don’t want to disclose, because the data we are asking for is unflattering,” especially when it comes to the best-paying jobs, says Natasha Lamb, a managing partner at Arjuna Capital LLC. The firm pushes U.S. companies to disclose racial and gender pay gaps. Alphabet, Bank of America, and Facebook have opposed Arjuna’s proposals, while a handful of companies including Citigroup and Starbucks have agreed to provide data.

The collection of racial diversity information can be a particularly big hurdle for companies operating in Europe, which is usually a hotbed for ESG campaigning. Some governments have made it illegal to collect racial and ethnic data for most purposes, in part because of the legacy of the Holocaust and World War II. In Asia there’s only a budding recognition that social factors may be of concern to investors. Most companies in China, the world’s second-largest economy, don’t report enough data to show they qualify for ESG funds, and the category accounts for less than 1% of equity assets under management in India, according to data compiled by Bloomberg. “Generally, we’ve seen less disclosure of racial diversity,” says David Smith, head of corporate governance for Asia at Aberdeen Standard Investments Ltd. He says he continues to engage companies on the topic.

Discussions among far-flung money managers in the U.S. or Europe and companies in Asia can also be marred by the historical experience of colonialism. Conversations about racial differences remain “somewhat taboo in many Asian countries,” says Stephanie Creary, an assistant professor at the Wharton School of the University of Pennsylvania, making it “difficult to garner precise insights into the racial and ethnic dynamics that contribute to equity.”

Investors in U.S. companies don’t face the same obstacles. Most companies are required to provide a breakdown of racial and ethnic data about their workforce to the federal Equal Employment Opportunity Commission. But they don’t have to publicly disclose that data. Many that do share demographic information use percentages instead of absolute numbers, which can make it harder to see the full picture. There’s also a lack of uniformity in definitions and disclosure formats, says MSCI’s Briand.

S&P Global, a data and index provider, says only about a third of the companies it’s assessed globally provided it or the public with breakdowns of their workforce by race and ethnicity. Some big players are giving diversity more attention, however. Institutional Shareholder Services Inc., which advises funds on how to vote in shareholder elections, in July sent a letter to U.S. companies asking them to disclose the self-identified race or ethnicity of directors. Each director could choose as many as three ethnicities.

Index fund giants are talking more about the issue. BlackRock Inc. Chairman Larry Fink said in an open letter the firm will assess racial equality issues at portfolio companies. A spokeswoman for Vanguard Group Inc. says it discussed diversity with most of the 686 companies it engaged in the topic of board composition in the 2019 proxy season. —With Jeff Green, Max Abelson, Annie Massa, Haidi Lun, and Abhishek Vishnoi

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