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Sep 08, 2022

Sustainability and diversity shortfalls in institutional investor reporting, reveals new research

Most stewardship reports neglect board skills and diversity targets, Luminous says

Most of the reporting from major institutional investors analyzed against stewardship themes by strategic communications firm Luminous ‘still has room for improvement’ in sustainability, ethnic & gender diversity and addressing climate-change impacts.

But these investors have made positive efforts in developing their workforce, mitigating their impacts on nature and increasing the representation of women in the boardroom.

The latest edition of the Reporting Matters research by UK-based Luminous studies the most recent stewardship reports of the two largest companies (by market cap) in each industry in an attempt to understand the cut-across themes.

Researchers reveal that 90 percent of institutional investor stewardship reports don’t plan to increase emerging board skills, such as sustainability, and 87 percent don’t have targets for increasing ethnic diversity in the workforce. Furthermore, 75 percent don’t have targets for increasing gender diversity in the workforce and 55 percent don’t include a skills matrix in their governance report.

On the ESG front, 72 percent don’t quantify the financial impact of climate change on their business, 57 percent haven’t published a net-zero pathway and 45 percent haven’t carried out a materiality assessment.

‘Half (50 percent) of companies don’t mention emerging board skills, such as sustainability, and only 10 percent plan to increase these skills,’ the report notes. ‘While 88 percent of companies use infographics to illustrate gender diversity at board level, less than half (45 percent) do so for board skills and only a quarter (25 percent) for ethnic diversity.’

Women on board

Luminous says most companies (86 percent) have set targets for increasing gender diversity at board level, but there is a near even split – 41 percent vs 45 percent, respectively – between those that aim for female representation of 40 percent or more and those that are satisfied to be compliant with the Hampton-Alexander Review target of 33 percent. ‘Likewise, there is an even split between companies that already have a female chair, CEO, CFO or senior independent director (43 percent) and those that don’t even mention this as a target (42 percent),’ the report adds.

Stephen Butler, Luminous

On the upside, Luminous does find when scrutinizing institutional investor stewardship reports that 93 percent have invested in workforce development and 66 percent have employee-related KPIs. A significant 90 percent mitigate their nature-related impacts and 75 percent are committed to net-zero. Eighty-six percent have at least one third female representation around the boardroom table and 58 percent have at least one board member from an ethnic minority background.

‘Despite the Covid-19 pandemic, the past few years have been a record time for shareholder engagement in Europe, with a 21 percent increase in campaign activity across the continent,’ says Stephen Butler, director of investor engagement and ESG disclosure at Luminous, in the Reporting Matters research paper. ‘Stewardship and engagement are ultimately tools in supporting long-term value creation for investment houses, clients and beneficiaries, leading to sustainable benefits for the economy, the environment and society.’

James Beech

James Beech joined IR Media Group as editor-in-chief of IR Magazine and Corporate Secretary in January 2022. He was a multimedia journalist, editor, client relationship manager, awards host and public speaker at Campden Wealth, for and about the...