Investors are beginning to take advantage of “the positive correlation between above average Diversity and Inclusion (D&I) practices and corporate financial performance”, portfolio manager of Nordea 1 – Global Diversity Engagement fund (the fund), Julia Bech, told PA Future.
This comes as more companies are acknowledging that DEI progress is “essential for building a sustainable and prosperous world” and implementing DEI business procedures.
Bech also discussed the progress these companies have made since the fund was launched in 2023, the challenges and opportunities of promoting D&I in the industry, alongside where she expects global diversity to progress in the next few years.
How does Nordea improve gender diversity across the industry?
To improve gender diversity across the portfolio, Nordea engages with invested companies to establish objectives and encourage companies to improve within this aspect. Within the Global Diversity Engagement fund, for us to engage with companies as effectively as possible, we categorise the invested companies into 4 segments – Diversity Leader, Diversity Improvers, Diversity Moderate Laggards, and Diversity Laggards – to define the scope of potential engagements.
Diversity Improvers and Moderate Laggards are those eligible for engagements, where the difference between the two come from level of advancement on D&I and the depth of engagements required. This categorisation helps us establish clearer engagement objectives and action plans to engage on the topic of D&I.
Are you seeing a high proportion of companies engage with these issues? Are there disparities of interest in progressing in this space between sectors, and if so, why do you think this is?
We see a growing number of companies are engaging on this topic. There is an obvious disparity between countries and sectors in terms of how advanced they are on the topic of D&I. From a geographical perspective, we see that there is already advancement within companies based in North America and Europe measured by various data disclosures they’ve done.
Whereas, Emerging Pacific regions (e.g. China, India) shows still a room for improvement compared to other regions. From a sector perspective, we see that the energy sector is relatively ending in the lower end of scale.
This trend could be explained by various factors, as diversity and inclusion could be considered as relatively new concept to some countries/sectors. Each regions also have different agenda, regulatory requirements, and priority on making process towards this topic.
Where are the challenges and opportunities of promoting diversity and equality across gender, age, and ethnic and socioeconomic background?
The challenges of promoting diversity and equality across gender, age, ethnic, and socioeconomic background could stem from various reasons. The different groups could have different levels of understanding the concepts, its importance, or having different views on how these concepts need to be addressed and implemented.
For example, the companies that are operating in a region/sector where women have been historically excluded from participating in professional work places, decision-making, and political activity could display biased views on embracing these concepts.
We aim to invest and engage with companies that are operating in more shareholder-friendly countries, where they are open to initiate a dialogue, learn, and are willing to make progress on D&I as an initial step to bring greater impact.
Why is this fund attractive for an investor? Why should they invest in this space?
Investing in social factors within ESG has been a growing space, where the projected investments in D&I is set to reach $15bn (£11.5bn) by 2026, according to research by McKinsey & Company.
The fund fund offers a global equity thematic solution to invest within this growing space, and is appealing to investors who are interested in promoting D&I as drivers for social change. Simultaneously, the investors are able to take advantage of the positive correlation between above average D&I practices and corporate financial performance.
It offers an attractive value proposition to those who believe the best way to achieve a diverse corporate environment is through engagements with companies and supporting them in a well-defined path towards D&I excellence.
Can you provide a case study of a successful project the fund has completed?
Since September 2023, Nordea has initiated 21 engagements within the fund, including with a midsize Canadian gold mining company, Torex Gold. The company demonstrated a strong commitment to DEI – particularly to gender equality at both board and executive level – under its chief executive, Judy Kuzenko. The company led its peers in gender diversity, but Nordea identified areas for improvement, specifically in data disclosure and gender pay gap metrics.
Since our engagement, Torex Gold had already launched initiatives to attract and retain female talent, such as the Daughters Program and the Long-haul Truck Driver Program. Nordea recommended increased transparency through gender pay gap disclosure and establishing formal DEI accountability structures by appointing a chief diversity officer to sustain progress. Torex Gold adopted these suggestions, becoming a DEI leader on all three of our engagement themes.
Where do you expect global diversity progress to be in the next years? Do you have any ambitions for the industry’s progress in this space?
With growing attention on DEI, we hope more companies will embrace diverse business models, recognising its importance on creating a long-term value. This helps speed up the process of changing values and behaviours by implementing DEI business procedures.
While gender diversity has been the main focus, data in other areas, such as ethnicity, are improving. This is particularly relevant for companies in ethnically diverse countries or those with global operations and diverse customer base. We anticipate that as data disclosure becomes more standardised, it will help businesses systematically integrate DEI, as well as strengthening the link between DEI and financial performance. This, in turn, will make engagement efforts more targeted and impactful.
Although we have been engaging on this since inception in September 2023, engagement remains a long journey where it requires sufficient amount of time to make a progress towards the established objectives. Therefore, we are at an early stage to share all milestones, however the engaged companies have been responding positively and communicate openly on the topic with Nordea.
