Following the ESG backlash, equity, diversity and inclusion (EDI) is increasingly being viewed as part of the ‘woke agenda’ or a ‘nice to have’. As investment professionals, however, we should remind ourselves that no matter if we consider EDI woke or not, the level of inclusivity within our own organisation as well as in our portfolio companies directly affects business outcomes and ultimately also investment returns.
The Dutch Fund and Asset Management Association (DUFAS) and the CFA Society Netherlands recently met to discuss the vital role of inclusion in investment management. The Dutch Central Bank and the regulator AFM are also involved in this discussion, showing that they are aware of the importance of the topic. Rightfully so. Although Dutch diversity levels have improved, it has not necessarily led to increased inclusion and equity. A recent study by a Dutch government body revealed that minority employees report feeling excluded, counter-intuitively even more so in companies actively promoting diversity.
This is a serious business risk. Time and time again, study after study proves the value of diverse points being given weight and importance in decision-making. This does not need to be debated; it is already well established.
Non-inclusive decision making is risky business
If research shows that diversity does not automatically lead to inclusion, we should be alarmed. Whenpeople with diverse backgrounds do not feel empowered to speak up, groupthink silently takes hold - choking potential criticisms and stamping out bright new ideas along the way. It hits three times. Firstly, because groupthink leads to underdeveloped and risk-laden ideas. Secondly, because the groupthink is so strong, people will not challenge or even see the problem as it unravels. Thirdly, because the diversity of the group further disguises the problem, making people blind to their own groupthink, until it is too late.
For asset managers, it is hugely detrimental if diverse perspectives do not play into investment decisions. If members of diverse teams don’t feel empowered to express opposing views, robust decision making is at stake. Without critical thinking, our investment strategies can suffer fatal gaps. Groupthink has been listed as one of the top causes of the 2008 financial crisis, where it created a dangerously short-term and high-risk culture without meaningful challenge. It can also mean that we miss opportunities because biases and assumptions are not being challenged.
Real inclusion goes beyond the office walls
Including diverse voices within our own teams is one, but it doesn’t stop there. For myself, the reach of inclusion goes well beyond employees, and even clients. We seek to include every single stakeholder – be it the global south, nature or even future generations – across all our investment strategies.
As an illustration: we keep two coloured chairs - a green one and a red one - in our board room to remind us that flora and fauna are stakeholders in our decisions too. This prompts us to consider their interests as we conduct our business because the natural world, which cannot speak for itself, deserves a voice in our decision-making processes.
Over the past three decades, as impact investors we've learned that we get much more support and buy-in for sustainable businesses, when all stakeholders feel heard. This is also why we tend to favour co-operative business models. Getting as many people as possible to benefit from a project is one of the best ways to mitigate risks against it.
Inclusive thinking naturally opens the door for compelling new products too. In March 2022 for example, we launched our Future Generations strategy in support of UNICEF, which already attracted close to EUR 100 million from investors. Our clients truly appreciate that we are applying a child-lens to investing, including their children and grandchildren’s interests in the investment process.
For investment managers, avoiding pitfalls and benefiting from new innovations is simple: make sure that your decision-making process requires the incorporation of different perspectives.
Diverse views lead to better decisions
I am not saying that we should create strenuous meetings with too many people, that last hours. Far from it. Myself, I only like to have four or five people in the room for complex decisions. But I am saying that we need to normalise listening extremely carefully to every viewpoint and collecting perspectives from as many different walks of life as we can.
There are so many ways we can get to hear the diverse voices in our industry. We just need to stay curious about what other people think or experience. At Triodos, we organize mentorship programmes, lunch meetups, away days and more, to help get a fuller picture of the various viewpoints in our diverse company. It is amazing what a casual coffee with a Gen-Z, a stroll outside with a grandparent or a conversation with someone from a different country can do to strengthen decision-making. Without feeling safe, employees may not offer valuable criticism, so we must build trust every day.
By incorporating the views of the many, we broaden our understanding of risk, so that it accurately reflects the reality of today. Nobody knows everything, so we must be open to all opinions and perspectives – even those we don't agree with. The complexity of today’s world with its interrelated crises comes with complex decision making. Numerous studies consistently demonstrate that valuing diverse perspectives leads to better decisions. Real leaders are inclusive and open to all views by default, otherwise they are not leaders at all.
This column was originally published in Dutch on IEX Profs.
