What is EDI and why does it matter?
Equity, Diversity and Inclusion (EDI, often also called DEI) refers to company practices that promote fair treatment, representation and participation for all employees, regardless of background or identity. This means preventing discrimination, valuing differences and ensuring equal access to opportunities and career advancement. These are values that Triodos Investment Management deeply shares and supports as fundamental pillars of a more equitable, peaceful and prosperous society that needs to be built, also in the workplace.
In recent years, investors have put emphasis on EDI, based on the assumption that diverse and inclusive workplaces can boost innovation, productivity and financial performance - what is known as the business case for diversity. As a result, diversity data have gradually become a standard part of ESG reporting.
The EDI backlash
EDI is now facing growing backlash in the United States. The trend already started with Big Tech layoffs in 2022 and EDI-related roles being among the first to be cut, as well as women and minorities being disproportionately hit. Since then, political and legal developments have led many companies to scale back diversity initiatives.
Recent analysis by Equileap shows reduced gender and racial diversity targets, fewer programmes for minority- and women-owned businesses and declining requirements for diverse candidate shortlists. Some of these initiatives are now even facing legal challenges by the Trump government. Shareholder resolutions, once focused on advancing EDI disclosure and practices, are increasingly aimed at limiting or dismantling these initiatives, reflecting the shifting climate.
Our approach
At Triodos Investment Management, we see this as a worrying development. For us, EDI means valuing differences in background, identity and experience and ensuring equal access to opportunities and career advancement. While progress in women and minority representation in senior leadership has slowed and the business case for EDI has started to face scrutiny, we strongly believe EDI provides a relevant lens to investments.
While companies and investors are starting to understand that a diverse and inclusive working environment is more challenging to manage, companies that succeed in doing so achieve better decision-making, higher quality work and employee satisfaction, which can lead to a genuine competitive edge.
We actively apply a gender lens to our investments, while monitoring companies’ EDI practices at large in our assessment of companies in our Impact Equities and Bond portfolios and through standard due diligence processes. In line with our proxy voting guidelines, we vote against a company’s chairperson and the chair of the nominating committee if less than one third of board members are of the least represented gender.
We engage with companies on gender-related issues in our investments, such as the gender pay gap and with companies in our Future Generations strategy also about family-friendly work policies. In dialogue with portfolio companies, we continue to signal our interest in maintaining and improving reporting on EDI-related matters.
Supporting shareholder resolutions
Shareholder resolutions on EDI are most common in the US. In today’s political climate, it can be difficult to determine whether companies are scaling back EDI initiatives due to external pressures or due to a lack of commitment. We therefore evaluate each resolution on a case-by-case basis, clarifying its intent, especially as some resolutions now seek to challenge the legitimacy of EDI efforts, alleging reverse discrimination.
We generally support EDI-related resolutions that call for ongoing, improved reporting on workforce composition, including disaggregated data by gender, ethnicity and role on employee hiring, retention and promotion, as this information provides us with important insights into workplace fairness and potential discrimination. In doing so, we consider the company’s stated commitments, reporting practices among peers and the costs of enhanced disclosure. We always weigh the risk of legal or political backlash against the value of transparency for investors, particularly in sectors where EDI is financially material, such as IT, healthcare and financial services.
The role of policy and investors
Government support and strong legislation are critical to advancing EDI. Companies operating in countries with clear requirements for diversity reporting and equal opportunity tend to perform better on EDI, but where government policy is lacking or in decline, investors have an important role to play.
At Triodos Investment Management, we continue signalling our support for robust EDI policies and transparent reporting. We demand clear data on workforce demographics, pay equity and inclusion practices, especially (but not only) in sectors in which these issues are financially material. We believe non-discrimination, as a basic labour right as well as a pillar of truly peaceful and prosperous societies, should be upheld everywhere, across industries and social domains. Through active shareholding, we encourage companies to maintain and strengthen their EDI commitments, regardless of the political climate, for long-term and long-lasting change.