SW: How would you say the fund is differentiated?
TSD: In my experience, many funds that seek to invest in diversity tend to stop at board level representation, and consider mainly gender equality. Of course, this is extremely important but there are other forms of diversity as well.
At M&G, we go beyond gender when thinking about diversity. We screen for both gender and ethnic minority diversity as well as more broadly in terms of the policies that are in place, the processes, the inclusive environments. We can therefore tap into other elements of diversity that are being championed and included within these companies as well.
Another point of differentiation is by adding that social inclusion element to the portfolio. We recognise that you really can’t have diversity without inclusion and that one essentially aids the other.
By investing in companies that do just that, we gain the ability to invest in other geographies and also other sectors as well. This creates a better, more differentiated and effectively balanced portfolio whilst also serving our sustainability and impact mandates.
Finally, this is an Article Nine fund, which means that not only will we just have a financial objective, which is to outperform our benchmark over a five year period, but we also have a sustainability objective as well. This is to bring about greater gender and ethnic minority diversity and also investing in companies that are bringing about social equality.
We will produce an annual report looking at how the companies we hold have actually fared compared to those objectives looking at key diversity and impact indicators at stock level, stating their absolute level as well as their year on year change.
I’d argue that doing this keeps us honest. It also keeps our companies honest and gives more transparency in how we’re measuring and assessing diversity and inclusion.
SW: How important do you see the aspect of social investing in ESG and impact investing?
TSD: It’s very important – although it’s not always recognised as such. When we think about ESG, the industry has typically embraced the emphasis on climate, the environment as well as the governance element.
However, in reality, I think that what often becomes neglected when we think about that whole picture is that climate and the environment and the social elements essentially work together.
Being realistic, climate change disproportionately impacts women and ethnic minorities. You’ve also seen a significant funding gap emerge to the tune of about $100 trillion since the Covid-19 pandemic started, with a lot of social factors being particularly neglected within this realm.
If we know that most of society, or the half of society which are women, are being excluded from climate-related elements or not being able to participate meaningfully in the debates, in policies and in the execution of those policies, we’re really excluding half of the population of the global economy from these important elements.
Developing countries too tend to be the most impacted as well by climate change. So, if half or more of the world is being excluded in these policies because they don’t have access to infrastructure, because they don’t have tools to help empower them and improve their livelihoods, the reality is we are actually not going to make much progress towards achieving the UN’s SDGs as a whole. These are intertwined and they should be taken into account equally. Within ESG, this is also an essential part of the change that is needed and why I believe the investment community needs to take a closer look at investing in those in those social investment themes as well.
SW: Looking to the future, are you excited about where things are going with D&I or do you feel daunted by seeing there’s still a long way to go?
TSD: Actually, I think it’s both. I am encouraged that companies are becoming even more aware of the genuine benefits of improving their levels of diversity. There have been various studies which have shown the solid outperformance of companies that tend to be more diverse, such as McKinsey’s Diversity Wins report and also Refinitiv has produced a report indicating solid outperformance from companies that have great a diversity of board and an executive level. I think that such reports are essentially making the investment community wake up a bit to see that there actually could be benefits. Strategically of course, D&I is not just a ‘nice to have, it really makes good business sense, which is extremely encouraging.
I think increased regulatory support as well is always a good thing. With the recent announcement from the FCA that they are further enhancing their requirements for UK companies in this regard, I think it’s definitely going to have an impact. It should also make measuring how these companies are performing so much easier.
However, there is still a long way to go. We still see significant under-representation of both women and ethnic minorities at the highest level of society and also the highest level of industry. That’s something that might take a while to unwind.
I think it’s important that companies invest meaningfully and also take a more long-term view to resolving this problem. Instead of just window dressing and making a certain board look a certain way, they need to create environments and implement policies that can allow such change to occur more organically. Here, I think there’s a lot more room for improvement. However, I’m optimistic that companies are becoming more galvanised in recognising the need to – and benefits of -investing more meaningfully in those areas as well. It’s a very exciting sector to work in and I’m confident that we are very well placed to continue to build on our success here at M&G, and to deliver for our investors over the longer term whilst achieving our sustainability and impact goals into the bargain.
About Thembeka Stemela Dagbo
Thembeka Stemela joined M&G in July 2018 as an investment analyst for the Positive Impact strategy. She was appointed deputy manager in August 2019, and became manager of the Diversity and Inclusion strategy in October 2021. Before joining M&G, Thembeka was a vice president (VP) in the equity research department at Credit Suisse International, where she joined as part of the Graduate Programme in 2012. She served as a primary analyst for the UK and Nordic non-life insurers in Credit Suisse’s European insurance team. Thembeka has a Bachelor of Business Science Honours Degree from the University of Cape Town (UCT), specialising in Economics.
For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 90776.
