Financial services fail to welcome diversity

With Black History Month drawing to a close earlier this week, a Reboot survey has revealed that the financial services industry has a long way to go on its journey to building inclusive workplaces.

800 individuals across various ethnic groups working in the financial services space including pensions, insurance, asset management, investment banking, hedge funds, private markets and wealth management sectors participated, with 79% of Black employees reporting they’d experienced discrimination at work over the past year. This figure is up from 71% in 2021. 

So why does the problem appear to be getting worse, and what impact could this have? How can we accelerate change in line with increasingly socially-conscious stakeholder expectations?

Actionable change is needed

Over the last five or so years, social movements, such as #MeToo, and Black Lives Matter (BLM) have created a strong momentum for change in corporate governance and the workplace. The coronavirus (Covid‑19) pandemic had a disproportionate impact on ethnic minorities, placing them at greater risk of financial harm and further entrenching existing inequalities. 

Increasing pressure on corporations to take tangible action in addressing gender and racial injustice at board, management and workforce level, means that silence has become unacceptable and the days of paying lip service are over. Regulator attention around the globe is engaged.

The Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and Bank of England discussion paper from 2021 (‘Diversity and inclusion in the financial sector – working together to drive change’) recognised the sector had “taken steps forward” but acknowledged the “rate of change has been slow”. For example, the proportion of women working in authorised positions in the UK banking sector rose from 9% in 2001 to 20% at the end of 2020. For CEOs, the proportion of women rose from 1.7% in 2001 to 9.7% by the end of 2020.

Alarmingly, the situation for ethnic minorities showed signs of going into reverse: “Findings from the Green Park Business Leaders Index (2021) show a decline in the number of black leaders and the ‘black pipeline’ to senior management for FTSE 100 companies,” the paper said.

Indeed, 46 per cent of Black employees surveyed in the Reboot report felt that engrained working practices or culture in the financial services sector have made it hard to progress.

Roianne Nedd, global director of diversity, inclusion and belonging at Oliver Wyman, reiterates this point in The Financial Times, saying “measures or KPIs are too often targeted at helping get Black people in the door, as opposed to retaining, nurturing, and seeing them progress.”

‘The business case’

Conversations around diversity and inclusion are often shaped by a narrative of ‘the right thing to do vs the business case’. But discussing the business case when it comes to DEI ultimately betrays inclusion and equity principles. 

Research from earlier this year reveals that organisations linking diversity initiatives to their bottom line may become less attractive to the underrepresented individuals they are trying to attract.

We know that an inclusive workplace culture that leverages diverse views is an important factor in determining a firm’s success. A commonly-cited study by McKinsey & Co. revealed top-quartile companies for racial and ethnic inclusion outperformed those in the fourth quartile by 36% in profitability.

Moreover, we know addressing inequality is the right thing to do, and it is what stakeholders expect.

Leadership action

Promisingly, the Reboot survey found 58% feel leaders are now more comfortable tackling gender issues, and 73% of Black respondents reported strong leadership support for their organisations’ diversity and inclusion values, an increase from 61% from the previous year.

Nedd suggests that “Instead of allocating budget to internal training programmes aimed at shifting mindsets, financial services organisations must instead have well-resourced, well-regulated, and well-funded diversity infrastructure aimed at tackling the systemic inequalities Black people face.”

Measuring success

Regulators, consumers, investors and employees alike are growing increasingly interested in direct and indirect social impact. Measuring the right metrics is vital in understanding how to embed meaningful change and determine effectiveness. In order to benefit from a diverse workforce and maintain social licence, organisations must demonstrate their commitment to stakeholders. 

If you’re looking to drive change through deeper understanding and create value through disclosure, get in touch with the SI Engage team to request a demo. 

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