This article is sponsored by Schroders Capital.
What DE&I information are investors seeking from GPs in terms of reporting?
Today, from a DE&I perspective, LPs are most focused on how many women are on teams, both at GP level and throughout the underlying portfolio. Other diversity metrics such as ethnicity are not yet as much of a focus, although it is recognised that those will follow, not least because it is achieving diversity of thought that makes the difference.
Diversity more generally is what creates strength, and that covers age, nationality, ethnicity, race, religion, sexual orientation, but also upbringing and personality type. How we see the world, synthesise data and problem solve – those things are less easily quantified but all make a significant contribution to the strength of the team.
While gender diversity is important, it is also the easy target, as well as the easiest one to measure. For now, if there are only male team members, LPs are pushing back to change that, and stakeholders are questioning the culture. Going forward, with the EU’s Sustainable Finance Disclosure Regulation and other new regulations, we will have more access to data, and the scope of the DE&I conversation will only expand.
How should gender diversity fit into a broader ESG strategy for GPs?
Gender diversity should not necessarily even be part of the ESG strategy, but should instead be part of strategy more broadly.
At GP level, this should be a given by now, as it is recognised that it is so important to have a diverse team. Culture is what makes a firm what it is and that starts at the top, so strong leadership is critical, as is having transparent and open policies around career development, supporting families and flexible working.
Those things are also what make strong businesses. You will only attract the best talent if you have strong leadership, real vision and purpose, and a culture that is inclusive and sustainable. For GPs looking to support portfolio companies that are at the early stages of a gender diversity journey, the key is to encourage diversity of thought from the start.
When looking at value creation, how does DE&I fit into the 100-day plan?
It is important to remember that diversity and inclusion is not a quick overnight fix but a long-term game, so it is vital to find the right people and not just fill a quota.
The 100-day plan often focuses on what can be done quickly to start that journey, and so that invariably comes back to leadership. Of course, it is possible to support management by bringing in more diversity, but that culture from the top needs to change.
Diversity of thought needs to start with the board and be combined with the diverse perspectives and experiences of the executive team. It then will be spread across the workforce and throughout the value chain. Each level is as important as the next, so that means looking through the entire organisation and the businesses it is interacting with to make sure there is diversity in respect of people feeling seen, heard and included, as well as given equal opportunities. That might start with HR policies and recruitment procedures, but it must be embedded across the business.
Some of the most successful private equity firms encourage strong ties to community at portfolio level, as a means of giving back and coming together to create better cultures on a local level.
How can GPs ensure progress on gender diversity beyond their hold period?
The longevity of progress comes back to management because it is all about embedding new and long lasting approaches into the culture. None of these things will change overnight but, with good leadership, change can trickle down and strengthen the organisation as a whole, ensuring practices remain after exit.
With the regulatory push in Europe, many funds will be classified as Article 8 or Article 9 funds under SFDR and will take on new reporting requirements. Depending on what the GP has committed to, there will be a legal requirement to report on DE&I metrics, so GPs are putting targets in place and tracking progress.
Early signs are that companies are passionate about the increased focus on sustainability, impact and diversity, and they are committed to the cause even beyond exit. As more funds become Article 8 and Article 9, that natural push in the industry will increase and even more data will be collected and monitored.
What can PE firms do to support female talent over the course of their careers?
Mentoring is important here, as is having strong female leaders to set an example. Different people bring that diversity of thought and diversity of skillsets, making sure the firm is not just rewarding certain types of behaviours but valuing the contributions that everyone brings to the business.
Role modelling from the top is key to empowering talented individuals to build work-life balance and perform at their best. It is also important for companies to support family life and flexible working. Top-down policies that are not lived and breathed do not work, so the behaviours that are encouraged must be evident.
How can funds get employee buy-in for DE&I initiatives?
When anyone feels like they are being forced to do something, there will inevitably be pushback, especially if people have not bought into the benefits. That is why embedding DE&I sometimes needs to be a gradual, holistic process and why it is important to look beyond just building teams that are equal parts male and female.
Ensuring you don’t get caught up in groupthink as a result of everyone having gone to the same university or studied for the same degree is what this is about, and that needs to be communicated and understood via a thoughtful process.
If it is well understood that the motivation is to make the organisation more robust, and to encourage an element of self-reflection, it is easier to build buy-in.
Crucially, funds need to understand and explain the ‘why’, and then the ‘how’ will follow. A key element of the ‘why’ comes down to attracting the best talent for years to come, because the younger generations will look at ESG and diversity within organisations and make career decisions on that basis. A stronger organisation comes from a transparent culture of working together, and hopefully that includes DE&I, because that is what creates the best teams.