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Sep 03, 2020

SSGA to seek racial diversity disclosures

Asset manager adding topic to its engagement – and potentially voting

State Street Global Advisors (SSGA) is adding to the growing social and investment pressure on corporations to take issues of racial diversity, equity and inclusion more seriously.

In a letter to board chairs released last week, SSGA global chief investment officer Richard Lacaille explains that starting in 2021 the asset manager – which has roughly $3 trillion in assets under management – will ask portfolio companies to explain their risks, goals and strategy relating to racial and ethnic diversity and to make relevant disclosures to shareholders.

‘The ongoing issue of racial equity has caused us to focus more closely on the ways in which racial and ethnic diversity impacts us as investors,’ Lacaille writes. ‘As long-term investors, we are convinced the lack of racial and ethnic diversity and inclusion poses risks to companies that senior managements and boards should understand and manage. The risks that can arise from having a homogeneous board and workforce are well understood and drove our focus on gender diversity years ago.’

SSGA aims to tackle these issues via its engagement. ‘If required, however, we are prepared to use our proxy voting authority to hold companies accountable for meeting our expectations,’ he writes.

Lacaille acknowledges that collecting racial and ethnic data is challenging for boards, companies and investors and that authorities in some countries limit the gathering of such information. But he says: ‘[I]t is critical for boards and investors to have more robust information and data regarding the racial and ethnic workforce diversity of companies in their portfolios and to understand the steps they are taking to achieve relevant goals.’

As such, SSGA will ask US companies and, to the extent possible, non-US companies, to provide specific disclosures in certain areas:

  • Explain the role diversity plays in the company’s human-capital management practices and long-term strategy
  • Describe what diversity goals the company has, how they contribute to the company’s overall strategy and how these goals are managed and progressing
  • Provide metrics regarding diversity of the firm’s global employee base and board, such as employee diversity by race, ethnicity and gender, broken down by industry employment categories or levels of seniority, for all full-time employees. Lacaille notes that companies in the US can use the disclosure framework used in the United States Equal Employment Opportunity Commission’s (EEOC) EEO-1 survey, and urges non-US companies to use SASB’s guidance and nationally relevant frameworks 
  • Diversity characteristics including racial and ethnic make-up of the board 
  • Explain goals and strategy related to racial and ethnic representation on the board, including how the board reflects diversity among the company’s workforce, community, customers and other stakeholders 
  • Disclose how the board implements its oversight role in diversity and inclusion.

Lacaille also encourages companies to assess barriers to recruitment and retention of diverse talent, particularly among senior employees. He says the talent pipeline for directors is often restricted by a focus on candidates having experience such as being a former CEO, rather than looking for ‘core competencies that strong directors possess.’

Some asset managers are already pressing for greater disclosure and other actions in this area. Jonas Kron, senior vice president and director of shareholder advocacy at Trillium Asset Management, told Corporate Secretary earlier this year that his firm has for two decades been asking companies to release their EEO-1 tables. These must already be filed with the EEOC and include company employment data categorized by race/ethnicity, gender and job category.

He added that this would be particularly important given racial disparity in terms of the health impacts of Covid-19: ‘Given the conversation we are having about gender and race in this country, it’s the least companies can do.’

That outsized impact of the Covid-19 pandemic among people of color and the widespread outcry over the deaths of George Floyd and other African Americans at the hands of police officers have now pushed issues of racial equality to the forefront of political and corporate discourse – in addition to investing and stewardship.

For example, the Racial Justice Investing Coalition – a group comprising 112 asset managers, owners and corporations – in June issued a statement laying out five actions the signatories will take in the future:

  • Commit to actively engage with, amplify and include black voices in investor spaces and company engagements
  • Commit to embed a racial equity and justice lens into their own organization
  • Commit to integrating racial justice into investment decision-making and engagement strategies
  • Reinvest in communities
  • Use the investor voice to advance anti-racist public policy.

Among other developments, a group of senior Canadian business people in June launched a new council and initiative aimed at increasing racial diversity among the country’s boards and executive teams.

Several groups working as the Diverse Corporate Directors Coalition (DCDC) last month urged US companies to increase board diversity and outlined a framework for how such change can be made.

‘The current social unrest in our country calls for proactive, vigilant leadership working toward achieving comprehensive and measurable results,’ said John Rogers of the Black Corporate Directors Conference and chair, co-CEO and chief investment officer of Ariel Investments, in a statement.

‘With the pandemic impacting the economy and people’s lives – disproportionately impacting the lives of people of color – we believe that today, more than ever, it is time for companies to demonstrate their commitment to [diversity, equity and inclusion] by accepting accountability and taking positive action,’ said Esther Aguilera, CEO of the Latino Corporate Directors Association, in announcing the DCDC call to action.