Financial Services Asked to Lead on Ethnicity Pay Gap

ShareAction campaign will be extended to cover low-wage sectors, also targets mandatory disclosures. 

Financial services firms must “lead by example” in disclosing data on ethnicity pay gaps, according to Kohinoor Choudhury, Senior Campaigns Officer at ShareAction.  

In July, the UK-based NGO launched a campaign calling on UK FTSE 100 finance companies to disclose their ethnicity pay gap. Firms with no reporting procedures in place were urged to begin making such disclosures, whereas those already reporting are being asked to improve their transparency.  

Currently, none of these companies are reporting on their ethnicity pay gap in line with the UK Office of National Statistics recommendations, ShareAction said.  

“We want to encourage financial services firms to drive corporate behavioural changes by leading by example,” Choudhury told ESG Investor. “They have enormous influence.” 

Investment consultancy firm Redington’s 2021 ‘Sustainable Investment Survey’ noted that only 3.5% of assessed asset managers had published their ethnicity pay gap metrics and that 68% of all investment teams were white. Further, only 37% of asset managers’ investment strategies consider race diversity when researching portfolio companies.  

Following ShareAction’s questions related to the ethnicity pay gap at corporate AGMs this year, asset managers Schroders and abrdn and insurance firm Hiscox committed to publishing their ethnicity pay gap “once their disclosure rate has increased”, the NGO said.  

Years two and three of ShareAction’s campaign will target low-wage sectors, Choudhury revealed, noting that a “disproportionate number” of ethnic minority workers suffering from low wages, poor working conditions and low progression prospects are employed in these sectors. 

Young black minority and ethnic (BME) workers in the UK are 47% more likely to be employed on a zero-hour contract than white workers in the same age range, and the unemployment rate for BME workers is twice as high, ShareAction noted. 

A lack of transparency on pay is nonetheless a widespread issue, said Choudhury. According to ShareAction’s 2021 Workforce Disclosure Initiative (WDI) report, only 14% of surveyed companies provided any information of the ethnicity pay gap, compared to 59% for the gender pay gap. 

Championing granularity 

Once companies targeted by the campaign have disclosed, it’s important that they are then able to explain why this gap exists and what their plan is to address it, Choudhury said. 

“Companies need to show investors that this is an issue they have visibility of and that they plan to make positive changes.”  

Reporting on ethnicity pay gaps also needs to be “broken down further”, Choudhury added, noting that a number of companies are being too binary, labelling employees as either white or non-white.

“Even those that report Black, Asian or mixed race aren’t sufficiently covering the large variety of ethnicities there are, the differences in pay and how they may be treated in the workplace. We want to see more granular and disaggregated data.” 

The NGO has partnered with minority-led groups to drive the campaign, including the Runnymede Trust, the Living Wage Foundation and the 30% Club. 

Investors from ShareAction’s Good Work investor coalition – which collectively have £3.8 trillion in AUM and advice – have also been encouraged to support the campaign. 

Colin Baines, Investment Engagement Manager at Good Work member the Friends Provident Foundation, said: “Ethnicity pay gap reporting and the data which underpins it will be key to progressing diversity, equity and inclusion (DEI) in the workplace, and we are pleased to be joining collective shareholder engagement to help bring it about.” 

Leading by example 

Investors are increasingly putting pressure on investee companies to improve their transparency around ethnic diversity. 

The investor group of the 30% Club’s UK chapter – which are collectively worth almost £12 trillion – sent letters to FTSE 100 firms ahead of this AGM season, warning they would vote against directors of companies failing to improve racial and ethnic diversity on their boards, as set out in the Parker Review. 

Members further asked firms to disclose how they plan to increase racial diversity and inclusion in their workforces. 

Further, a group of UK asset owners created the Asset Owner Diversity Charter, which aims to tackle the lack of diversity across the fund management industry. It will send out an annual questionnaire to asset managers, calling for disclosures across a variety of diversity and inclusion issues, including ethnicity. 

However, while gender pay gap reporting is mandatory for UK-based companies with over 250 employees, this has yet to be extended to ethnicity pay gap reporting.  

“By showing that such transparency is already being voluntarily achieved by a number of companies and investors, we hope that the government will make ethnicity pay gap reporting mandatory, too,” said Choudhury.

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