ESG industry view – ShareAction


ity by desegregated ethnic categories based on the Office of National Statistic’s classifications.


Martin Buttle is head of good work at ShareAction, a charity promoting responsible investing


ETHNICITY PAY GAP REPORTING IS ESSENTIAL TO DRIVE CHANGE


Earlier this year, ShareAction launched its ethnicity pay gap campaign, calling on FTSE100 companies to report these gaps to raise awareness of and help address racial inequality in the workplace. The first year of the programme will tar- get financial services companies, before expanding to other sectors such as retail and facilities management. The initial focus on financial services is due to their role – not only are they corporate entities, but they are critical to capital allocations which underpin the overall system. Tar- geting capital allocators in the first instance can influence broader value chains and make our work easier as we progress to different sectors. To date, ShareAction has asked 16 ques- tions at AGMs during the proxy season on this issue. All companies have welcomed the questions, with Abrdn, Hiscox and Schroders committing to publish their ethnicity pay data once their disclosure rate has increased.


There are a few early adopters, such as Barclays, HSBC and Natwest, but more work needs to be done to ensure a stand- ardised approach with ethnicity represen- tation and pay gaps reported each quartile. For those already reporting in some capacity, we are essentially asking, and supporting them, to make incremental improvements – such as further granular-


28 | portfolio institutional | October 2022 | Issue 117


Disclosure rates and self ID One of the primary barriers often raised by companies to reporting their ethnicity pay gap is the internal disclosure rate of self-identification (ID). The higher the disclosure rate, the more accurate the eth- nicity pay gap disclosures can be. But increasing the disclosure rate to the nec- essary level has been a challenge to many. A key issue in the collection of this data seems to be employee reluctance or iner- tia. Most companies we have spoken to have verbally committed to publishing their ethnicity pay gap, once they reach a 75% to 80% self-disclosure rate. There are several initiatives at financial services companies to try and increase the self-dis- closure rates such as: – Ensuring they have leaders within the business championing diversity, equity and inclusion (DE&I)


– Explaining to employees why they need the data, and how they will pro- tect confidentiality


– Collecting the data at different points in the employment lifecycle


– Working with employee networks and forums


– Developing specialist apps to stream- line data collection


The good news is that disclosure rates are rising. We expect more financial companies to report their ethnicity pay gap by 2023.


Why pay gap reporting? Reporting


on pay improves diversity


within the workplace because of transpar- ency. An ethnicity pay gap report would help identify the exact location and causa- tion of gaps and allow firms to provide an analysis of the gaps and put in place a tar- geted action plan to reduce any gaps. Ethnicity pay gap is an important metric to help uncover and showcase the diversity of a business at different levels. Reporting


will also help reveal some of the funda- mental nuances of DE&I by disaggregat- ing the data by different minority groups, as making this clear and transparent is the first step towards progress. Without metrics like ethnicity pay gap reporting it is difficult for shareholders, investors and broader society to have a baseline of DE&I to monitor progress.


Next steps


The campaign is a three-year process, while we are targeting financial services companies in the first instance, we will move on to other sectors as time goes on in the hope of increasing voluntary disclo- sures across the FTSE100. As part of the campaign, we have teamed up with the CIPD – the professional body for HR and people development – along- side ethnic minority-led organisations including the Runnymede Trust, #Ethnic- itypaygapcampaign, Project Speak Up and Reboot. We have other expert bodies – such as the Living Wage Foundation, 30% Club and Race Equality Group – to give guidance and advice throughout the campaign lifecycle. We will also be bringing together 46 investors from our Good Work investor coalition, which has £3.8trn of assets under management, to support where possible.


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