Introduction

The report examines how asset owners integrate diversity, equity and inclusion (DE&I) into internal practices, manager selection and investment stewardship. Based on interviews with 21 organisations across the UK, Europe and the US, it explores DE&I’s growing relevance within the pensions and investment industry. Diversity is defined as representation, equity as fair treatment, and inclusion as belonging. While the theme is typically addressed under the social pillar of ESG, it remains at an early stage of development across most pension funds.

Asset owners’ perspective

All asset owners acknowledged DE&I’s link to improved decision-making and performance, supported by evidence such as BlackRock’s 2023 analysis linking gender balance to higher returns on assets. Cognitive diversity was seen as vital to avoid groupthink and enhance governance.

Ninety-two per cent of funds now integrate DE&I into manager selection and oversight, though practices differ. Early adopters tied DE&I to governance and sustainability from the early 2010s, while most began between 2020–2022, partly in response to the UK Financial Conduct Authority’s 2023 DE&I consultation. Common actions include developing DE&I strategies, improving gender and ethnic representation, and incorporating DE&I into recruitment and engagement with managers.

The Asset Owner Diversity Charter and accompanying questionnaire are widely used for monitoring. Funds reported challenges with inconsistent data, legal restrictions across regions, and difficulties measuring qualitative aspects such as inclusion and equity. Nonetheless, expectations of transparency and progress among investment managers are increasing.

Investment consultants’ views

Consultants have formal DE&I policies and ESG-based rating frameworks. DE&I considerations influence manager scoring, and weak performance can make a product non-investable. UK clients typically focus on having DE&I policies, while North American investors emphasise racial and ethnic representation. Consultants noted an expanding focus beyond gender to include ethnicity, disability and socio-economic diversity, but also highlighted the need for education to distinguish between diversity, equity and inclusion.

Policy components

Funds tend to progress through three stages: internal implementation (recruitment, promotion and culture); integration into manager oversight via RFPs and annual monitoring; and, lastly, consideration within underlying investments. Most have not yet reached the third stage, though the link between DE&I and business outcomes is recognised.

Pension fund challenges

Barriers include data limitations, differing regulations, and resource constraints. Many funds struggle to embed DE&I meaningfully rather than as a compliance exercise, while also balancing it against priorities like climate and nature-related issues.

Industry initiatives

Key initiatives supporting DE&I adoption include the Diversity Project, Asset Owner Diversity Charter, 30% Club, 10,000 Interns programme and HM Treasury’s Women in Finance Charter. These encourage collective progress and standardised disclosure.

Looking ahead to the next five years

Pension funds plan to strengthen data quality, broaden focus beyond gender, and integrate DE&I more systematically into stewardship and reporting. Goals include improving representation in senior roles, aligning with UN Sustainable Development Goals and developing clear key performance indicators. DE&I is expected to remain primarily an engagement and governance issue rather than a direct investment allocation factor.

Literature review

Research links DE&I to enhanced performance, innovation and risk management. Studies cited include BlackRock (2023), showing gender balance correlating with stronger returns, and Edmans et al. (2023), highlighting positive relationships between DE&I and profitability. Evidence from McKinsey (2020) and the IMF (2019) indicates economic benefits from increasing women’s workforce participation, supporting DE&I as both a financial and social driver.

Best practice examples

Effective practices identified include: implementing internal DE&I training; embedding DE&I in manager selection; combining qualitative and quantitative analysis in manager reviews; improving representation within investment committees; aligning consultants’ approaches with scheme expectations; integrating DE&I into voting and stewardship; and adding DE&I as a standing agenda item in manager meetings.

Sponsor’s view on the research

Jupiter Asset Management emphasises that companies balancing people, planet and profit are better placed for long-term returns. It supports the report’s findings on DE&I’s growing significance and advocates alignment with frameworks such as the UN Global Compact and Living Wage initiative. Jupiter highlights opportunities in businesses that promote financial inclusion and transparency as enablers of sustainable economic participation.

Conclusion

Asset owners increasingly recognise DE&I as integral to effective governance and long-term value creation. While awareness and policy adoption are rising, data consistency and implementation remain uneven. Continued collaboration, transparency and education are essential to embed DE&I throughout investment practice and stewardship.