UK pension fund investors’ decisions are becoming increasingly driven by diversity on corporate boards, Green Park has found.

According to new research by Green Park, institutional pension fund investors state that both gender, (83 per cent) and ethnicity, (73 per cent) on corporate boards play a part when making investment strategy decisions.

This focus on diversity is expected to rise further with 71 per cent of pension fund investors expecting to see ethnic diversity rise in importance and be a determining factor in an investment case by 2030. An additional 69 per cent of investors state that gender diversity will also become more important. Four per cent said ethnic diversity will become less important in five years and 6 per cent said gender diversity will lose importance in the same period.

The research also highlighted that six in 10, 58 per cent of main boards in the FTSE 100 firms do not have ethnic minority presence. This rejects Parke Review recommendations that these companies’ boards should have at least one director from an ethnic minority background by 2021, and by 2024 for FTSE 250 boards.

Reasons why UK pension funds have failed to drive diversity in the past include administrators not feeling it is their role to lobby the firms in which they invest, (50 per cent) and being solely focused on the performance of the firms they invest in and not their corporate behaviours, (40 per cent). A further 20 per cent of funds noted that as their investments aren’t large, they cannot wield the same influence as US firms.

In addition, close to a third, 31 per cent of institutional pension fund investors opined that UK pension funds that are not lobbying on environmental, social and governance issues will struggle to attain clients in the future.

Nonetheless, 72 per cent of investors are confident that pension funds will take a proactive approach over the next 12 months to lobby on environmental issues. Sixty five per cent also believe that corporate social responsibility will be an area to drive change.

Morevoer, it is also expected that pension funds will use their financial influence to drive changes in corporate behaviour within existing firms that they hold a stake in. Over half, 56 per cent of pension fund investors believe that UK funds will seek to directly influence corporate policy to better boardroom racial diversity in the next 12 months. A further 54 per cent also see this happening for boardroom gender diversity.

Green Park CEO Raj Tulsiani said: “With trillions of pounds under management, UK-based pension funds have the power to effect real change amongst the businesses in which they invest, if they value diverse leadership.

“Recognising the power to effect change and the reputational benefits of doing so, we anticipate pension funds in the UK increasingly pressurising regressive firms to tackle issues such as gender pay disparities and board composition. Firms driven to improve diversity at board level, without a history of inclusive policies, will need to look beyond their existing talent pools and partner with expert consultants to identify and attract high value candidates that may previously have been excluded from consideration despite their skillset. However, unless businesses can build trust that they are not engaging in a ‘tick-box exercise’, they will not start to attract and retain top talent from the widest and most diverse talent pools.”

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