The significance of diversity and inclusion for investment fund managers: an overview.
In the realm of financial services, a significant shift is underway as firms across the UK are cultivating consistently inclusive cultures. This transformation is being driven by structured, data-driven strategies that prioritise accessibility, gender equality, inclusive leadership, and diverse representation at all levels.
Employee development programs, such as disability talent initiatives and diverse recruitment practices, are being implemented to ensure a diverse workforce and leadership. Organisational efforts extend beyond the workplace, fostering cultures of belonging, promoting diversity of thought, leadership engagement, regular feedback mechanisms, and supporting underserved communities. Employee Resource Groups (ERGs) and educational programs also play crucial roles in embedding inclusive behaviours and empathy organisation-wide.
Regulatory intervention is a key catalyst for this change. The UK's Financial Conduct Authority (FCA) has introduced new rules effective from September 2026 that expand behavioural standards under its Code of Conduct to a wider range of financial firms and employees. This regulatory framework reinforces firms' accountability to cultivate respectful and inclusive environments and helps align industry practices.
Under the Senior Managers and Certification Regime, the FCA is creating a formal link between individual behaviour and the conduct of the firm. This means that all regulated firms can expect tough questions from the FCA about representation across grades and the inclusivity of their culture. However, the FCA will not mandate specific cultures across the pool of 60,000 firms it regulates.
The FCA's latest whistleblowing campaign aims to encourage more reporting of potential misconduct to the FCA by those working in financial services. The benefits of a diverse pool of talent in the workplace are well proven, and the lack of diversity has been linked to financial scandals.
In light of this, the FCA considers Diversity and Inclusion (D&I) as a regulatory issue and has warned about improvements in diversity at senior levels. The regulatory focus on D&I is attracting the FCA's particular attention at the moment.
Portfolio companies should be encouraged to promote diversity at board level and collect diversity and employee engagement data. Fund managers should consider incorporating D&I into their due diligence process and setting a minimum D&I policy standard for portfolio companies. They should also allocate a budget and set targets for diversity at all levels within their firms.
The investment funds industry is focusing on D&I as part of the 'S' in ESG. The British Private Equity & Venture Capital Association and the Investment Association have published new guidelines on D&I this year. The FCA's CEO, Nikhil Rathi, has suggested that the diversity of management teams could become part of the FCA's consideration of senior manager applications.
Moreover, the FCA has mentioned the prospect of compulsory ethnicity pay gap reporting. D&I training programs should be implemented, with a focus on continuing education for employees.
In summary, financial services firms are embracing inclusion as they strive to create a more diverse and equitable industry. Regulatory requirements are playing a crucial role in reinforcing these efforts, ensuring that firms are held accountable for their efforts to combat misconduct and cultivate inclusive cultures.
- Venture capital firms and private equity groups are incorporating Diversity and Inclusion (D&I) into their due diligence processes, setting a minimum D&I policy standard for their portfolio companies, and allocating budgets and setting targets for diversity at all levels within their firms, reflecting the broader industry emphasis on D&I as part of the 'S' in ESG.
- Fund managers are encouraged to promote diversity at board level in their portfolio companies and collect diversity and employee engagement data, as part of regulatory efforts to address the lack of diversity and link it to potential financial scandals, with the UK's Financial Conduct Authority (FCA) considering D&I as a regulatory issue and even suggesting that the diversity of management teams could become part of the FCA's consideration of senior manager applications.
