KEY TAKEOUTS

• DEI policies are linked to improved company performance, becoming key to long-term sustainability and profitability in global corporate strategy.
• Trump’s anti-DEI stance has led many US companies and investors to retreat from diversity initiatives, fearing financial and legal risks.
• In South Africa, DEI remains essential, with local laws supporting transformation and diversity, encouraging ongoing commitment from both local and foreign investors.Despite global setbacks, DEI’s business case remains strong, with Old Mutual Investment Group seeing strong progress among its investee companies, such as historically homogenous companies in the retail sector.

In recent years, the importance of Diversity, Equity, and Inclusion (DEI) has become a central focus for companies across the globe, particularly from the standpoint of responsible investors. As a growing body of evidence has linked DEI to improved company performance, the principle has emerged as an essential element of a company's strategy for long-term sustainability and profitability.

Despite rising recognition of DEI’s value in enhancing performance, the return of Donald Trump to the US presidency has seen astonishing pushback against DEI initiatives. The Trump administration has made their position on DEI policy abundantly clear, taking several steps to undermine the progress of DEI programmes, including rolling back policies that promote diversity in the workplace and in government contracting. Trump’s stance on DEI initiatives, including his executive orders aimed at halting diversity training in federal agencies, has sent a message that the pursuit of diversity could be viewed as divisive or unnecessary.

Trump’s anti-DEI stance has set off a chain reaction, with many high-profile US and multinational companies scrambling to retreat from their previous DEI policies, alongside some large investors. This has raised the inevitable question among diversity advocates globally: is DEI dead?

Evolving, but not dead

In South Africa, a nation characterised by its diverse population and historical challenges regarding inequality and discrimination, the importance of DEI is particularly pronounced. As a country we remain the living embodiment of why DEI is so critical and why it certainly can’t be abandoned, both at home and globally.

If we look at the global landscape, DEI momentum is, categorically, not dead; we are currently not witnessing the same level of roll back of DEI policies in global corporates that we have seen in US-based corporates. However, we are starting to see definitions evolve particularly in the description and implementation of DEI in practice – in some cases it is being termed in broader strokes such as ‘intersectionality’.

Considering the companies that acted in haste to remove DEI policies from their corporate policies, these organisations were likely motivated by two reasons: financial and legal risk.

Financial risk can be explained by the sense that failure to roll back DEI policies would result in the loss of business with the federal government, which has specifically abolished DEI practices – many US corporates may fall into this category. The other less well-known issue is that US companies are potentially trying to avoid legal risk by removing explicit DEI policies from their public notices. It has already been law in the US for some time for a company not to hire or fire based on ethnicity, religion etc. Some corporates are likely to have seen the political shift as an opportunity to avoid legal risk by not making public statements on their hiring practices.In South Africa, the impact and reaction of local companies to Trump’s crusade against DEI is likely to be more limited. When investing offshore, foreign companies typically apply the local laws to their local subsidiary. Investing in SA means investing in accordance to the laws of transformation and B-BEEE as well as the constitutional principles encouraging a redress of historical injustices. This will continue to encourage DEI commitment from both local and foreign investors and employers as long as local legislation supports DEI policy in local companies.

The proof is in the progress

Aside from being the right thing to do, as an organisation, we believe that there is substantial evidence that companies that embrace DEI perform better, attract and retain talent and enable better innovation and problem solving. In fact, according to McKinsey, organisations with diverse teams are 36% more likely to outperform their peers.

At Old Mutual Investment Group, this ethos applies not only to our own business, but to those companies that we invest in. Guidelines on social issues when engaging with investee companies are clear and a section on social issues is included in our Listed Equity Stewardship Guidelines found here. Among the many social issues it provides guidance on, our expectations of investee companies regarding DEI are explicitly stated as “A company should implement a programme of human capital development by monitoring and addressing the number of staff within the organisation, the progression towards employment equity targets, the provision of training that will increase employees’ competency and also provide opportunities for women, previously disadvantaged and disabled individuals.”

When it comes to how this policy translates in practice, there are many, as of yet, unquantified examples of the success of our investee companies that have embraced DEI. However, some of the more tangible examples of success can be found in historically homogenous companies in the retail sector. Shoprite is a good example, where previously the board lacked diversity with some directors being former executives and/or appointed as shareholder representatives of large, related parties. A step change improvement governance took place with the election of Wendy Lucas Bull to the board in November 2020 leading to our immediate focus on pressuring changes at board level and on key committees to introduce diversity. During 2021 we noted the appointment of four independent NEDs and their allocation to key board committees. The improvement in DEI at board level has filtered down into other layers of the organisation such that most of the branch management are diverse in terms of ethnicity and gender as per their latest report.

Future-fitting a fragmented world

Despite divisive political figures such as Donald Trump undermining DEI initiatives in certain parts of the world, the evidence supporting the business case for diversity remains irrefutable. As the world appears to be entering a period of increasing polarisation, embracing policies that promote inclusion and celebrate the value of diversity are essential to ward off the regression of an unequal and discriminatory world. South African investors have the opportunity to champion DEI, proving that investing in diversity, equity, and inclusion is not just the right thing to do, but also the practical thing to do for long-term success.