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How Workplace Culture Enables Investment Firms to Do Better

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The following content is sponsored by Wells Fargo Asset Management.

WFAM Workplace Culture

Workplace Culture Enables Investment Firms to Do Better

In today’s highly competitive business environment, workplace culture is becoming increasingly recognized as a source of competitive advantage.

What does this mean for the investment industry, and how can asset managers use it to improve performance?

To find out, this infographic from Wells Fargo Asset Management explores the elements of a healthy culture, then shares four insights regarding the workplace of tomorrow.

The Top Cultural Edges to Develop

Workplace culture was gaining traction for several years prior to COVID-19, but after the disruptions experienced in 2020, its perceived importance has quickly escalated.

In light of this situation, the Thinking Ahead Institute, a non-profit dedicated to improving the efficacy of the investment industry, surveyed 27 asset managers on what they believe are the most important cultural edges to develop.

#1: Diversity, Equity & Inclusion (DE&I)

92% of respondents

DE&I was the top cultural priority by a wide margin, and it’s easy to see why given the industry’s well-documented lack of diversity. Boosting DE&I isn’t just about optics, however.

In a 2018 study, the Boston Consulting Group (BCG) surveyed 1,700 companies globally to learn how diversity affected their performance. They found that firms with above-average diversity on their management teams reported average innovation revenue of 45%, while those with below-average diversity reported it to be about 26%.

#2: Innovation

62% of respondents

Asset managers frequently apply innovative techniques within their portfolios. When it comes to business and operating models, however, innovation is much harder to come by.

The Thinking Ahead Institute identifies a number of characteristics that an innovative culture should possess:

CharacteristicDescription
IncentivesThe degree to which innovation is rewarded
Time scalesWhether the long time horizon associated with innovation is recognized and honored
Judgement capacityLeadership is willing to challenge the status quo and make uncomfortable changes
StructureWhether roles and organizational design allow innovation to flourish

#3: Transparency

42% of respondents

In a recent survey of 300 asset owners, trust was identified as the most important factor for choosing an asset manager, even coming ahead of performance and fees.

Factor% of Respondents*
Trust47%
Good investment track record42%
Personalized service39%
Customer service28%
Low or no fees21%
Social responsibility10%

*Question: Why did you originally select your financial advisor?

By fostering a culture of transparency, asset managers will find themselves better positioned to build deeper, more meaningful relationships with clients and prospects.

Four Insights Regarding the Workplace Culture of the Future

Lessons learned during the COVID-19 pandemic are likely to have a lasting impact on the way businesses operate. To get an idea of what this may look like, here are four insights regarding the workplace culture of the future.

#1: Health and wellness determine business success

Disruptions to normal life were a drain on U.S. workers, with 46% reporting mental health issues during the pandemic—an 18% increase over the prior year.

Moving forward, businesses that focus on wellness may find themselves with a more effective and resilient workforce. In one 2017 study, participation in employee wellness programs was found to increase productivity by 5% to 11%.

#2: Remote work continues to play a role

Over the course of the pandemic, businesses have learned that many of their normal operations can be conducted remotely.

To understand this operating model better, McKinsey & Company analyzed each industry’s potential for remote work. This was defined as the % of time spent on activities that can be done remotely, without any losses in productivity.

IndustryEffective Potential (no productivity loss) Theoretical Maximum
Finance & Insurance76%86%
IT and Telecommunications58%69%
Education33%69%
Real estate32%44%
Arts, Entertainment, and Recreation19%32%
Retail 18%28%

The Finance & Insurance industry has the highest potential for remote work, which is understandable given the industry’s large reliance on office jobs. Sectors such as Retail, which rely heavily on in-store workers, were among the least likely to benefit.

#3: Accelerated adoption of digital strategy

Lockdowns during the pandemic appear to have fundamentally changed the way businesses and consumers interact, resulting in a greater reliance on technology.

To compensate, executives from a variety of industries have reported making larger investments in digitization, particularly in terms of automation and employee communications.

#4: ESG investors pay greater attention to culture

As the benefits of culture become more well-known, investors are likely to give it a more significant weighting when analyzing the environmental, social, and governance (ESG) aspects of a business.

In a 2020 survey on responsible investment, 53% of respondents agreed that after the events of COVID-19, companies should disclose more details about their workplace culture and other social factors.

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An Introduction to MSCI ESG Indexes

With an extensive suite of ESG indexes on offer, MSCI aims to support investors as they build a more personalized and resilient portfolio.

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An Introduction to MSCI ESG Indexes

There are various portfolio objectives within the realm of sustainable investing.

For example, some investors may want to build a portfolio that reflects their personal values. Others may see environmental, social, and governance (ESG) criteria as a tool for improving long-term returns, or as a way to create positive impact. A combination of all three of these motivations is also possible.

To support investors as they embark on their sustainable journey, our sponsor, MSCI, offers over 1,500 purpose-built ESG indexes. In this infographic, we’ll take a holistic view at what these indexes are designed to achieve.

An Extensive Suite of ESG & Climate Indexes

Below, we’ll summarize the four overarching objectives that MSCI’s ESG & climate indexes are designed to support.

Objective 1: Integrate a broad set of ESG issues

Investors with this objective believe that incorporating ESG criteria can improve their long-term risk-adjusted returns.

The MSCI ESG Leaders indexes are designed to support these investors by targeting companies that have the highest ESG-rated performance from each sector of the parent index.

For those who do not wish to deviate from the parent index, the MSCI ESG Universal indexes may be better suited. This family of indexes will adjust weights according to ESG performance to maintain the broadest possible universe.

Objective 2: Generate social or environmental benefits

A common challenge that impact investors face is measuring their non-financial results.

Consider an asset owner who wishes to support gender diversity through their portfolios. In order to gauge their success, they would need to regularly filter the entire investment universe for updates regarding corporate diversity and related initiatives.

In this scenario, linking their portfolios to an MSCI Women’s Leadership Index would negate much of this groundwork. Relative to a parent index, these indexes aim to include companies which lead their respective countries in terms of female representation.

Objective 3: Exclude controversial activities

Many institutional investors have mandates that require them to avoid certain sectors or industries. For example, approximately $14.6 trillion in institutional capital is in the process of divesting from fossil fuels.

To support these efforts, MSCI offers indexes that either:

  • Exclude individual sectors such as fossil fuels, tobacco, or weapons;
  • Exclude companies from a combination of these sectors; or
  • Exclude companies that are not compatible with certain religious values.

Objective 4: Identify climate risks and opportunities

Climate change poses a number of wide-reaching risks and opportunities for investors, making it difficult to tailor a portfolio accordingly.

With MSCI’s climate indexes, asset owners gain the tools they need to build a more resilient portfolio. The MSCI Climate Change indexes, for example, reduce exposure to stranded assets, increase exposure to solution providers, and target a minimum 30% reduction in emissions.

An Index for Every Objective

Regardless of your motivation for pursuing sustainable investment, the need for an appropriate benchmark is something that everyone shares.

With an extensive suite of ESG indexes designed specifically for sustainability and climate change, MSCI aims to support asset owners as they build a more unique and personalized portfolio.

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Tracked: The U.S. Utilities ESG Report Card

This graphic acts as an ESG report card that tracks the ESG metrics reported by different utilities in the U.S.—what gets left out?

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NPUC Utilities ESG Report Card Share

Tracked: The U.S. Utilities ESG Report Card

As emissions reductions and sustainable practices become more important for electrical utilities, environmental, social, and governance (ESG) reporting is coming under increased scrutiny.

Once seen as optional by most companies, ESG reports and sustainability plans have become commonplace in the power industry. In addition to reporting what’s needed by regulatory state laws, many utilities utilize reporting frameworks like the Edison Electric Institute’s (EEI) ESG Initiative or the Global Reporting Initiative (GRI) Standards.

But inconsistent regulations, mixed definitions, and perceived importance levels have led some utilities to report significantly more environmental metrics than others.

How do U.S. utilities’ ESG reports stack up? This infographic from the National Public Utilities Council tracks the ESG metrics reported by 50 different U.S. based investor-owned utilities (IOUs).

What’s Consistent Across ESG Reports

To complete the assessment of U.S. utilities, ESG reports, sustainability plans, and company websites were examined. A metric was considered tracked if it had concrete numbers provided, so vague wording or non-detailed projections weren’t included.

Of the 50 IOU parent companies analyzed, 46 have headquarters in the U.S. while four are foreign-owned, but all are regulated by the states in which they operate.

For a few of the most agreed-upon and regulated measures, U.S. utilities tracked them almost across the board. These included direct scope 1 emissions from generated electricity, the utility’s current fuel mix, and water and waste treatment.

Another commonly reported metric was scope 2 emissions, which include electricity emissions purchased by the utility companies for company consumption. However, a majority of the reporting utilities labeled all purchased electricity emissions as scope 2, even though purchased electricity for downstream consumers are traditionally considered scope 3 or value-chain emissions:

  • Scope 1: Direct (owned) emissions.
  • Scope 2: Indirect electricity emissions from internal electricity consumption. Includes purchased power for internal company usage (heat, electrical).
  • Scope 3: Indirect value-chain emissions, including purchased goods/services (including electricity for non-internal use), business travel, and waste.

ESG Inconsistencies, Confusion, and Unimportance

Even putting aside mixed definitions and labeling, there were many inconsistencies and question marks arising from utility ESG reports.

For example, some utilities reported scope 3 emissions as business travel only, without including other value chain emissions. Others included future energy mixes that weren’t separated by fuel and instead grouped into “renewable” and “non-renewable.”

The biggest discrepancies, however, were between what each utility is required to report, as well as what they choose to. That means that metrics like internal energy consumption didn’t need to be reported by the vast majority.

Likewise, some companies didn’t need to report waste generation or emissions because of “minimal hazardous waste generation” that fell under a certain threshold. Other metrics like internal vehicle electrification were only checked if the company decided to make a detailed commitment and unveil its plans.

As pressure for the electricity sector to decarbonize continues to increase at the federal level, however, many of these inconsistencies are roadblocks to clear and direct measurements and reduction strategies.

National Public Utilities Council is the go-to resource for all things decarbonization in the utilities industry. Learn more.

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