They also noted a new reason as to why businesses should take action in relation to diversity and inclusion: the regulators are expecting them to.
Importantly, an emphasis has been made on the power of an inclusive culture so that the widest range of views and experiences are expressed and listened to in order to improve the quality of decision-making.
But creating culture change through regulatory steps is a challenging path and one that has been tried before. Changes to the UK Corporate Governance Code in 2018 sought to address issues of purpose, value and culture, but the Financial Reporting Council's review of corporate reporting suggests that businesses have found these cultural issues difficult to measure, explain and address in their annual reports.
The regulators have identified data gathering as a first essential step in driving change in the field of diversity and inclusion: initial data will provide a baseline from which to build and a diagnostic tool to identify issues within the business. However, demographic diversity data is challenging to gather.
For global employers, data privacy laws in some countries present a hurdle to asking demographic questions, seeking to protect employees from the misuse of data around personal characteristics such as ethnicity, religion or sexual orientation. Even where data can be gathered, by its nature it is self-reported and employees may choose not to disclose, or may struggle to find a category description with which they identify.
Employees generally seem to have become comfortable with data being collected in relation to gender, and many companies are now also seeking to collect ethnicity data, but data collection in relation to other demographic characteristics in the financial services sector remains unusual.
Rather worryingly, the discussion paper also references a recent research finding that many of the companies collecting ethnicity data do not currently use the data they collect. This raises a real concern that data gathering may be perceived as an end in itself, when in fact it is nothing more than a starting point to drive policy and practice, which is the real agent of change.
Where the objective is to create an inclusive culture, the nature of data to be collected also needs to be considered. Pure demographics are unlikely to tell a business very much at all about inclusivity and data such as engagement surveys, pulse surveys and experience sharing is needed to provide information about whether particular groups feel comfortable expressing views and confident that they will be heard.
This sort of qualitative data may be seen as 'soft' or as difficult to gather, but correctly targeted will reveal much about how inclusive a business actually is, whatever its demographic composition may be.
The risk of diversity and inclusion being seen as a compliance issue is that it is reduced to a series of data points, or a tick-box exercise, making data gathering an end in itself. That is expressly not the intent behind the discussion paper, but rather the regulators are seeking to foster a genuine, sustainable culture change in the financial services sector.
But that change cannot be achieved by housing diversity and inclusion purely within HR or compliance, or any other silo within the business.
In order to effect real change, businesses will need to bring diversity into all aspects of their operations, seeing it as a lens to examine business decisions and processes in fields as varied as customer care, external comms and employee issues such as recruitment, reward, promotion and work allocation.
The regulators have presented a powerful case for businesses to drive change through diversity and inclusion, but to achieve the stated objectives, businesses will need to view their culture with vision, creativity and energy.
The challenge for the regulators will be how they encourage and monitor progress in this field without allowing businesses to fall into the trap of seeing diversity as a question of data and compliance, rather than as a core value flowing through the business as a whole.
Simon Kerr-Davis is counsel in global law firm Linklaters’ employment and incentives practice
