Inclusive, not Exclusive
Disability inclusion has emerged as a must-have theme for DEI-focused investors.
Seeing diversity, equity and inclusion-related (DEI) themes – from gender, to ethnicity, to socioeconomic background – climb up the agendas of investors and companies alike in recent years has been heartening.
Sadly, the same cannot yet be said for disability inclusion.
An estimated 1.3 billion people — around 16% of the world’s population — experience some form of disability. With an ageing population, compounded by the long-term effects of climate change and Covid-19, this number is likely to increase dramatically by 2050.
“Disability is something that can often be viewed [as] affecting a very small part of the population, but in fact, [it] spans a broad definition — affecting 23% of working age adults in the UK [for example],” says Madhurima Sen, Director of Credit Manager Research and a member of the DEI Work Group at investment consultancy WTW.
Societal barriers remain in place, making it difficult for people with disabilities to find work, and most products and services provided by companies are not designed with disabilities in mind.
For those who are employed, there are plenty of examples of companies failing to support, or even discriminating against them.
From an investor’s point of view, ignoring this can majorly play to their disadvantage.
“If firms are not able to hire and retain individuals from this group, they are potentially missing out on a huge talent pool with unique capabilities and insights,” Sen points out.
Ted Kennedy Jr, Co-chair of the Disability Equity Index and member of the American Association of People with Disabilities (AAPD), believes the tide is changing in favour of disability inclusion, with a small — and steadily growing — cohort of investors making strides to introduce the topic in their engagements with portfolio companies.
“It’s not only that [financial institutions and companies] recognise it’s the right thing to do – there is a huge cost benefit to employing strategies that accommodate people with disabilities,” he says. “Investors are seeing that companies leading on disability inclusion actually outperform their peers, securing higher profits and higher revenue.”
Fiduciary incentive
Kennedy’s claims are backed by some pretty compelling evidence.
Recent research shows that US-based companies that embraced best practices on disability inclusion achieved 28% higher revenues, double the net income, and 30% higher economic profit margins over a four-year period compared to industry peers who did not do the same.
In addition, companies that improved their overall DEI score were four times more likely to deliver higher total shareholder returns — outperforming by 53% compared to their peers who outperformed by 4%.
Others reports have also shown that companies prioritising disability inclusion are 25% more likely to outperform their peers on productivity, and typically are more positively perceived by the public on forums such as Glassdoor.
In terms of mitigating risk, according to the International Finance Corporation (IFC), countries stand to lose approximately 7% of their GDP when people with disabilities are excluded from their labour market. Meanwhile, more inclusive economies enjoy higher levels of productivity, growth, and return on investment, it said.
Climate-conscious investors should also be considering the potential impacts of their investment strategy on people with disabilities. A paper by the Climate Investment Funds stated that climate-related investments may inadvertently contribute to structural inequalities that reinforce the exclusion of people with disabilities.
In addition, the World Bank has highlighted that people with disabilities are more likely to experience adverse socioeconomic outcomes — including less access to education, poorer health outcomes, lower levels of employment, and higher poverty.
Mounting regulation on the subject across jurisdictions means it’s increasingly relevant for companies and investors to assess their performance on disability inclusion to avoid legal risk.
“One of the things we’re most excited about is that the European Financial Reporting Advisory Group (EFRAG) has included disability in the social standards under the European Sustainability Reporting Standards (ESRS),” says Reid Jewett Smith, Director of Research and Policy at Disability:IN. The theme features in nine of the ESRS social standards, and in one of its governance standards.
Mitigating risk
There are, however, investors who already recognise the risks and opportunities related to disability inclusion.
“We believe that workplace DEI across a variety of characteristics — including disability — is important, and support company efforts that aim to strengthen diversity and inclusion,” a spokesperson for UK workplace pension Nest tells ESG Investor.
A joint investor statement on corporate disability inclusion led by Disability:IN demonstrates that there is a pool of investors who are actively calling on portfolio companies to capitalise on related opportunities. These include the likes of Trillium Asset Management, and the New York State (NYS) Comptroller Thomas DiNapoli.
“We want our portfolio companies to create sustainable, long-term value,” the statement reads. “[T]his requires a workforce with a wide range of viewpoints, skills, abilities and experiences.”
Signatories have asked companies to analyse their disability inclusion policies through third-party benchmarking tools — such as the Disability Equity Index — as well as establish a public and company-wide hiring goal for people with disabilities. They also require that progress against that goal be measured.
“[NYS] Comptroller DiNapoli has called on companies to ensure their workplaces are inclusive of individuals with disabilities, because it increases their competitiveness in hiring and retaining the most talented employees,” says a spokesperson for the Comptroller’s office. “[H]e has encouraged companies in the NYS pension fund’s portfolio to participate in the Disability Equity Index, which can help educate companies on their workplace strengths and weaknesses, and on ways to improve their inclusion of individuals with disabilities.”
Hyewon Han, Director of Shareholder Advocacy at Trillium Asset Management, tells ESG Investor that disability inclusion forms part of the firm’s advocacy work on an inclusive economy and businesses.
“We believe companies prioritising accessibility and inclusion gain competitive advantages in talent acquisition, customer loyalty, and market expansion,” she says. “We hope to see more investors champion disability inclusion and companies spearheading these initiatives as a business strategy.”
Disability inclusion is also on the radar of other investors who haven’t signed the joint statement.
Kennedy says he has interacted with investors who want to see related risks and opportunities are being addressed within their own organisation first, before interacting with portfolio companies on the issue.
“We see this as a really positive sign that these [investors] will be allies in the years ahead,” he adds.
Some of these efforts are already paying off, with Kennedy pointing to a “dramatic uptick” in the number of companies now taking part in the Disability Equity Index.
Last month, Disability:IN published the latest iteration of its index, with a record number of companies taking part and improvements logged across nearly all assessed practices — although more work is needed on diversity reporting, supplier diversity spending, and boardroom-level inclusion, it said.
Despite obvious progress, a large percentage of investors have failed to incorporate disability inclusion into their social-focused engagement and investment strategies.
WTW data shows that less than a third of 450 assessed asset managers are tracking diversity themes beyond gender and ethnicity. Only 31% are tracking disability, compared to 72% for ethnicity and 84% for gender.
Promoting disability inclusion
Guidance is already available to support investors looking to assess portfolio companies on their awareness and progress on disability inclusion.
The IFC, for example, has developed a three-stage roadmap for investors to consider disability inclusion at each stage of the investment cycle, creating a baseline to measure progress.
Meanwhile, British International Investment (BII) has published investor guidance on disability inclusion, saying fund managers should aim to assess the extent to which a company is compliant with applicable laws and regulations.
Investors should consider whether the investee company is taking a “proactive approach” to ensuring their operations, products and services are disability inclusive,” BII added. For instance, they should find out whether the company has a budget for disability inclusion and look to ascertain whether it has taken action to prevent and respond to related discrimination, abuse and exploitation of people with disabilities.
The spokesperson from Nest points out that the pension is a member of the Workforce Disclosure Initiative (WDI), which runs an annual survey to collect data voluntarily disclosed by companies on workforce and human rights topics — including disability and wellbeing.
“This information helps us to improve transparency in the market and help inform investors’ investment and stewardship decisions,” the spokesperson says.
The workplace pension is also part of the UK’s Asset Owner Diversity Charter, which promotes DEI across the finance industry. Its workstream on disability aims to encourage member firms to sign up to best practices and measure them effectively. It aims to support organisations by offering bespoke training to member firms, creating a support network of individuals who can share experiences, as well as increase engagement with member firms to understand the support they require.
“One of the most important things a company can do to demonstrate its commitment to disability inclusion is for the CEO to publish a public, positive statement,” says Jewett Smith. “Investors should also look at the range of ways [in which] it engages on disability, including from a multinational perspective.”
While most multinational companies start by focusing on themes in the country in which they’re headquartered, it’s important that the thousands of employees abroad can also benefit from the same practices and policies, she says. The same applies to their supply chains, Jewett Smith explains.
“Accessibility and inclusivity are two key challenges for companies looking to ensure they can hire and retain diverse talent with a disability,” says WTW’s Sen. “These will not [have] one-size-fits-all [solutions] for firms or individuals, but firms should consider these practices in the context of their people.”
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