State Street to Press Companies on Boosting Racial Diversity

State Street Corp.’s investment management arm is taking steps to ensure that the companies in its portfolio are working to increase racial diversity within their ranks.

Starting next year, the Boston-based money manager will seek information on goals companies have for increasing racial diversity, metrics of the makeup of their boards and workforces and details on the role diversity plays in long-term strategy, according to Richard Lacaille, global chief investment officer of State Street Global Advisors, which manages about $3 trillion for individuals and institutions.

“As long-term investors, we are convinced that the lack of racial and ethnic diversity and inclusion poses risks to companies that senior managements and boards should understand and manage,” he said in a letter posted on the firm’s website Thursday.

The racial makeup of boards is getting a closer look as companies face scrutiny over a lack of people of color in top roles in the wake of racial justice protests in the U.S. State Street, which invests in more than 10,000 companies globally, is among money managers that have been pressuring companies to add more diverse directors. Just 4% of companies release full data on the racial, ethnic and gender makeup of their employees.

State Street said that it will also ask companies to assess the barriers to entry and impediments to recruitment and retention of diverse talent, especially at the senior levels.

“Research demonstrates the tendency for groups composed of people from similar backgrounds to refrain from challenging prevailing views, as well as the positive impacts that diverse groups can have on improved decision making, risk oversight and innovation,” Lacaille said in the letter.

State Street is also a custody bank, keeping records, tracking performance and lending securities for institutional investors including mutual funds, pension funds and hedge funds.

©2020 Bloomberg L.P.

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