October 16, 2023

How Private Markets Can Lead the Charge on DEI

At the end of September, Novata hosted the Women & Diversity in PE Summit, a series of discussions as part of the larger IPEM convening. In our discussions, we looked at ways industry participants can measure progress on the state of diverse talent in the private markets and suggestions for next-generation firms to be designed with inclusivity at their core. The IPEM conference, boasting over 5,000 attendees, presented the right opportunity to discuss industry progress on a range of sustainability topics and to highlight Novata’s expanded carbon accounting capabilities, data insights, newly launched professional services, and core offering of reporting and robust metric guidance. 

I was honored to chair the summit and lead the discussions on improving diversity, equity, and inclusion (DEI) in the private markets. At Novata, we recommend implementing policies as an important first step to building an equitable culture and looking after employees of all types. When analyzing reporting data from companies on our platform, we found that a majority reported having a DEI Policy (72%) and a Diverse Recruiting Policy (73%). My challenge to the summit participants was for them to acknowledge that the private markets have a unique opportunity to impact thousands, if not millions of workers through action. The private company data reported on Novata’s platform shows that private equity is an engine of job growth — in fact, 91% of the companies reported net new job creation, and the total number created is 80,000 and counting. What would happen if, as part of all that job creation, inclusivity was at the core? 

Representation was another important topic at the summit. In segments on gender diversity, we tackled difficult questions on whether firms were engaged in “women washing” or whether we are, in fact, at a tipping point for female representation in investment roles. Novata data shows that 20% of executive roles at private companies are held by women, with the average C-suite at private companies remaining a long way from gender parity. Research shows that prioritizing gender equity can improve profitability, improve employee retention, and attract talent. This is important not only for future hiring but also for overall economic prosperity. As firms grow, using clear metrics, benchmarking progress, and setting bold goals are necessary to ensure continued progress.

Taking a Holistic Approach to DEI

Novata and our partner Oliver Wyman recently released the results of a joint survey, where we interviewed firms with a wide range of assets under management — from just under $1 billion to more than $160 billion. The report outlined four archetypes for the sustainability programs at private equity firms — basic, standard, enhanced, and best practice — that represent various states of sustainability strategy maturity across European PE funds. I believe there are similar archetypes as it relates to a firm’s DEI strategy, ranging from meeting compliance standards to centering DEI across the business. 

Just like with broader sustainability programs and reporting, formalizing DEI efforts can help firms unlock improved risk management and value creation. Under both enhanced and best practice archetypes, PE firms benefit from competitive advantage. Firms leading the pack can share concrete examples of the successful implementation of DEI policies and drive progress towards industry goals. This can help peers better understand the practical benefits of incorporating DEI into their business practices. 

For next-generation firms, taking a holistic approach to DEI means reorienting around who gets hired and promoted, who gets the investment, and who and what are deemed risky. Panelists describing firms with inclusivity at their core talked about their process for reevaluating who gets invited to industry events and suggested ways to promote up-and-coming talent, such as providing a travel and expense stipend for them to expand their networks. Other recommendations were to include senior women leaders in the recruitment process and to provide support and education around DEI for leaders at portfolio companies.

Novata’s Commitment to DEI

For Novata, guidance around reporting and setting a strategy is core to our offering. From the very start, we assembled external and internal experts skilled in a broad range of sustainability-related topics. In addition to this expertise, we have a consortium of investors, including leading nonprofit organizations the Ford Foundation and Omidyar Network and for-profit organizations active in the private markets S&P Global and Hamilton Lane. This year, we added one of the largest technology companies in the world, Microsoft.

As part of our mission-driven work, and in addition to our software reporting solution, we engage with industry groups, regulators, academics, nonprofits, and standard-setters on reporting and strategy best practices, often opining on the measurement around, and best practices for, reviewing progress on DEI-related topics. I look forward to the next IPEM conference to hear success stories from industry groups and GPs focused on making DEI a central topic, taking this as an opportunity for value creation.