Following on from its work on climate change and sustainability in financial services, the Financial Conduct Authority (FCA) turned its attention to diversity and inclusion (D&I). Its discussion paper, introduced in early July, draws together many threads of diversity and inclusion to create a more holistic look at the issue and how financial services firms should address it.

The primary conclusion that the FCA reaches is that there is no one-size-fits-all approach to improving diversity and inclusion, but it does outline the minimum standards it expects from firms, including representative boards, a review of board succession planning, and direct accountability for individual leaders, potentially linked to their pay packets.

Amarjit Singh is EY’s EMEIA blockchain assurance leader, chair of ICAEW’s Investment Management Committee, and an active supporter of EY’s diversity and inclusion efforts. He believes that taking a holistic approach is the right one and that the paper strikes the right balance between minimum standards and flexibility. Where firms will struggle, he says, will be in collecting and reporting on diversity data.

As signatories to the Charter for Black Talent in Professional Services and Finance, as well as the HM Treasury-backed Women in Finance Charter, we do publish our targets and data. Similarly, we co-signed a letter calling for mandatory ethnicity pay gap reporting with our fellow members of the CBI’s Change the Race Ratio.”

“Through concerted effort, our data disclosure at EY is above 80% for most diversity characteristics. This has enabled us to report our pay gaps beyond gender, including for our different ethnic communities and on disability and sexual orientation. Doing this means having metrics and targets to help us address the gaps and focus on progressing diverse talent to senior levels. We’ve also engaged with our people to help them understand how we propose to use the data in ways that could benefit us all. This takes time, but we are firmly on the journey to improvement.”

Accurate and honest public measurement of diversity and inclusion progress is essential to make it work, Singh explains. What gets measured gets done, as the organisation has put itself in a position where it can be held accountable.

“We need the data, we need the metrics. Only then can we get the change we're looking for. Without the metrics and data, we can't hold people accountable for what is there or is not. As to how those accountability mechanisms might work and how much pay is at risk, that is for individual boards to consider.”

The FCA has discussed the idea of setting targets for representative boards to reflect underrepresented demographics. Board succession planning needs to reflect this, but at the moment, says Singh, succession planning in large firms is still lacking. “We support the call for targets. There is no other business priority where targets are not in use. The Parker Review has set a target for ethnic minority representation on FTSE 100 and FTSE 250 Boards and reports annually. But according to the most recent index from Green Park, succession planning seems to be going wrong, and we haven’t seen real change for ethnic minorities since 2014.”

How difficult it will be to change this will be target-dependent, but it is important for firms to consider publicising their targets to show that they are really trying to make a difference. “It forces an examination of processes and culture. There is no quick fix; change takes concerted focus on many fronts at the same time.”

“Organisations must be braver about talking to their people, clients and communities about their diversity ambitions. It can be hard to get comfortable with the language and to make a start, but it must not prevent us. Most people are now fluent in having gender conversations but still shy away from ethnicity, sexuality, race or other protected characteristics. At EY, we have been running fluency sessions to help our people feel more comfortable and confident in having such conversations and understanding the nuances of the words and phrases used. This also helped move the conversation on to a conversation about equity, rather than equality.”

The difference between equity and equality is a crucial one, says Singh. Equality doesn’t result in equal outcomes – Singh cites the example of an adult and a child trying to look over a fence. Give them both the same size box, and the adult will be able to see over the fence, but the child still will not. “That's going to be an interesting point for firms to actually get their minds around.”

Ultimately, Singh reiterates, disclosure is the key to making real change. EY purposely made its targets public to ensure it is clear that it is taking diversity and inclusion seriously and wants to be held accountable for its actions and inactions. This is also a major opportunity for auditors, who could be providing assurance over D&I as well as other non-financial disclosures to help build trust. “I'm genuinely a fan of the concept. My purpose has always been to help firms to build trust by doing the right thing for their customers. I do a lot of non-audit assurance work on topics such as performance reporting or controls, and I see that as being absolutely core to meeting stakeholder needs.”

Disclosures in the D&I space are not without their challenges, as it relies on self-disclosure from staff. “I repeat my call for more transparency of data and believe there is power in working across the sector on this – if people better understand what we are doing, I believe they will engage more.

It will be a journey before we all get to a point where D&I targets and reporting is well established across the business landscape, but the processes firms have for pay gap reporting in particular are a solid foundation for us all to build on, says Singh.

ICAEW’s Diversity and Inclusion hub brings together timely resources on regulation and equality, along with our latest insights into diversity in the profession.