Infrastructure investment is predicated on the provision of essential services to society. Ensuring that decision-making accurately reflects the wants and needs of the full spectrum of that society is, therefore, arguably more important in infrastructure than in any other asset class.
“I need to understand what matters to society today and what will matter in 10 years’ time, so I can ensure that the infrastructure we invest in will continue to be relevant, profitable and valuable,” says Esther Peiner, managing director and co-head of private infrastructure in Europe at Partners Group.
“By definition, if that assessment is undertaken by a small sub-set of society, we run the risk of blind spots. We run the risk that we will fail to identify an area of potential disruption. Any lack of diversity and inclusion would hinder our ability to make fully informed investment decisions.”
Sarah Borg-Olivier, chief operating officer at InstarAGF, adds that the importance of DE&I has only increased as the asset class has shifted away from purely physical assets to those with a greater human capital component.
“If you think about the essential nature of the services our infrastructure provides to many different communities and stakeholders today, it is intuitive to strive for greater diversity,” she says.
Meanwhile, the events of the past 18 months have created additional momentum behind infrastructure’s diversity debate. “The pandemic has been a catalyst for change,” says Borg-Olivier.
Lucy Heintz, head of Actis Energy Fund 5 and chair of Actis’s inclusion and diversity committee, points to the challenges women have faced balancing domestic duties with working from home through the pandemic. However, she adds that a change of mindset around flexible working has created an opportunity.
“Working from home is no longer something you need to earn the right to do, or that is restricted to the most senior people,” she says. “In that sense, this experience can help us progress further along the journey to inclusion and diversity.”
“The pandemic has also reinforced the critical nature of infrastructure assets when it comes to keeping the world moving,” says Hadley Peer Marshall, managing partner and co-head of Brookfield’s infrastructure debt business. “Given the increasing role for private infrastructure capital, the need to demonstrate commitment to diversity and inclusion and bring the best teams with the most diverse perspectives and experiences will be critical to ensuring we can continue to surface, debate and access the most attractive investment opportunities.”
DE&I statistics are harder to come by for infrastructure than other private markets asset classes. However, anecdotally, the infrastructure investment community does appear to be more gender diverse, at least, than its peers. This may be due to its relative youth, as well as a heavy focus on the energy transition – a sustainability theme that has resonated strongly with women.
Indeed, infrastructure’s role in mitigating climate change means it has been a frontrunner on ESG, more broadly.
Widening the parameters of ESG to incorporate a more specific focus on DE&I has therefore, in some senses, been less jarring for infrastructure than it has for other asset classes, and progress has been positive.
“There are more opportunities to develop meaningful career paths in an exciting and growing industry, which naturally is beneficial to DE&I goals,” says Peer Marshall. “We also see a concerted effort to attract and retain a diverse talent pool through companies’ recruitment and inclusion programmes and formal and informal organisations like Women in Infrastructure.”
There is no doubt, however, that challenges remain.
“Infrastructure is probably one of the more diverse sectors within financial services from a gender perspective,” concedes Isela Bahena, managing director in the private infrastructure group at Nuveen Real Assets. “But there is still a long way to go. We see little or no diversity when it comes to gender, race or anything else once you reach the senior ranks. That top level is still almost exclusively made up of white males.”
Peiner says that Partners Group receives more than 15,000 applications a year and only around a quarter of them are from female applicants – a proportion that drops steeply for investment roles.
Successful, proactive initiatives range from high school and university outreach programmes to internships. Partners Group, like many firms, has longlist and shortlist diversity targets when hiring at all levels, but Peiner says the educational process across HR and the wider business is arguably more important.
“The trick is to link diverse hires with overall strategic objectives,” she says. “My hope is that within five years, we will move away from quotas to hiring managers insisting on diverse shortlists because they know that will bring the best results.”
And with diverse hiring for more senior positions still a challenge, emphasis needs to be placed on equitable career progression internally. Brookfield’s chief operating officer Lori Pearson refers to this as a “grow-from-within” talent strategy that prioritises internal mobility. And the key, she says, is to set objective benchmarks.
“We have developed clear definitions for performance by function and level which promote our ability to create equal development opportunities,” Pearson says. “We review our assessments annually to ensure that there is no apparent bias in the distribution of these opportunities and to ensure that each category of performance is representative of our overall employee population.
“Mitigating the impact of unconscious bias is at the core of our efforts to ensure our talent processes are fair.”
Nuveen’s Bahena, meanwhile, believes that there needs to be more willingness when it comes to senior executives mentoring a diverse set of candidates within their organisations from an early stage.
“Encourage colleagues not to look for team members that remind them of their younger selves, but rather those that remind them of their sister, or their neighbour’s son, who may look different to them,” she says. “Expand your perspective and open doors for those for whom those doors would otherwise remain closed.”
While working hard to improve DE&I within their own senior ranks, infrastructure managers also face the challenge of improving diversity and inclusion within their underlying assets. Different assets will come with widely differing levels of diversity and inclusion at the point of entry, of course.
Partners Group’s Peiner points to real sophistication among the firm’s Nordic assets, for example, where the licence to operate is being directly impacted by a company’s stance on diversity, equity and inclusion. “Other teams are a lot less mature, and we may spend six months with working groups figuring out how we can positively contribute,” she explains.
“The goal, of course, is that by the time we exit we have not only firmly established the values of DE&I, but that we have created a diverse business. Ultimately, that should underpin some value creation for our investors.”
One of the initiatives that Actis has undertaken to help reach its inclusion and diversity objectives is a portfolio company mentoring programme. This matches ambitious, talented individuals in middle management positions with senior leaders from within the firm, but also from within other portfolio businesses.
“The programme is offering real insight into what it’s like to walk in another person’s shoes,” she says, “and that is a critical component of fostering an inclusive and diverse culture.”
Impact investing and DE&I
Although private equity is not known as a beacon of diversity, the burgeoning impact investment space is very different, according to Nuveen managing director and co-head of impact investing, Rekha Unnithan.
“In fact, impact teams like ours can often be more diverse than the general population,” she says. “That is a function of the experiences and passions that have brought people into the sector.”
Impact strategies typically focus on climate change mitigation or income inequities, and a DE&I component to achieving those goals is increasingly the norm. Nuveen itself is taking a more intentional approach to DE&I by investing in businesses designed to reduce inequality and improve environmental outcomes. “We don’t go out looking for companies run by women or minorities and measure our impact that way,” says Unnithan. “But we see driving a DE&I agenda as one way to improve both the financial performance and impact performance of the businesses we back.”
Nuveen always takes a board seat and because two out of three of the senior private equity impact team are women and women of colour, the investment itself can already have a transformational effect. “We may often be the first women to join that board, so we can bring a different perspective,” says Unnithan. “We then continue to push for improvements around pay equity, skills development and a diverse and inclusive workforce throughout our holding period.”