In this thematic piece, Castlefield's Eleanor Whalley discusses the ethnicity pay gap and how the scope of diversity, equity & inclusion (DEI) strategies among investee firms is increasing to progress characteristics beyond gender.
Studies increasingly point to the strong correlation between diversity and organisational performance, as diverse companies continue to outperform industry peers on profitability, and penalties steepen for those lacking diversity.
However, whilst the focus of businesses has predominantly been on improving gender diversity, there is growing pressure from stakeholders to widen the scope of their diversity, equity & inclusion (DEI) strategy and drive progress on characteristics beyond gender.
The ethnicity pay gap refers to the difference in the average pay between staff from ethnic minority backgrounds in a workforce, compared to ‘White’ staff.(1)
If there is a positive percentage, this indicates that average pay of a White employee is higher than that of an employee from an ethnic minority group. The Equality Act 2010 rules it unlawful to discriminate against employees because of their race. However, pay disparities continue to exist between ethnic groups because systemic discrimination imposes a disadvantage on those from ethnic minority backgrounds, who in turn are more likely to occupy lower paid roles.
Equality is not enough in the sense that it disregards this relative disadvantage. Rather, equity acknowledges that there is no meritocratic level playing field given the historical and systemic barriers facing ethnic minorities.(2)
Promoting greater transparency on the ethnicity pay gap is an essential step to advancing racial equity in the workforce.
In 2022, Castlefield joined ShareAction’s Good Work Coalition, comprised of investors who are committed to encouraging investee companies to:
Become Living Wage Employers
Start to support the Living Hours campaign
Focus on good working standards with regard to pay and insecure work
Advance racial equity in the UK workforce
Following on from this, Castlefield recently signed an investor letter promoting greater transparency on the ethnicity pay gap by encouraging companies to report this data publicly. Whilst companies with 250 or more employees are legally obliged to report on the gender pay gap, the UK Government has not yet mandated ethnicity pay gap reporting. Currently, only 15 of the FTSE100 companies report on their ethnicity pay gap.
Although Castlefield are not holders of the companies that the investor letter is first targeting, we are keen to support the movement in a push for best practice amongst the UK’s largest listed companies who must lead by example.
Whilst many companies are beginning to meet the recommendation set out in the Parker Review of having at least one director from an ethnic minority background on the Board, the letter contends that this alone will not directly lead to improvements for ethnic minority workers.
We look forward to supporting the Good Work Coalition and we will continue to communicate on the progress made as Castlefield join other investors in a collective push for better working practices.
Written by Eleanor Whalley
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