At PNC, we have embraced the core value of diversity and inclusion across our organization, and we believe these principles should also be applied to how we serve our clients. Here we outline a variety of ways we approach implementing such a lens across both the firm- and fund-levels.

In this whitepaper, we discuss dimensions for constructing portfolios that integrate a diversity, equity, and inclusion lens, such as representation – is there diversity at every level and in every unit of a company – along with promotion and retention of diverse employees, accessibility of healthcare benefits, and pay equity analyses.

Events in 2020 have demonstrated there are reverberations from deep within our country’s past, with investors and consumers searching for new kinds of accountability from business leaders. Amidst tensions between the ideals set forth by the Founding Fathers and the reality people of color continually face, we believe our nation has reached a tipping point. This sentiment is echoed by PNC Chairman and Chief Executive Officer Bill Demchak who stated, “We are living in one of the most important civil rights movements of our time.”

At PNC, diversity and inclusion have been long-standing values, and we remain firm in the values that drive our culture and our behavior as well as reflect our priorities.

In recent months we have evolved our understanding of this commitment to include the notion of equity and have taken a firm stance on these principles within our own business operations. We have further expanded that notion to the communities in which we operate with a pledge of more than $1 billion to help end systemic racism and support the economic empowerment of Black and low- and moderate-income communities.

We believe PNC is uniquely positioned to contribute as a bank, and our commitment — a combination of philanthropic capital, community development financing, and capital for neighborhood revitalization, consumers, and small businesses — highlights the promise of sustainable finance and responsible investing (RI) for driving positive change in our communities.

Defining DEI

Historically, diversity, equity, and inclusion (DEI) initiatives may have felt like a “check-the-box” exercise for many companies, but considerations for DEI in our investment management services are a priority, both in our operations and in the investment solutions we provide.

Whether it’s endowments and foundations requesting information on the racial, ethnic, and gender diversity of the fund managers in their portfolios, or individuals and families wanting to incorporate a DEI lens across asset classes, it’s clear that DEI has become a fundamental expectation of investment managers.

To understand how to best integrate DEI factors into our own practices, we have developed a working definition of DEI. At PNC, we define diversity as the presence of differences that make each person unique. We have evolved our understanding to account for inclusion as the full engagement and development of all employees.

From a corporate perspective, this makes sense, as we have more than 50,000 employees with rich and different backgrounds.

We can use these descriptions as a foundation to provide a more explicit definition of the types of diversity we are assessing as part of the investment process. In our RI practice, we define DEI in the following ways:

Diversity: Intentional representation of different minorities or underrepresented populations with considerations of race and ethnicity, gender, sexual orientation, and disability status.

Equity: Impartially and fairly providing access to resources and support, including investment capital and development opportunities, for minorities and underrepresented populations.

Inclusion: Fosters deliberate actions that allow all individuals or groups to feel valued by authentically engaging and participating in the capital markets.

When we combine these three elements, our DEI lens can be defined as intentionally seeking investment opportunities in minorities or underrepresented populations in an equitable manner that results in:

  • Greater representation of minority-owned investment firms;
  • Increased assets under management for minority-run investment funds; and/or
  • Allocating capital toward investment strategies that intentionally consider and engage with companies on DEI criteria.

This working definition allows us to develop an investment thesis for constructing portfolios as well as identify the types of data we need to effectively craft holistic investment solutions.

Responsible Investing: Elevating The “S” In ESG 

We believe investment managers should be collecting and reporting on an increased number of diversity metrics to provide investors rich information about the make-up of the firms in which they are investing. Combining nonfinancial goals, such as considerations for DEI, with financial objectives sits squarely in our approach to RI.

Three Forms of RI

At PNC, RI generally takes three forms[1]:

  • Avoiding Harm: excluding or restricting areas based on certain values;
  • Benefiting Stakeholders: assessing and engaging on environmental, social, and governance (ESG)- related factors; and/or
  • Contributing to Solutions: defining a specific, targeted impact and allocating capital toward that objective.

We see RI as a goals-based strategy, one that can be incorporated into investment portfolios in a variety of ways across asset classes. In our view, assessing fund managers and companies on DEI criteria falls squarely in the “S” category of ESG, with the intent to “benefit stakeholders.”

Over the last decade, traditional financial analysis has been increasingly coupled with the assessment of ESG factors. This process, known as ESG integration, involves assessing how companies are effectively managing risks and/or capitalizing on opportunities related to ESG factors (such as risks resulting from a company’s carbon emissions or controversies involving racial discrimination lawsuits), and companies are reacting to investor assessments of ESG criteria in ways they may not have taken as seriously in the past.

Evolving Private Sector Priorities 

For instance, within the last year, the Business Roundtable, an association of chief executive officers (CEOs) of major US companies, took a firm commitment to all stakeholders by updating their Statement on the Purpose of a Corporation. Since 1997, the Business Roundtable’s Statement generally aligned with the 50-year-old prescription from Chicago economist Milton Friedman that the only social responsibility of business was to increase its profits. We now see members of the Business Roundtable eschewing Friedman’s view of corporate responsibility by committing to deliver value not only for shareholders but also for their employees and the communities in which they operate. Most notably, CEOs who sit on the Business Roundtable have committed to:

Investing in employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that helps develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity, and respect.

Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.

Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow, and innovate. We are committed to transparency and effective engagement with shareholders.[2]

Although the Business Roundtable’s statement preceded the global COVID-19 health crisis and the demonstrations around the country for racial justice spurred by the deaths of Black Americans such as George Floyd and Breonna Taylor, corporations’ commitment to positive change has likely increased given the groundswell of investors asking questions around “S” factors.

The Long and Winding Road 

Despite the increased rhetoric, some investors remain skeptical of the execution and impact of these objectives.

Companies have taken affirmative stances on DEI before, yet there is evidence indicating progress along DEI factors has been slow and incremental. Even with grand statements like the Business Roundtable’s, each organization may still implement its respective policies, programs, and procedures surrounding DEI at its own pace.

As an example, the Alliance for Board Diversity and Deloitte analyzed corporate board demographics for Fortune 500 companies between 2010 and 2018. They identified that in 2018, women and minorities represented only 34% of corporate board seats — albeit a nearly 10% increase from 2016 (Chart 1).[3] Although diversity demographics on corporate boards are on an upward trend, the researchers estimate that at the current rate of progress, the number of women and minorities on boards will not reach their target of 40% until 2024.

Chart 1: Board Diversity at Fortune 500 Companies


View accessible version of this chart.

We recognize diversity on corporate boards is only one way to consider the DEI characteristics of companies. Specifically, many investors have wondered what responsibility a company has to its employees and customers to ensure their health and safety or to combat broader issues, such as systemic racism.

These pivotal moments present business leaders with exciting, yet challenging, decisions if they want to live up to their promise to provide value to more than just shareholders.

To assess companies along DEI criteria, investors and company management are moving outside the board room to examining and reporting on “S” factors (of ESG), as shown in Figure 1. Such factors can provide context for how companies might treat their employees, engage with the communities in which they operate, and provide access to services important for minorities and underrepresented populations.

Figure 1 Examples of “S” Data with a DEI Lens

d d d
Anti-Discrimination Policies Affordable Housing Finance & Development Community Relations
Company-wide Diversity Diversity & Inclusion Programs & Policies Healthcare & Parental Leave Benefits
Financial Inclusion Practices Education Technology & Facilities Human Rights Policies & Practices

Assessments of these “S” factors indicate that investors are going beyond compliance with the law and moving further toward assessing and integrating DEI initiatives as a corporate value. Research that compares DEI initiatives of different companies can provide a useful framework for understanding where corporations might be on their journey for integrating DEI initiatives. Chart 2 highlights six stages of diversity management implementation from “no consideration” to “risk mitigation” to DEI for “competitive advantage.”

In the S&P 500® Index, for example, DEI characteristics® can vary depending on the sector. In November 2020, we conducted an assessment of the strength and weakness of S&P 500 constituents’ diversity programs and anti-discrimination policies and found that, on a scale from 0 to 100 (zero meaning no programs or policies and 100 indicating very strong policies and programs), the S&P 500 averages a score of 69 on diversity programs and 61 on anti-discrimination policies. These figures would lead us to believe that most companies in the S&P 500 are going above and beyond legal compliance on these issues.

Chart 2: Stages of Diversity Management Implementation[4]

Stage of diversity management  Derived from need for  Achieved by 
Diversity as Non-Issue, Invisible  Desire to Maintain Status Quo  Rejecting Difference 
Avoid Discrimination Approach  Avoidance of Litigation & Expense Payouts  Protecting Difference 
Equal Opportunities Management  Compliance with Law, Creation of Level Playing Field  Assimilating Difference 
Respect and Capabilities Approach  Inclusivity and “Felt Fairness”  Accepting, Recognizing, & Respecting Difference; Creating Climate to Develop Individuals 
Valuing Diversity Approach  Access & Legitimacy  Valuing Individuals & Utilizing Difference to Enhance Reputation and Access New Markets 
Diversity Management for Competitive Advantage  Competitive Advantage  Strategic Use of Diversity across ALL Functions; Identification of Business Benefits 

Source: PNC

This might not be surprising because nearly 99% of the companies in the S&P 500 have a market capitalization of more than $10 billion, implying they may have the resources to dedicate to these internal efforts, as well as to report on them. Additionally, the relative strength of the programs and policies suggests the companies view DEI as a source of competitive advantage and are managing material human capital risks more effectively. 

And yet, when we disaggregate the data to examine the 11 sectors that comprise the index, we certainly see differences. For instance, companies within the Utilities sector appear to have strong diversity programs (score of 86 out of 100) but are weaker on anti-discrimination policies (49/100). The data also imply there is room for significant improvement among companies within the Real Estate sector, with diversity programs coming in at just 33/100 and anti-discrimination policies at 50/100. However, a sector like Information Technology (IT) scores very well across the board, with marks near 80 for both indicators (Chart 3).

Chart 3: Assessing the Strength of Diversity Programs and Anti-Discrimination Policies of the S&P 500

View accessible version of this chart.

S&P 500 constituents generally have a greater need to include strong diversity programs due to competitive pressures to attract and retain top talent within their sector, and this may be what’s helping to drive the high scores within sectors such as IT, Communication Services, and Consumer Discretionary. When we look at material ESG risks by sectors, we also find a negative correlation between ESG risk scores and anti-discrimination policies. Said differently, companies in sectors with material human capital risk and weak policies tend to have higher ESG risk scores.

While all companies are composed of employees and therefore exposed to human capital risks, the materiality of those risks is not equally weighted across the sectors of the index. Sectors like Utilities and Industrials face other, more significant material ESG risks such as carbon emissions and occupational health and safety, and may not go much beyond compliance on DEI.

Yet for investors using a DEI lens, companies within those sectors could be excluded from consideration where we are looking for investments that reflect positive DEI characteristics.

Rubber, Meet Road: From Concept to Practice 

Building on our working definitions, we can implement a variety of ways to construct portfolios with a DEI lens:

  • Investment Firms: We can use a DEI lens with regard to an entire asset management firm, looking for firms with significant ownership by minorities or underrepresented populations. We can also look for firms with diverse representation throughout the company.
  • Portfolio Management: We can use a DEI lens with regard to hiring diverse portfolio managers (e.g., minority-run midcap growth funds) and/or allocating capital to a more diversified array (vis-à-vis our definitions above) of managers.
  • Security-Level Analysis: We can use a DEI lens with regard to the investment thesis of a fund, specifically those funds that consider the DEI policies and practices of the companies in which they invest. These policies and practices might include anti-discrimination policies, diversity programs, or demographically disaggregated data on pay equity, employee satisfaction, turnover, and so on. This approach can also look at diverse company leadership and/or the products and services of the securities in which they invest (e.g., iPhones from Apple Inc.).

We often hear that the paucity of DEI data available to investors (across all three of the dimensions listed above) is a real barrier to effectively implementing a DEI lens for portfolios. Indeed, even in our practice at PNC, we have asked for gender, race, and ethnicity data from our third-party managers but with varying degrees of success.

Diverse Representation as a Metric 

In our efforts, we believe representation is one important proxy for positive outcomes for diverse employees. In this context, representation means there is diversity (in the way we have defined the term) at every level and in every unit of a company.[5] Demographic data are a key component for assessing representation, and in our manager selection process we would be looking to see where diversity shows up throughout an organization. It wouldn’t be enough for a company to employ a large percentage of minorities if it was only in entry-level positions and/or siloed functions (e.g., human resources).

An article in Harvard Business Review illustrates the importance of representation as a consideration. Black people represent about 12% of the US workforce, generally representative of their proportion of the general population (13.4%).[6] However, even decades into corporate diversity initiatives, only 8% of managers and fewer than 4% of CEOs are Black.

Representation also matters for investment firm ownership and management. A 2019 study of asset management firms noted that women- and minority-owned (WMO) firms represented only 1.3% of the $69 trillion under professional management. Furthermore, firms with at least 25% WMO account for just 8.6% of the total number of firms in the asset management industry. This discrepancy seems to be disconnected from the track record, as the study also found that even when controlling for firm and fund size, geography, and investment focus, diverse-owned funds performed at least as well as their nondiverse counterparts.[7]

Other DEI Metrics to Consider 

In addition to data on representation, there are other dimensions that we believe serve as good proxies for positive outcomes for minorities and underrepresented populations, such as the promotion and retention of diverse employees, the accessibility of healthcare benefits, and/or pay equity analyses.

Collecting this information is important because it is well documented that people of color often face more barriers to career advancement or receive different performance ratings.[8] The workplace also often remains an environment in which minority groups face explicit and implicit bias. In fact, in a survey conducted by the think tank Coqual with NORC at the University of Chicago, the majority of Black professionals (58%), 41% of Latinx, and 38% of Asian professionals expressed they have experienced racial prejudice at work compared to 15% of White professionals surveyed.[9] The Pew Research Center also reports that Black workers make only 75% in median hourly earnings of what their White colleagues earn – Hispanic employees even slightly less.[10] When it comes to healthcare, people of color often face gaps in health insurance coverage, and Black households pay nearly two times more than the average American family in healthcare premiums and out-of-pocket expenses.[11] In our experience, having managers report on data that help us understand these dynamics can assist in identifying quality companies and employers that are likely to create healthy work environments and improve livelihoods for their minority employees. We view these data as an important element for consideration of risk for asset management firms, and DEI data have become part of our regular review process.

Doing the Work: Investing for DEI

Because we view RI as a goals-based strategy that can be incorporated into investment portfolios, there remains no one-size-fits-all approach to applying a DEI lens. Just as different asset classes lend themselves to different reward-risk profiles, so too do varied DEI-based goals lend themselves to varied strategies for implementation.

This means that DEI factors will likely manifest differently, depending on the type of investment. For a multiasset class portfolio, we would employ multiple strategies for implementing a DEI lens, such as investing in WMO investment firms, minority fund managers, and also the strategies that actively consider and engage on DEI factors as part of their investment thesis.


PNC has taken a significant stance on combating systemic racism and advancing DEI efforts across our organization. It’s only natural, then, that those same principles are applied to how we serve our clients as investment managers.

While there is no one-size-fits-all approach to implementing a DEI lens to portfolios, we have outlined a variety of ways we approach the topic – from assessing the diverse makeup of investment firms and fund managers to digging into how the companies one might be invested in are engaging on DEI criteria like policies for addressing discrimination and closing minority pay gaps, or even how their products and services might support or hinder livelihoods for minority and underrepresented communities.

While the arc of moral justice might be long, so, too, are most investors’ time horizons. Considering DEI factors on our investment platform has become a standard practice for us at PNC, and we are committed to providing investment solutions that can mobilize capital markets in support of marginalized populations. For investors looking to invest with a DEI lens, their portfolios can bend toward justice, too.

Here are a few examples of how DEI might show up in a portfolio:

Public Equities – Impact Shares NAACP Minority Empowerment ETF, US Large Cap Blend

Spurred by The Rockefeller Foundation’s Innovative Finance team, the National Association for the Advancement of Colored People (NAACP) and Impact Shares partnered to create an exchange-traded fund (ETF) to provide exposure to US companies with strong racial and ethnic diversity policies and programs. Specifically, the Impact Shares NAACP Minority Empowerment ETF integrates 10 social screens into the construction of the fund, which includes Board Diversity, Discrimination Policies, Supply Chain Diversity Programs, Digital Divide Programs,[12] Diversity Programs, Minority-Inclusive Health and Safety Systems, among others.

Core Fixed Income – Minority CARES from Community Capital Management (CCM)

The Minority CARES strategy from CCM seeks market-rate bonds with a measurable, positive impact for minorities, which includes investments into communities of census tracts with populations with greater than 50% minorities. The goal of the strategy is to provide institutional and retail investors with a way to direct capital to advance racial equality and tackle social disparities through investments in areas such as affordable housing or in Community Development Finance Institutions that can provide access to capital for minority-owned businesses.

Private Equity – Illumen Capital

In collaboration with Stanford University, Illumen Capital, a fund of funds, aims to promote diversity by examining unconscious bias in investment decision-making and how that drives disparities along gender and racial dynamics. The fund seeks venture capital fund managers who target investments in sectors that range from education and financial inclusion to environmental sustainability and health. In addition to the impact sectors in which they invest, Illumen Capital also provides bias reduction coaching and curriculum to their investees.

Accessible Version of Charts

Chart 1: Board Diversity at Fortune 500 Companies

Year 2010 2012 2016 2018
White Men 74% 73% 69% 66%
White Women 13% 13% 16% 18%
Minority Men 10% 10% 11% 11%
Minority Women 3% 3% 4% 5%

Chart 3: Assessing the Strength of Diversity Programs and Anti-Discrimination Policies of the S&P 500

  Diversity Programs Anti-Discrimination Policy
Index Average 69 61
Communication Services 81 52
Consumer Discretionary 79 43
Consumer Staples 63 68
Energy 74 67
Financials 62 47
Health Care 58 62
Industrials 48 50
Information Technology 79 79
Materials 53 65
Real Estate 33 50
Utilities 86 49