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Digital Assets and Banking: Who Will be The Winners and Losers in the Knowledge Economy

Digital Assets and Banking: Who Will be The Winners and Losers in the Knowledge Economy 1

By David Rimmer from Leading Edge Forum looks at role of digital assets in propelling banking into the knowledge economy.

In the knowledge economy, digital assets play a pivotal role. Information technology (IT) is both a significant intangible asset in its own right and the key connecter of other intangible assets. Inevitably, banks must build their strategies around digital assets, just as in the industrial age firms planned their business around machinery, factories and connections to transport networks. In developing strategies, banks will need to take into account the distinctive characteristics of intangible assets, such as scalability and synergies, and identify how to combine digital assets with other intangibles. Let’s take a closer look at the major digital assets which will drive bank revenue and profits.

Scalable digital operations

David Rimmer

David Rimmer

Intangible assets, such as data and algorithms, have the potential to scale but banks require a means to scale in practice through digital operations if they are to maximise this notional value. For FinTechs and challenger banks this is no problem. They are built digitally from the bottom up, which inevitably gives them scalable software-based operations, with tiny variable costs per transaction. Conversely, if incumbent banks are to compete in the long term, they need operations and IT systems that can scale to match ‘digital-native’ businesses which are digitised from front to back.

At present, most incumbent banks have digital transformation plans that move the bank forward one step at a time from where they are now. This is sensible and pragmatic, but banks will not be able to compete without a parallel strategy that starts from the destination, working backwards from what the bank’s cost structure needs to be. This will be nothing like where they are now, nor even where they expect to be after their current digital transformation plans. Transaction costs may need to be orders of magnitude lower. A vital consideration is that, owing to concentration effects, the number of banks that reach scale in any given market may be small.

There are four options for achieving scalable digital operations: greenfield, brownfield, insourcing / outsourcing and per-click operations.

Greenfield – The critical manoeuvre in this strategy is making the cut-over from old to new, i.e.: “How does the bank bring over legacy customers and data?”; and “How are existing brands and partner relationships leveraged?”. Otherwise, this strategy amounts to following the challengers two to three years after the fact, without leveraging the bank’s strengths in intangible assets.

Brownfield – Banks may decide that in some parts of their business they can come close enough to the goal of scalability through a brownfield approach based on simplifying and transforming their current IT. Here, automation across every function will be indispensable as, put simply, people don’t scale.

Outsource/ insource – Where the bank is not at scale, outsourcing to other service providers will be a compelling option, especially if a function offers little potential to differentiate in the eyes of the customer. Of course, the mirror image of this strategy is to insource additional volumes from outsourcing banks. 

Per-click operations – The final option for scalability involves accessing external services on a per-click model. This is how many digital businesses have managed to achieve global scale quickly. Uber’s rapid growth was possible because its operations are essentially just a bundling of services sourced from partners on a per-click basis. Partner APIs lie behind Uber’s geo-positioning, route calculation, maps, push notifications, payments and receipts. Banks can identify where banking functions and commodity services are available on a per-click basis and incorporate them within their digital operations.

Digital Platforms

The platform is rapidly becoming the dominant business model for the 21st century.This makes platforms fundamental to any intangible strategy. In addition to driving revenue in their own right, platforms draw in more customers, spin off more data and create new data interfaces – all intangible assets that can be leveraged in other areas.

Building platforms

A platform is essentially a multi-sided marketplace that connects parties on each side, with network effects creating a virtuous circle that attracts ever more producers and consumers to the platform. Banks can build platforms around areas of banking, such as trade finance, asset management and wealth management. Alternatively, banks can target platforms at particular customer segments, e.g. small businesses, millennials or high net-worth individuals. A further option is building a platform whose sole role is connectivity, with Bloomberg the poster-child. In any case, the starting point must be total clarity around customer jobs-to-be-done, say, exporting goods or saving for retirement, to use Clayton Christensen’s framework. Why would a customer come to the platform? What jobs do they want done?Equally, banks need to think through which partners are required and what is in it for them. A number of banks have embarked down the road of building platforms, but too many have viewed the platform as a vehicle simply for distributing existing bank products, as opposed to working back from customer jobs-to-be-done and the partners needed for those jobs.[i]

Tapping into external platforms and network effects

Not everyone can be a platform – by definition. Banks should, therefore, consider where it makes sense to adopt a contrarian ‘cheap and cheerful’ strategy of accessing the network effects of other platforms. i.e. “If you can’t beat, them join them’. As an example, 58 banks across Europe have decided to use Raisin as a distribution platform for savings products in order to access a larger network of customers than is possible via their own channels.

Strategies for the global platforms (GAFA and the Chinese platforms)

A further strategic dimension should be assessing opportunities and threats from the global platforms that have become such dominant features in our business landscape. The global platforms may act in the role of distribution channels, customers or competitors – or all three.

  • Competitors – In China, AliPay and WeChat have come to dominate certain financial services segments. In Europe, Amazon, Facebook and Google have registered as a third party to aggregate payment data and initiate payments under Payment Services Directive 2. As a result of these and other moves, banks need to identify where their business is vulnerable to the major platforms and develop defensive strategies.
  • Distribution channels and interfaces – Global platforms, such as Amazon, have become the high streets of today’s digital world and, consequently, it is essential for banks to have a strategy for distribution via these digital high streets. This strategy will need to include integration with platforms’ intelligent agents such as Siri and Alexa, which are likely to become the standard interface for accessing frequently-used digital services.
  • Customers – Banks should look out for revenue opportunities from providing financial services to the platforms themselves and to their customers. For example, Zopa, the UK peer-to-peer lender, has struck a deal with Uber to offer car loans to their drivers.


An algorithm isa set of rules for solving a problem in a finite number of steps. In some ways, the written operational procedures that banks depend on today can be regarded as algorithms because they similarly define a series of steps. Computerisation, however, has transformed the ability of banks to deploy algorithms. Computerised algorithms bring greater consistency in decisions, allow much larger volumes of data to be employed and increase the speed of decision-making.

Machine Learning (ML) and Artificial Intelligence (AI) bring a further step-change in potential to apply algorithms. Whereas hitherto people programmed an algorithm’s rule-set, ML and AI models allow computers to derive their own rules and progressively improve decision-making. In future, all the decisions that are fundamental to banking – credit, risk, fraud and investment – will be made, or at least supported by ML and AI models.

Monetisation of algorithms

Banks will want to capitalise on opportunities to monetise algorithms outside their own operations. After all, if you have a scalable asset why wouldn’t you want to market its use, generating not only added revenue but also harnessing more data to improve your algorithm? A case in point is Metro, the UK challenger bank, which has partnered with Zopa. Metro brings the customer deposits; Zopa brings the algorithms. Similarly, the AI-based lender, OakNorth, is commercialising its algorithms in countries outside its home UK market.

In order to develop and manage algorithms as a coherent set of corporate assets, acentre-of-excellence model stands out as an obvious approach, especially when it comes to ML and AI. The reasons for this are that:the state of the art is not yet mature; expertise is scarce; ML and AI are General Purpose Technologies (GPTs) with application across the whole bank; and, multiple ML and AI models will draw on similar data. Critical too will be measures of model performance and their impact on cost, revenue and profit. These metrics will be prominent in the dials that executives monitor most closely in tracking and predicting bank performance.


Most banks have long-running data quality programmes, but compliance is typically their principal driver. Of course, compliance matters but the importance of algorithms means that banks should think about data first and foremost as a vital asset for revenue generation. In many respects, the data is more valuable than the algorithms. With data you can build algorithms, but algorithms without data are worthless. Google is happy publish its algorithms because it is the only firm that has the dataon customer search queries. Few banks can expect to succeed in the knowledge economy if they are not masters of their data.

Data Value = Data x Ability to Exploit Data

As with any asset, you first need to know what you have. Banks should build a map showing what data they hold and its business value (or potential value). I say ‘potential value’ because as with many intangibles assets, the value of data is not intrinsic, it depends on how / if it is brought into play, i.e. Data Value = Data xAbility to Exploit Data. For most incumbent banks there is a huge ‘data value gap’: the difference between what their data is worth at present and what it would be worth if it were classified, associated with other data and made accessible to those who need it in a timely manner.

Closing the data value gap

In large part, closing the ‘data value gap’ is a matter of improving data quality through traditional disciplines, such as data cleansing and applying meta-data. However, new factors are coming into play as banks extend their use of algorithms and harness new types of data such as unstructured data and ‘big data’ from outside the bank. As an example, for many ML and AI models, where data is stored and how is critical. In addition, as banks hold more and more data, the cost of data storage and management will become a significant concern. Likewise, because the value of much data ages fast – a breaking news story is worth infinitely more than yesterday’s news – access to data in real-time may be important, for example, via data streaming.

This is an area of rapid technology innovation where ‘received wisdom’ around how best to do things has yet to evolve. For most banks, unlike say manufacturing companies, the challenge is not the volume of data but its inter-relatedness and its timeliness. In the meantime, the challenge is keeping abreast with a flood of new technologies, understanding how and where they fit.

 Data access and monetisation

Once data is classified and made accessible, i.e. turned into an asset, it can be monetised. Whereas traditional management information and business intelligence models involve ‘pushing’ data to consumers of information, maximising the value of data entails reversing the flow through a ‘pull’ model. ‘Self-service’ becomes the goal, where consumers of data are provided with data, metadata and a set of tools.

There will also be opportunities to monetise data outside the bank’s own operations, for example:

  • Data services – Banks can seek to provide data services, both in order to generate revenue and to increase stickiness. In personal banking, increasingly customers’ choice of a bank will be shaped by the tools it offers to analyse and advise on spending. For merchants, Wirecard, the German payments provider, has built a service on top of its ePOS solution, which takes merchants’ payment data and provides back to them a machine learning solution for analysing customer value and migration rates.[ii]Data integration is another strategy: Barclays’ DataServices transfer data on payments and cash balances directly into customer accounting systems
  • Revenue from data sales – GDPR and other data regulations notwithstanding, banks will derive revenue from data sales. For example, companies such as Cardlytics provide targeted offers from retailers to bank customers who have opted to receive offers
  • Data aggregation – As banks’ ability to derive value from data increases, they will be active in aggregating and acquiring additional data, through offering customers added-value services in return for permission to use and partnering with data vendors who hold complementary data sets where 1 + 1 =3.

The sooner banks start down the road of thinking about their data as a vital corporate asset the better because it is hard to make up lost ground. Firstly, resolving data management issues around years’ of complex inter-related data plain takes time. Secondly, developing algorithms – which is why you want the data – is a learning process that depends on iterations, so it too just takes time. Most banks require much more impetus here.

Digital assets that can be monetised in their own right

Having built digital assets to support their own business, banks may find opportunities to monetise digital assets in their own right.

In many cases, the opportunity to monetise digital assets will come through APIs. Capabilities that were developed as part of an overall bank process, such as providing account data or initiating a payment, may be commercialised as stand-alone services via an API. Partners will consume bank APIs on a per-click basis as part of their own distinct customer proposition. As more and more elements of the economy are digitised, there will be an increasing range of opportunities to embed payments and other banking functions within the operations of other sectors. Banks should consider monetisation of any functions that they have digitised to support their business – not just banking functions. For example, Know Your Customer (KYC) checks are needed in a range of sectors (accountancy, legal and real estate) as a precursor to doing business.


To succeed in the knowledge economy, banks will have to put digital assets at the centre of their strategies to drive revenue and profits. Thinking about scalable digital operations, platforms, data and algorithms as distinct assets will in itself mark a step-change – right now they barely feature, if at all, on bank balance sheets. Human capital and organisation capital – people, skills, roles, processes and governance – will all need to evolve in support. Moreover, as with chess pieces, banks will have to learn the moves that are possible with each digital asset and decide how to bring them into play alongside other intangible assets within an overall game strategy.

[i] A framework for brownfield firms to map out platform strategies and to anticipate the moves of digital-native competitors is detailed in Liberating Platform Organizations, by Bill Murray of the Leading Edge Forum

[ii]Digitise Now, Wirecard Annual Report, 2017

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Trust matters more than ever in an uncertain world

Trust matters more than ever in an uncertain world 2

By Zac Cohen, COO, Trulioo

Trust in the time of COVID-19

Perhaps more than ever before, retail and investment banks the world over face a pivotal moment in their evolution, as banking transitions from a digital-first towards a digital-only landscape. The COVID-19 pandemic has put severe restrictions on traditional face-to-face or high street banking and forced sections of society that had previously been resistant to or unable to access digital banking to make the shift. This understandably brings with it significant anxiety and fear.

For an industry that has been striving to rebuild consumer confidence since the global financial crisis of 2008, COVID-19 presents a huge challenge. It needs to foster trust at a time when the world is facing unprecedented levels of uncertainty and stands on the brink of an even more severe global recession.

Without doubt, a thriving digital economy will be critical for the global economy to bounce back quickly and strongly from COVID-19. Therefore building online trust has become critical to our very future.

A billion reasons to protect customers

The global banking system processes more than a billion transactions every day, from transfers and domestic and international payments, to loan approvals and the creation of new accounts. And each one of these transactions represents an opportunity for some sort of financial crime, whether that’s money laundering, identity theft, bribery or the financing of terrorism.

The global pandemic has only served to accentuate this level of risk, with new threats emerging on the back of COVID-19, and bad actors looking to exploit new opportunities. In particular, online fraudsters are looking to target people who are using digital services for the first time as a result of the pandemic, often the most vulnerable groups in our society such as the elderly.

Research that we recently conducted in the UK and the U.S. found that concerns about online security are higher within financial services than in any other sector, with more than half of people (51%) reporting that they are ‘very concerned’ about identity theft when using financial services sites.

Crucially, 90% of people believe that banks have a responsibility to reduce cybercrime through whatever identity verification is necessary.

Building trust from day one

Of course, customers want online banking services to be responsive, intuitive and fast, but it’s important to recognise that, first and foremost, people want to know that their money and their personal data are safe.

Know Your Customer (KYC) and Anti-Money Laundering (AML) practices are now essential in enabling banks to not only identify each individual customer, but to build trust across the digital ecosystem more broadly.

Identity verification technology during the onboarding process enables a bank to demonstrate to its customers that it is taking their security seriously from the very outset of the relationship. First impressions count — more than three quarters (77%) of consumers claim that the account opening process can ‘make or break’ their relationship with a financial services brand.

Banks simply cannot afford anything other than optimal onboarding and identity verification – fail to deliver this and trust is immediately eroded and in many cases, the customer walks away.

On the other hand, where banks do succeed in demonstrating their commitment to security during these first engagements, delivering a fast, secure and seamless account creation process, they are able to develop a more meaningful relationship with their customers. As many as  84% of consumers report having greater trust in financial services brands that use real-time identity verification during the onboarding process and 71% are more likely to share more personal data.

A layered approach to identity verification

In order to provide first-class onboarding processes and establish trust at the outset of the customer journey, banks need to ensure they can deliver relevant and compliant identity checks for customers, dependent on their geography and the type of service or product that they are looking to access. They need to move beyond a ‘one size fits all approach’ to identity verification, which can lead to cumbersome or unnecessary checks on the one hand, and increased risk on the other.

This is why a digital identity network is so powerful. This is essentially a marketplace of hundreds of data sources, verification processes and tools that leverage network data intelligence to verify and authenticate identities online.

This marketplace approach lets businesses get a more holistic view of risk and then apply whichever verification layers are needed to provide assurance and build trust.

Zac Cohen

Zac Cohen

For example, a bank may only need to perform a basic KYC check when onboarding a customer with an established government ID number or driving license. If that same customer then wants to take out a loan, the bank would need to run other verification checks to create a higher level of assurance. And if the bank wants to onboard a customer whose only form of digital identity is a name tied to their mobile phone number, it would likewise build up assurance through multiple verification and authentication layers — for instance, ID document verification, which captures images from a person’s ID document and assesses its validity, combined with biometric authentication, which compares a selfie photo (taken and sent through the mobile phone) with the photo on an ID document.

With such a layered approach to identity verification, banks have complete flexibility and choice to apply the most appropriate identity checks at every stage of the customer journey, meaning that they can manage and optimise customer experience while minimising risk and ensuring compliance against a rapidly changing regulatory backdrop.

Building a global ecosystem of trust for the digital economy

To build and maintain online trust in such a complex and diverse environment is extremely challenging for banks.

Indeed, despite rapid digitisation across all sectors and regions, the internet continues to suffer from a lack of a critical identity layer that would solve many of these complex problems. While there are layers of protocols and methodologies for transporting data over networks, there is no protocol for transporting assurance. In online transactions, then, there is no standardized way to establish that an individual is who they say they are — the essence of identity.

Clearly this needs to change in order to drive trust, digital access and financial inclusion.

A digital identity network provides banks with the assurance they need in these turbulent times, protecting both themselves and their customers from fraud and delivering seamless customer experiences. In particular, it allows banks to enter new markets and reach new customers who have previously been marginalised or excluded from the digital economy, with confidence. In this way, digital identity can become a great equalizer, enabling more people to access and enjoy the benefits of a digital economy, built on trust.

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Workforce Diversity Matters To Our ESG Evaluation

Workforce Diversity Matters To Our ESG Evaluation 3

We believe the limited representation of Black voices in key decision-making processes prevents companies from reaping the benefits of a diverse workforce. It also exposes companies’ reputations to allegations of discrimination, as shown by recent calls on social media to boycott certain businesses after apparently racist behavior of employees were captured on video and shared. As such, we believe companies need to be deliberate in how they recruit, hire, and develop Black talent if they want to achieve a sustainable and diverse workforce, thereby improving ESG performance.

As part of our social assessment in the ESG Evaluation, we assess how effective a company is at developing a productive and inclusive workforce. Key indicators include employee retention and turnover rates, labor standards, pay, benefits, and rewards. We also assess whether fair labor standards are entrenched across the value chain. Moreover, we evaluate an entity’s preparedness to respond to long-term risks and opportunities, including from changing demographics and social patterns. We assess the extent to which decision-making demonstrates the company’s commitment to its long-term strategy and sustainability, as well as its success at building an inclusive workplace culture. These practices are particularly important given the presence of systemic racism, which continues to disadvantage Black people in corporate environments, particularly in the U.S.

U.S. workplaces have yet to achieve equal opportunity for people of different races, and policies have so far not fully addressed the widespread issue of racism. According to the Center of Public Integrity and the Washington Post, from 2010 to 2017, one million discrimination complaints were filed with the U.S. Equal Employment Office Commission. More than 30% of these cases related to racial discrimination.

Labour Market Outcomes Are Rooted In Systemic Racism

The Black community has long been subject to civil and human injustices that have contributed to a vicious cycle of low educational attainment, high unemployment, and concentrated poverty. This has made it difficult for Black people to enter the workforce, advance in higher wage work, and accumulate generational wealth. Poverty serves as a systemic hurdle to Black employees because it creates barriers to higher educational attainment, thereby limiting their ability to procure employment and financial opportunities that would enable wealth accumulation. In 2018, the Kaiser Family Foundation revealed that Black Americans have the second-highest poverty rate in the U.S. (after Native Americans, another highly marginalized group). The study also highlighted a striking wealth disparity; while the median net worth of a white household in 2016 was $103,000, for Black households it was only $9,200 (see chart 1).

Chart 1

Workforce Diversity Matters To Our ESG Evaluation 4

Yet, structural hurdles and enduring biases have also historically disadvantaged Black jobseekers, regardless of educational attainment. In the U.S., only 31% of Black employees are in management or professional positions, and a low proportion is in upper management positions (see chart 2).

Chart 2

Black Employees are largely underrepresented in management and professional occupations
Educational attainment of the labor force, age and above in the U.S.

Workforce Diversity Matters To Our ESG Evaluation 5

What’s more, Black employees are often held to higher standards than their white counterparts. A 2015 study by the National Bureau of Economic Research found that Black workers receive extra scrutiny in the workplace, leading to lower wages, slower promotions, and sometimes even job loss. This legacy may also create an additional barrier to career advancement, which is apparent in the low proportion of Black employees in upper management positions. Of the Fortune 500 companies, Black employees only account for 3.2% of executive and senior management and only 0.8% of CEOs (four in total) are Black (see chart 3).

Chart 3

Diversity And Inclusion Policies Are Only The First Step

Workforce Diversity Matters To Our ESG Evaluation 6

In our opinion, D&I programs are an important mechanism for improving racial equity in the workplace. They aim to link a company’s strategies, mission, and business practices in a way that supports demographic differences among talent and enables an environment in which all employees are empowered to contribute their unique views and perspectives. As D&I programs have evolved, they’ve begun to encompass initiatives such as targeted recruitment, diversity education and training, career development, mentoring, and grievance procedures. Done well, D&I programs offer several business benefits, from improved productivity to innovation, which help boost a company’s ESG performance by helping it anticipate changing consumer preferences and consumption patterns.

Several studies have investigated the link between diverse workforces and a firm’s financial performance. According to a 2020 McKinsey & Co study, companies in the top quartile for racial and ethnic diversity are 36% more likely to show financial returns that exceed the national industry median. Another study by sociologist Cedric Herring, during his time at the University of Illinois, Chicago, found that companies with the highest racial diversity were able to generate nearly 15x more sales revenue than firms with the lowest levels of racial diversity. Herring suggests that racial diversity is the most important predictor of a company’s competitive positioning, and a better indicator of sales revenue and customer attainment than a company’s size, years in business, and overall employee headcount. Diversity has also been linked to increased innovation potential. Studies show that diversity supports, enhanced creativity, more informed decision-making, increased capacity for innovation, improved customer acquisition, stronger revenue-generating potential, and better talent management.

Analyzing Diversity Remains A Challenge

Where available, we analyze a company’s ethnic diversity metrics as one indicator for a diverse workforce. Businesses tend to focus mainly on the workforce composition and on recruiting employees from different identity groups, including race, gender, age, culture, cognition, and education. Social equality activists are increasingly demanding that companies release diversity statistics, thereby holding them accountable for persisting race gaps.

Although transparency practices are improving, the availability of data is a persistent issue. According to the U.K.’s Business in the Community (BITC) Race at Work 2018 Scorecard report, only 11% of employers report ethnicity and pay data. In France, a race-neutral policy approach to education and employment stands in contrast to that in other European countries. It is illegal for employers or institutions in France to ask about someone’s race or ethnicity. The intent of this was to avoid discrimination. However, in 2006, more than 25 years after the 1978 law prohibiting the collection of ethnic data, a poll by research company TNS-Sofres showed that more than half of France’s black adults said they had experienced racial discrimination. Furthermore, companies more frequently report strictly on percentages of minority employees without commenting, directly or otherwise, on the positions they occupy. This can mask some disparities in terms of job level, promotions, or lack of diversity in certain roles.

We also take into consideration companies’ strategies to increase diversity including quotas, targets, or affirmative action policies. Over the past few years, several European countries have proposed or implemented diversity quotas for boards of companies, principally to increase female participation. The U.S. state of California followed suit in 2018, while legislation is pending in other states. Although still controversial, quotas have helped increase the number of women on boards. Similar policies on ethnic diversity are largely missing. In the U.K., the 2017 Parker Review set a voluntary target for FTSE100 boards to have at least one director from an ethnic minority group by 2021. The Review’s 2020 update shows some progress but not full compliance with the recommendations.

Regardless of the approach a company takes to increase workforce diversity, it is clear that quality data is a necessary ingredient of an effective diversity strategy. As such, we believe transparency at all levels of the organization is imperative for companies to solidify the trust and loyalty of their employees, suppliers, and shareholders. In turn, this will help boost productivity and strengthen the potential for innovation, thereby supporting ESG performance.

The Emphasis Must Be On Inclusion

Recruiting ethnic minorities does not necessarily translate into an environment that’s free of discrimination, allowing each employee an equal opportunity to advance. In our opinion, employers with a culture that tolerates discriminatory practices and microaggression are vulnerable to productivity lapses, decreased innovation, and lower creativity. Therefore, we believe the success of D&I initiatives appears to hinge on the inclusion side of the equation, which should ensure employees feel their contributions are appreciated and full participation is encouraged. According to author and inclusion strategist Verna Myers, Vice President of Inclusion Strategy at

Netflix, “Diversity is about being invited to the party. Inclusion is about being asked to dance.” Analyzing inclusion practices could provide better insight into how companies manage more covert forms of discrimination associated with microaggression. In a U.S. national survey of over 3,700 office workers conducted by the National Opinion Research Center (NORC), 58% of black respondents said they have encountered racism at the workplace. According to the NORC, workplace prejudice often shows up in subtle ways, through microaggression, typically during employee interactions through comments that proliferate Black stereotypes. Examples include referring to Black employees as intimidating, or unprofessional because of their hairstyles, thus creating a situation in which these employees are perceived as “not right” for the job. Such a toxic environment can go undetected by senior management, particularly when people of color are underrepresented at the workplace and in management positions. Many instances of discrimination also likely go unreported, making it even more difficult to expose covert forms of racism in corporate culture. In some cases, microaggression could ultimately result in higher staff turnover rates, one of the factors that informs a company’s Social Profile in our ESG Evaluation.

Many corporate leaders have committed additional resources to D&I programs in the wake of the Black Lives Matter protests. However, the success of these programs lies in how they resonate with employees. Literature on this topic suggests that achieving true inclusion requires a shift in the organizational culture to acknowledge the value of different backgrounds, expose conscious and unconscious biases, and create an atmosphere of respect and empathy. Managers, in particular, play a crucial role in employee development and are therefore important stakeholders in supporting racial inclusion. However, many are not necessarily inclined to reflect on or talk about racial discrimination, and without a business culture that fosters inclusion, meaningful change is unlikely to result.

Companies have started promoting conversations with Black employees to better understand their experiences, which we believe is a starting point. Ultimately, achieving a sustainable diverse workforce and addressing system racism will require continued leadership and accountability. A 2018 Boston Consulting Group study of more than 1,700 companies in eight countries, across different industries and sizes, found that five key factors help diversity to flourish:

  • Participative leadership: managers support employee contributions;
  • Strategic priority: top management and the CEO clearly demonstrate support for diversity; – Frequent communication: free and open communication is encouraged within teams;
  • Culture of openness to new ideas: employees feel that they can express their perspectives without fear of retaliation; and
  • Fair employment practices: employees with equal roles achieve equal pay, and companies enact robust anti-discrimination policies.

Looking To The Future

The Black Lives Matter movement has ignited a broader awareness of racism in society that has put the corporate sector in the spotlight. We believe companies’ diversity track records will be increasingly scrutinized, making a diverse and inclusive workforce a reputational imperative. In our view, more corporate entities will treat the challenge of workplace diversity as they would any other existential risk, and therefore gather the right information, including opting into voluntary diversity initiatives, to make the most informed choices.

A Call To Action: The Race At Work Charter

In collaboration with the U.K. government, the BITC established the 2018 Race at Work Charter detailing five actions all employers, regardless of sector, could undertake to further support diversity and inclusion. Since the Charter’s inception, more than 100 companies have added their signatures, including the National Grid, Goldman Sachs, and Deutsche Bank. By joining this initiative, companies are committing to taking meaningful action against discrimination in the workplace. The five actions are to:

  • Appoint an executive sponsor for race.
  • Report ethnicity data metrics and monitor progress.
  • Commit, at the Board level, to zero tolerance of harassment and bullying.
  • Clearly state that promoting equality in the workplace is the responsibility of all managers.
  • Take meaningful action to support the career progression of ethnic minorities.

The success of a company’s D&I efforts will be reflected in several indicators, including: the proportion of Black employees in the workforce overall, also in management and leadership positions; and the pay gap between employees in similar roles. Large, technologically advanced companies will likely be among the first to back their D&I commitments with meaningful targets and report regularly on progress. In the end, an effective, inclusive framework that supports long-lasting diversity and ESG goals depends on sound communication and ongoing commitment of employees at all levels of the organization.

Related Research

  • Environmental, Social, And Governance: Why Corporations’ Responses To George Floyd Protests Matter, July 23, 2020
  • The ESG Pulse: Social Factors Could Drive More Rating Actions As Health And Inequality Remain In Focus, July 16, 2020
  • Environmental, Social, And Governance Evaluation Analytical Approach, June 17, 2020
  • Environmental, Social, And Governance: How We Apply Our ESG Evaluation Analytical Approach: Part 2, June 17, 2020
  • How We Apply Our ESG Evaluation Analytical Approach: Part 2, June 17, 2020
  • People Power: COVID-19 Will Redefine Workforce Dynamics In The Post-Pandemic Era, June 4, 2020
  • The ESG Lens on COVID-19, Part 2: How Companies Deal with Disruption, April 28, 2020
  • COVID 19: A Test Of The Stakeholder Approach, April 21, 2020
  • The ESG Lens On COVID-19, Part 1, April 20, 2020
  • How To Navigate The ESG Risk Atlas, April 11, 2019
  • How We Apply Our ESG Evaluation Analytical Approach, April 10, 2019
  • The ESG Advantage: Exploring Links To Corporate Financial Performance, April 8, 2019

External Research

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What is loneliness and how can you manage it?

What is loneliness and how can you manage it? 7

By Iris Schaden Your Business and Personal Coach

A mere century ago, almost no one lived alone. Today, many do and it is not unusual. The recent lockdowns and isolation periods have amplified feelings of loneliness. But why do we feel lonely? Why do our bodies experience social pain? Learn about what we can do to improve our situation, prevent chronic loneliness and minimise the tremendous impact it has on our health.

Solitude and choosing to be alone can be bliss. Over the last sixty years the number of people living alone has increased in developed countries by more than 50 percent. In countries such as Denmark, Sweden and Switzerland, it is very common for people to live alone. But this does not translate into higher levels of selfreported loneliness. Many people have friends or family they can interact with on a regular basis.

However, it is important to recognise that this choice is different to loneliness, which can be a state of profound distress. Loneliness is a purely subjective and individual experience that can be felt by anyone, no matter their social, educational, gender or age demographic. Humankind are social creatures by nature – we struggle without it – and social connections are important to our health and emotional wellbeing.

Loneliness is a problem when we feel that no place is home; when we are in a group and we still feel social separation; when we spend time with our family but we feel like we don’t belong; or when we lose a relationship and struggle to adjust. It is a growing phenomenon in modern times, a by-product of our individualism, long-distance study and career opportunities or time-consuming work commitments.

The pandemic, with its required isolation and social distancing, has added additional stress to many households, but feelings of loneliness or adverse effects of social isolation are particularly prevalent in one-person households and young people aged 12–25. According to a study by VicHealth, even before COVID-19 young adults and adolescents reported high levels of loneliness, social isolation, social anxiety and depressive symptoms. Additionally, it is men who tend to report higher levels of loneliness than women.

Reported loneliness is on the rise. In 2017 and 2018 former US Surgeon General Vivek H. Murthy declared ‘an epidemic of loneliness,’ and the UK appointed a Minister of Loneliness. In these two countries, one in five adults reported that they often or always feel alone; in Australia, it was one in four adults. And this was before COVID-19, which makes us realise the mental and emotional impact lockdown has on individuals.

What happens to our bodies when we experience loneliness?

Neuroscientists, such as John Cacioppo, identify loneliness as ‘a state of hypervigilance whose origins lie among our primate ancestors and in our own hunter-gatherer past’. Our ancestors needed to belong to an intimate social group to survive. Cacioppo explains that our bodies respond to being alone, or being with strangers, as though we were in a dangerous situation.

Separation from other people (the group) triggers a fight-flight-or-freeze response and we feel social pain. While physical pain is primarily a sensory experience, social pain is the emotional state that comes from the distress of being lonely. Like the bodily sensation of hunger, it alerts us to a need, but instead of food the need is social interaction.

Loneliness generates anxiety: our breathing quickens, our heart races, our blood pressure rises and we struggle to sleep or sleep well. If we don’t pay attention, over time we start to act more fearful, defensive and self-involved. All of these actions drive others away and tend to stop those experiencing loneliness from doing what would benefit them the most: reaching out to others. It is a vicious cycle and one that is especially challenging for older and younger individuals.  

Tactics to help cope with feelings of loneliness. 

To belong is to feel at home in a place or situation where you feel included, comfortable and connected with others. In his assessment, Vivek H. Murthy wrote, ‘To be at home is to be known … You can feel at home with friends, or at work, or in a college dining hall, or at church, or in Yankee Stadium, or at your neighbourhood bar. Loneliness is the feeling that no place is home.’ Having relocated to different cities and countries and re-establishing my life over and over again, I can certainly say that loneliness can be a challenge.

Iris Schaden

Iris Schaden

How can we combat the feelings of loneliness and the anxiety that comes with it, before it becomes chronic and we find ourselves even more isolated over time? 

The first step in moving forward is acknowledging how you feel. Give those feelings a name with a specific timeframe; for example, today I feel alone or since I’ve been in lockdown, I have felt alone or since I lost my partner, I feel disconnected and lost. By doing this, we focus on the present and do not label our entire existence as lonely.

My personal strategy is to go outside if the loneliness gets too ‘heavy’; connect with other people through looks and smiles (even under a face mask our eyes can smile); call friends and family regularly; or schedule a brunch or glass of wine with friends (in person or video chat).

Practising random acts of kindness and gratitude, for others and ourselves, is another very effective and very positive way of bringing us back into the present moment and improving our overall wellbeing. Energy flows where our focus goes. It takes effort and sometimes it is indeed easier to just give in and watch a light-hearted movie on the couch. And that’s fine too!

If you are ever experiencing loneliness, I recommend exercising your social muscles and also seeking support. Remember that your feelings are normal as we are biologically fine-tuned to being with and interacting with others. However, you will need to make changes to avoid jeopardising your health. Once loneliness becomes chronic it becomes self-sustained and you will begin exhibiting defensive behaviour. As a defence mechanism, loneliness makes you assume the worst of others and you (your brain) become hypersensitive to social signals that might be interpreted as hostile towards you, when in reality people might just be trying to help you.

Large studies have shown that feeling lonely has a tremendous impact on your health: it can make you age quicker, cause dementia to advance faster, weaken your immune system and lead to anxiety and depression. Many people turn to substance abuse which only serves to numb the symptoms, rather than treat the source. And while you can find so much information online, knowing is not enough. Remember that reaching out for help is not a sign of weakness but one of strength. So please reach out to your network, talk to your health professional or get in contact with me.

There are different ways to improve your overall wellbeing. Let’s discuss.

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