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Jean-Claude Trichet: Interview with Frankfurter Allgemeine Zeitung

Jean-Claude Trichet: Interview with Frankfurter Allgemeine Zeitung 1

Interview with Jean-Claude Trichet, President of the ECB, conducted by Gerald Braunberger and Stefan Ruhkamp


Mr Trichet, do you believe in destiny?
Jean-Claude Trichet: Interview with Frankfurter Allgemeine Zeitung 2I have used that term on a few occasions – including the tenth anniversary of the establishment of the ECB, when I quoted Konrad Adenauer. He once said that Europe is a community with a common destiny. He also said that “it’s up to us to shape that destiny”, and I believe he was right.

You have also talked about a common destiny in connection with the euro and the sovereign debt crisis. Is destiny not the opposite of a free political decision on whether or not to pursue a particular form of European integration?
That is certainly not the way that I interpret the word “destiny”, and it’s definitely not Konrad Adenauer’s understanding, either. It’s certainly not a question of predetermination. It relates, instead, to the fundamental importance of the close unity, interdependence and friendship by which the people of Europe choose to bind themselves in today’s world.

And in that respect, we share a “common destiny”. Many politicians have described our currency union as a matter of war and peace. Is that an exaggeration?

The process of integration has enabled Europe to enjoy more than half a century of peace, prosperity and stability. Were we to begin regressing, we would place this stability in jeopardy. From an economic perspective, the rationale for pursuing integration is far stronger today than it was in the immediate aftermath of the war. Back then, China, India and Latin America did not have the considerable economic importance that they have today. Demographic developments have also tended to increase the importance of European integration. We Europeans, if we act alone in our individual countries, will gradually look like dwarves relative to developments in the rest of the world.


What is wrong with remaining dwarves?
There are different ways of looking at this. But what was the original concept of Europe after the war? Our role model was the single US market. The view taken at the time was that, if we want to achieve prosperity and peace, we have to enjoy the same economies of scale and the same free market as the United States. That was the view of Europe’s founding fathers. If it was true then, it is even truer today.

Is the success of our currency union a precondition for the success of the European project?
Our currency union is the most advanced element in the process of European integration. It is the most appropriate means of realising our founding fathers’ vision of a single market in Europe. After all, you could hardly imagine a single market in the United States with different currencies in Massachusetts, Florida and California.


You like to point out that average inflation in the euro area has been lower than…
Average annual inflation has, at 2.0% over the first 13 years, been much lower than it was before the euro in a number of member countries, and also lower than it was under the Deutsche Mark over the previous 50 years. Our primary objective of price stability is the needle in our compass.

But inflation is not the only thing that the Germans fear. They are also scared that they will end up being responsible for the debts of other countries. Can you understand that?
First of all, I don’t like this talk of “the Germans”, “the Italians” or “the French”. We live in democracies. Our mandate is to ensure price stability. We have delivered price stability, and the markets clearly trust us to continue doing so for the next ten years. The question of debts and who should be responsible for them needs to be put to national governments. First, to the governments who behaved improperly in the past and accumulated excessive levels of debt. And second, to the governments who simply accepted that behaviour on the part of their neighbours. We, the Executive Board and Governing Council of the ECB, have spent years arguing publicly against infringements of the Stability and Growth Pact and warning of the dangers that this poses.

Do you think Germany has changed over the years?
I have, of course, had the opportunity to discover much of Germany for myself and have gained a lasting impression of this country. This is due, among other things, to the fact that I have many, many friends here – friends such as Jürgen Stark, Horst Köhler, Theo Waigel and Hans Tietmeyer and many more. So, I have close ties with Germany. I have observed changes in Germany which are highly significant from an economic perspective. A simple example is the fact that, when I moved to Frankfurt eight years ago, the shops were shut by late afternoon – and shut all afternoon on Saturdays! Now, some are still open at 10 p.m., which my wife particularly appreciates. This is a small thing, but it shows that the country is changing extremely quickly.

Do you have the impression that the Germans are too scared?
As regards inflation, I understand the deep-seated fears of many German citizens, given their experience of hyperinflation in the 1920s. In fact, a lot of people feel much the same way in France. The French experienced hyperinflation at the time of the revolution. This experience of the “assignats” – paper money introduced during the French revolution that lost all but a fraction of its value in just a few years – continued to have an impact right up to the Second World War. But what matters is the fact that today we have price stability in the medium term and inflation expectations are firmly anchored. The thing about Germany is that, given its export-oriented economy, it is widely acknowledged by employees and workers that international competition means that there is limited room for manoeuvre. In other countries, the weight of the public sector is much greater and the percentage of the private sector which is engaged in the production of tradable goods is smaller. As a result, there tends to be less recognition of the importance of competitiveness than there is here. In this respect, Germany is particularly well equipped to meet the demands of international competition.

Over the last few months you have – as result, among other things, of the ECB’s buying of government bonds – been heavily criticised by people in Germany, including your friends. Do you feel misunderstood?
This means that we have to tirelessly explain what we are doing. We have strictly separated (in accordance with the “separation principle”) our interest rates, which are designed to deliver price stability, and our “non-standard measures”, which are helping to improve the transmission of our interest rates in this period of market disruption. We cannot ignore the fact that we are experiencing the worst global financial crisis for 66 years!

What do you say to your critics?
What exactly is the criticism? Have we delivered price stability since the inception of the euro – both before and during the crisis? Are we credible in delivering price stability over the next ten years? The answer to these two questions is “yes”. We are conducting monetary policy for our 332 million fellow citizens in 17 countries. We design all our non standard measures – the full allotment of liquidity at fixed rates, the covered bond purchase programme and the Securities Markets Programme – to be commensurate to the market disruption, in order to improve the transmission of our monetary policy.

Some German central bankers say that the ECB’s actions have taken it to the limit of what is defensible, while others say that it has overstepped this limit.
We are entitled to use all of the instruments mentioned, since the transmission of monetary policy is at risk if interest rates for “risk-free” monetary and financial investment instruments in the individual euro area countries are hampering our monetary policy. At the same time, we have always made it clear that financial stability is the responsibility of governments. We had to intervene – for monetary reasons – only because for a long time governments did not take their responsibility for ensuring financial stability seriously. Have we perhaps gone too far as regards our monetary policy? To answer that, we should look at the policy rates of other currency areas, such as Japan or the United States, which are much lower than ours. Any comparison with other important advanced economies’ central banks shows that we are actually very prudent in our application of non-standard measures.

But is that also true of the non-standard measures?
Again, the comparison is simple. Look at the evolution of central banks’ balance sheets since the start of the crisis. Our balance sheet has increased by around 80%. On the other side of the Atlantic, the equivalent balance sheet has grown by 226%. None of us can ignore the crisis. Drawing on the ideas of the great German thinker Max Weber, I would say that we have to rely on both the ethic of conviction, which I associate with the interest rate measures, and the ethic of responsibility, which I associate with all the non-standard measures. And we have to do that in a highly responsible way. That being said, did you know that in my own country I was called the “ayatollah of the strong franc” and “Tietmeyer’s clone”?

You must admit that you find that flattering.
It was meant as very harsh and serious criticism by some in my home country. On the other hand, there are also those in Germany who are not critical. I was awarded the Karlspreis in Aachen and the Global Economy Prize in Kiel. This was a very great honour for me and both were very moving occasions.

In Germany there is a debate about whether the voting rights in the ECB’s Governing Council should be redistributed. Instead of the rule that each member has one vote, there would be a weighting according to capital share. Is that conceivable?
When Monetary Union was set up, the “one member, one vote” rule was an important requirement for Germany. A different approach would have been possible, but Germany was afraid that there would be a nationalisation of the behaviour of the Governing Council members. When the EU was enlarged, the voting rules of the Governing Council were reformed in the Treaty of Nice in order to safeguard the decision-making capacity of the Governing Council in the enlarged EU. The idea of taking into account the size of the respective countries has thus already been implemented.

Will European integration, as currently foreseen, be possible without excessive transfer payments?
We should make a distinction between assistance, transfers and loans. The Treaties do not prohibit loans between member countries. It would not be conceivable on any continent for countries not to help each other out with loans bearing interest, for instance to complement IMF loans. The Treaties do prohibit subsidies and transfers. In addition, it should be possible in future to impose decisions on countries that persist in not complying with the Stability and Growth Pact, thereby putting at risk the stability of Monetary Union. In my view, the Treaties would need to be amended to this end.

Why do you believe that the new Stability and Growth Pact will not fail just as the old one did?
It is much stricter, although not as strict as we would have liked it to be. In addition, the euro area countries have been made painfully aware of the dangers of constant violation. They have learned the hard way that benign neglect is not acceptable.

This crisis has also changed the role of the ECB. Is there not a risk of the central bank taking on too much responsibility and overdoing things? You sent the Italians a letter in which you set out what the country needs to do in order to get the debt crisis under control. That is not the type of letter that central banks usually send to governments, is it?
You know, much of what we have developed and put into practice in Europe has gradually gained acceptance throughout the world. That is true of the deficit limit of 3% of GDP, of the inflation target of just below 2%, and of the central bank’s press conference. And the same is also true of the tradition of the Bundesbank, the Banque de France and other European central banks to voice their opinion on fiscal policy. This has proved to be worthwhile. The reason that we are experiencing such great difficulties and that we have this government debt crisis is that for too long the governments of the advanced economies and of Europe in particular did not live up to their fiscal responsibilities.

What exactly caused the ECB to step in?
There was a decision to expand the rescue fund, the European Financial Stability Facility, and to broaden its mandate so that it can purchase government bonds. All 17 Heads of State or Government signed up to this decision. There were then delays, and so the ECB once again found itself in a situation where it had to intervene in the bond market in order to safeguard the transmission of monetary policy. We had to act decisively vis-à-vis savers and investors throughout the world. We had to send a message to governments about what, in our opinion, could be done in order to retain the confidence of the markets. But we never act as a substitute for the governments’ responsibility and decisions.

Will the ECB not stretch itself too far through the politicisation of its role?
We are not politicising our role. We are executing our monetary policy responsibly in accordance with the Treaty, fully in line with the European tradition as regards our call for sound fiscal policies, at a time of the worst crisis since the Second World War. The Europeans are making history. There has never before been an attempt to bring together 17 countries, including the world’s third, fourth, sixth and eighth largest industrialised economies. This is, of course, ambitious. And the crisis is acting in advanced economies as an X-ray picture: it is revealing the weaknesses of all. In our case, it is the weaknesses of the governance of Economic Union.

But why is the ECB constantly seen at the centre of the action and on the political stage?
The ECB is the most developed institution of integrated Europe, and the institution that is fully able to take action. Something that also plays a role is the fact that Europe’s capitals – unlike us – may not have at all times a complete and immediate picture of the crisis situation. From this institution, we have the complete picture, worldwide and in Europe. It is simply our duty to pass on this picture to the leaders of our democracies. Sometimes they follow us, sometimes they don’t. The responsibility lies with the governments. The most important thing for the ECB is to ensure medium and long-term stability, and that is why it cannot use monetary policy to put right the failings of government policies.

Will the euro still be around in ten years?
Not only will it be there in ten years’ time, the information that we obtain from investors and savers indicates that it will ensure price stability in line with our definition: less than 2%, but close to 2%. The average annual inflation rate six to ten years from now is expected to be 1.8%.
Copyright © for the entire content of this website: European Central Bank, Frankfurt am Main, Germany.
 

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Trust matters more than ever in an uncertain world

Trust matters more than ever in an uncertain world 3

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 4

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 5

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 6

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 7

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

  • https://www.washingtonpost.com/graphics/2019/business/discrimination-complaint-outcomes/
  • https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters#
  • https://journals.sagepub.com/doi/abs/10.1177/000312240907400203
  • https://assets.ey.com/content/dam/ey-sites/ey-com/en_uk/news/2020/02/ey-parker-review-2017-report-final.pdf – https://assets.ey.com/content/dam/ey-sites/ey-com/en_uk/news/2020/02/ey-parker-review-2020-report-final.pdf
  • https://www.talentinnovation.org/_private/assets/BeingBlack-KeyFindings-CTI.pdf
  • https://www.bcg.com/publications/2018/how-diverse-leadership-teams-boost-innovation
  • https://www.bitc.org.uk/race-at-work-charter-signatories/
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What is loneliness and how can you manage it?

What is loneliness and how can you manage it? 8

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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