Materiality and Human Capital With Olivia Luciani Of Trillium Asset Management

Dan: Hey there. Welcome to People Count, a PeopleReturn podcast where we talk about workforce diversity and human capital management from a data lens. PeopleReturn is the leading provider of human capital and diversity data for the largest publicly traded companies in the world. I’m Dan Berlingeri. And today I’m joined by Olivia Luciani, the ESG analyst for Trillium.

Thank you so much for being on this podcast. First of all, taking the time out of your Friday. Happy Friday, by the way. 

Olivia: Of course. Happy Friday. 

Dan: Thank you. How’s your day going so far? 

Olivia: It’s going good. It’s been busy, but it’s cooled off in Boston. Finally, Having the windows open makes work a little nicer. 

Dan: Wow. Nice. Tell us a little bit for those who, I mean, I’m sure all of our listeners are familiar with Trillium as a company, but for our listeners who might not be familiar with your role or your focus, give us a little more context.

What do you focus on day-to-day? 

Olivia: Certainly. For those who don’t know Trillium, we are an ESG-focused firm that dates back to the 1980s. We have been in the industry for a very long time. Sustainability is all we do. We are impact-focused and values-focused. At Trillium, I am an ESG research analyst, which means I partner with our financial analysts to ensure we achieve both financial goals and our ESG commitments. Analyzing companies’ social, environmental, and diversity data is part of my day-to-day responsibilities.

Dan: Fantastic. And today we’re going to be focusing on materiality. Is that right? 

Olivia: Yes. I believe so. 

Dan: Let’s take a more focused approach this week, considering topics such as materiality. It has been on everyone’s mind, especially since the pushback from the SCOTUS ruling. People have been wondering about the status of DEI in the space. Is there enough room in this industry today for the acronym DEI? How do we think about DEI? Many people are debating the validity and materiality of the DEI concept. I want to start today, Olivia, by helping our listeners understand from your perspective: how do you think about materiality, perhaps beginning with its financial aspects?

Olivia: Indeed, DEI is similar to ESG in that one may dislike the acronym, but the underlying elements will always remain important. We consider it financially material for almost every industry. It’s an aspect we examine closely across industries and companies. 

For us, it comes down to the fact that companies able to maintain their employees’ psychological safety will experience less turnover. They will attract new employees more successfully and have a more innovative and successful workforce, which ultimately leads to financial output. There are many concrete examples related to your comment about the Supreme Court ruling. 

A few months ago, about 20 attorneys general issued a letter advocating for the materiality of diversity. They argued that companies excelling at managing diversity in their firms financially outperformed others. While one can debate correlation versus causation, there is compelling evidence that managing diversity well certainly does not harm a company. 

Dan: Correct. You’ve hit the nail on the head there. Managing diversity well, like managing all employees effectively, requires a high level of good management. DEI can be viewed as a proxy for understanding culture, specifically the strength of a culture and the robustness of a workforce. It reflects the overall quality of management and organizational health.

Olivia: I mean, Diversity Equity inclusion. It’s a divisive workforce where people feel included and like they’re able to work as a team to do their best. So I think that’s so important. 

Dan: Yeah. And plenty of work and studies out there around psychological safety and how that can lead to better team dynamics, sense of belonging, innovation, just transparent communication and from individual contributor to manager. And all throughout the org truly. 

Olivia: And at a minimum you avoid litigation risk even if you view it as at its most basic form. 

Dan: Yeah. That’s interesting. Can we pull that thread a bit? I’m curious, you know, if you think about, or how you think about DEI from a material risk perspective. Do you examine companies in terms of risk factors around topics relating to internal corporate behavior?

Olivia: Absolutely. As with physical health and safety, if we were evaluating a company that had much worse safety statistics in the traditional form, that would be a risk we associate with governmental fines, lawsuits, and loss of reputation. The same goes for diversity. With diversity, you also have not only that risk management piece but the opportunities that come from having a diverse workforce. So you get both sides.

Dan: Yeah, that’s super important. Just putting on my HR hat real quick, I think companies think a lot about DEI. Traditionally, many HR leaders have thought about things like DEI as a risk mitigating factor, right? Legally and internally protecting the company. But it’s taken a real shift in recent years, focusing more on DEI as a signal of outperformance. It indicates better quality management with less bias present in things like hiring practices, workforce retention, and employee programming. So yeah, it sounds like you all at Trillium are really thinking about it dynamically as a company.

Olivia: Yeah, absolutely. It’s something every company that gets added to companies in our investable universe, we examine it pretty deeply. Our advocacy program also is constantly looking at our held companies for areas to improve. So it’s something that we’re thinking about all the time.

Dan: Nice. Well, it’s interesting. It requires constant vigilance because it’s such a moving target these days, right? How would you… I guess, what are some of the biggest challenges you’re coming up against in today’s world when thinking about defending some of these topic areas?

Olivia: Yeah, there are many challenges. Recently, a new one is the risk of litigation in the other direction, where companies are afraid of penalization if they have certain policies around hiring or if they manage diversity in specific ways. I think the small coalition of very vocal people against diversity action has been sadly pretty successful in making companies afraid.

The other more long-term challenge is just lack of data and reporting that connects human capital management to the financial bottom line. In 10-Ks, most companies have the qualitative section on human capital management, but there’s no great accounting around companies’ workforce. So that’s a major missing link.

Dan: Yeah. Huge blind spot. And for those of us trying to build a stronger case for materiality, it’s tricky. But what we do have is an understanding of how these challenges differ from sector to sector. We understand it’s a dynamic conversation and that we can tie things very closely, like DEI to human capital management in general.

Very briefly, at this last conference we went to, someone noted – it might have been Iyasu, but I don’t want to quote him directly – that at a recent court hearing or Senate floor discussion addressing DEI issues, a rather conservative Senator had said, “We can’t agree on climate change, but we can agree on human capital way more than we can get on the same page about climate change.”

To me, that’s something significant. If we can refocus and say, look, human capital – if we can agree upon one thing, if we can galvanize around the principle of materiality, of just good management period. Maybe we disagree on how to measure that or the words we use to describe it, but overall reduced bias within the workforce, upward mobility, promotions, new hires, hiring rates, interview processes – all of that. You can’t really argue with that, right?

Olivia: No. And with most ESG issues, it’s really just good, sensible governance. That’s why we care about it so much. With human capital and DEI issues, these are issues that truly affect everybody in the workforce.

For climate action, I want companies to work on it. The average worker may not consciously experience the effects of climate change every day, although that’s becoming increasingly more common. But your average worker experiences the effects of diversity or lack of diversity in their workplace culture every day.

I’m speaking from my own experiences as a younger woman in finance. I have many friends who have left jobs due to DEI issues, and the same goes for other industries, like my friends who are engineers. That’s talent walking out the door. You’re losing that capital and having to retrain. It’s something that’s severely affected my friends. So it’s a deeply personal issue that workers should acknowledge.

Dan: Right. No one is immune to disengagement, but also, I mean, I almost said no one’s immune to discrimination, but that’s, that’s actually false.

I think that might be a false statement. But yeah, it is, unfortunately no company is immune to cases of discrimination, right? It’s very insidious, it crops up anywhere.

Olivia: Yeah, and companies have the proper management and infrastructure to handle those cases well. It really affects employee experience.

Dan: Yeah. Well, I’m sorry for your experience there and your colleagues’ experiences. It’s unfortunately way too common. It’s just par for the course, but I think that’s why we do the work we’re doing. You started to circle around this idea of sector-specific challenges, and I’m curious about that. I want to double click on it because I think it’s interesting.

I hear from a lot of people, at least on the criticism side, that there is no one good rule that should govern all industries and sectors when it comes to DEI. Not everyone deals with the same challenges and things like that. There’s a lot of criticism around that. How do you think about diversity and human capital as unique sector-specific challenges?

Olivia: Totally. As you know, it’s certainly not one size fits all. Different aspects of diversity and DEI are going to be more or less material for different companies. Compare a software company to a utilities company. For software, diversity may really be about peak talent attraction, retention, and innovation. For a utility company, we may be really concerned with environmental justice in siting various industry-specific issues.

So when I’m looking at a company, I don’t just look at their board composition. I go one step beyond that and ask: What are the key issues here? How are you addressing them or failing to address them? And I think that’s what helps pinpoint financial materiality.

Dan: Yeah. We have such a hard time agreeing on how to measure the impact of materiality, and you’re right, it has to be so custom-tailored. We just looked at Yum Brands recently. They’re very transparent about turnover, but their turnover is somewhat higher than other companies, though reasonably so. They’re mostly measuring in-house restaurant workers, and in some sectors, it’s actually an advantage to have turnover.

If we compare Yum Brands to the talent wars in the tech industry, it’s apples to oranges. A senior data engineer at a large tech firm might have competitive compensation by leaving a company and hopping from one to another. That talent is hyper-competitive, and some rotate companies every year or three years, working on a project and then moving to the next.

Similarly, folks working in fast food chains should be able to benefit from the same economic opportunities. Going company to company with more experience makes you a more valuable asset, giving you another opportunity to negotiate salary in each interview process.

It’s hard to think about it as an overall rule because it is so specific. I imagine your team has a lot of work to do with that, right? You’re dialing in and figuring out company by company how to understand them on a really granular level. What are their specific challenges around materiality when it comes to talent?

Olivia: Yeah. What are the risks? What are the opportunities? I typically cover companies that have lower turnover, and I was working on a company filling in for one of my colleagues where the turnover was super high because it was a retail company. I was like, “Oh my gosh,” and she said, “Don’t worry, that’s just the industry.” So having ESG analysts specifically with industry knowledge is really beneficial.

Dan: It’s awesome. Yeah, that’s excellent. And those are the stories I feel like critics of this space don’t get to hear often, right? They don’t get to hear and see the actual data and the analysis boots on the ground.

Olivia: Yeah. If you think it’s all about quotas, that’s really not what DEI is functionally. I could talk about critics of diversity all day long, but I won’t go down that route.

Dan: Right. We should focus on the things we believe in and stand behind. I think going beyond the box-checking exercise and quota, understanding how dynamic this space is and how important and material it is. Yeah, it’s always going to be there and it’s always going to be evolving. Really quick, I know we’re reaching towards the end of our time here. I had a couple other questions for you, but I’m curious, is there anything else you want to bring up? Any other stories around materiality or thoughts you had for our audience?

Olivia: Would it be helpful on your end if I talked a little bit with how we use PeopleReturn in our investment process? 

Dan: Sure. Yeah. 

Olivia: Definitely. To be industry and sector specific, we use PeopleReturn a lot to compare companies to their sector and other direct peers. It helps us really isolate what’s exceptionally good or concerning about companies. We do this on the investment risk analysis side and on our advocacy side. There are certain standards – I think it’s common to expect over a third of women on the board. But in general, we’re really using PeopleReturn to drill down on companies relative to their peers.

So it’s very useful. That’s the benchmarking piece, benchmarking sector to sector.

Dan: Are you drilling down into Board of Directors diversity specifically? I’m just curious about this piece on self-identified demographic information. Does it ever come across your desk, thinking about that from an individual level standpoint on the board or named executive officers?

Olivia: Definitely. Looking at the proportion of the board from traditionally underrepresented groups is really useful as an indicator of if there are greater problems. If that’s diversity, it’s something we need to look into a bit more. For named executive officers, it’s incredibly useful.

I’d say that data is where the research starts. The benefit to hands-on research is you can take the data, add your qualitative analysis on top, and come out with analysis that’s pretty differentiated as opposed to just passively indexing based on numbers. That’s my little plug for my job. I’d like to keep my job.

Dan: No, your work is essential to Trillium and what they’re doing is core to your focus and cause. Personally, I’m flattered. Thank you for bringing us up. I will say that Trillium has been a fantastic partner alongside us.

You know, at PeopleReturn, we’re not necessarily financial analysts. What we do well is research and continuity and creating a full 360º view as much as we can in this space, where there are naturally gaps in diversity and human capital. But we love working with people and companies like Trillium and yourself who can help us uncover the materiality and validity of that information. It’s a joy to be able to support your work.

Olivia: You too! And it’s fun seeing you at conferences. 

Dan: Oh, you too. Of course. We always have a blast. Well, thank you so much for your time today. And I hope you enjoy your weekend and your Friday.

We do these on Fridays for a very specific reason. Everyone’s at their best on a Friday. 

Olivia: Yeah, if it was Monday morning, I’d be really mean the whole time. 

Dan: Oh yeah. Grumpy. I’d be wearing PJs underneath the camera. Yeah. For the record, I am wearing pants full, you know, there’s a full suit happening here. Just kidding. Not really. 

Olivia: Well now I feel disrespected. Where’s the professionalism? 

Dan: Well, thank you so much for your time, Olivia. And stay tuned. We’re just doing a quick plug for PeopleReturn. We hope you enjoyed today’s episode. If you liked this content, there’s plenty more to check out on diversiq.com. That’s D-I-V-E-R-S-I-Q.com. We have blogs, articles, white papers, and webinars on topics like this. And if you join our newsletter at diversiq.com/newsletter, we’ll send you all of those things directly to you once a week. Thank you so much, Olivia. Hope you have a great weekend.

Olivia: Thank you, Dan.

Dan: Thank you.