As State-based Covid strategies diverge we’re looking less and less like a federation. What does this mean for investors? Tim Hext explains in his weekly bond, income and defensive strategies note

IT’S been a rough ride for our federation during Covid. 

Closed state borders, sniping among premiers and an us-versus-them mentality have overcome these usually united shores.

In normal times, State of Origin rugby league and the old Melbourne v Sydney debate (which I always think of as an “inside life” versus “outside life” debate) are fodder for mild banter.

But as State-based Covid strategies diverge, we seem less and less likely to be singing together: “I am, you are, we are Australian”.

NSW is going down the international route of learning to live with Covid. Other states are — to put it mildly — quite upset. National Cabinet today should be fiery.

Modelling by the Doherty Institute, updated this week, suggests an “all adults” vaccination allocation strategy (rather than “older first”) looks like this table below.

“All adults” vaccination allocation strategy:

I will leave you to consider what are “acceptable” rates of infection, hospitalisations and deaths over a six-month period.

But it is the uneviable task of a politician to balance these outcomes with the economic and human welfare benefits of reopening.

For now NSW is on its own with incoming fire.

Other states, largely successful in curbing big breakouts of the Delta variant, remain committed to a suppression strategy for now.

Isolated states such as WA and Tasmania seem confident, while Victoria and Queensland are understandably nervous.

When would we hit these vaccination levels? The Doherty report shows this table below from a month ago. Hopefully recent efforts will see these dates brought forward.

Estimated completion dates for different vaccination rollout strategies (based on progress at July 12):

Welfare as a state responsibility

All this would matter less if welfare was a state responsibility.

Each state could go its own route — with even harder border closures — and reap the associated benefits and costs.

But we are a federation. Canberra controls money printing, social security and interntional borders.

It is likely to get very messy, very soon — further complicated by an upcoming election (latest 2022) where Queensland seats will likely determine the result. Good luck ScoMo!

The outlook

From a market point of view data and outcomes are moving every day, but few expect a full national opening before November or even December. 

International border openings are now pushed back well into 2022.

We maintain the view that 2022 will bring a pick-up in wages and services inflation and the RBA will be tightening by 2023.

For risk markets, though, it will be more tailwinds. Inflation is unlikely to reach the kind of levels that tip market psychology into fear.

That level would be persistent inflation above 4%. For risk markets inflation at 2.5% and growth at 3% is almost the perfect mix — and likely to happen medium term.

Whether it’s plain sailing on the way is debatable. Uncertainty remains high but markets for now are alert not alarmed.

About Tim Hext and Pendal’s Bond, Income and Defensive Strategies (BIDS) boutique

Tim Hext is a portfolio manager with Pendal’s Bond, Income and Defensive Strategies (BIDS) team.

Pendal’s BIDS boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.

With the goal of building the most defensive line of funds in Australia, the team oversees A$22 billion invested across income, composite, pure alpha, global and Australian government strategies.

Find out more about Pendal’s fixed interest strategies here

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About Pendal Group

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

Contact a Pendal key account manager

Ada Chan was previously the Senior Analyst for the Prague-based JOHCM Global Emerging Markets strategy. Prior to joining JOHCM, Ada spent three years at GMO LLC as an Investment Analyst for the UK. She previously worked at Baring Asset Management (Baring) for eight years as an Equity Research Analyst in London and in Boston. Prior to 2000, she worked as an International Management Trainee and Equity Research Intern at State Street Corporation and Salomon Smith Barney respectively. Ada holds a MSc in Computer Information Systems and BA in Business Administration, both from Boston University.

Companies are increasingly disclosing their exposure to climate risks. But those disclosures often do not give the investors the full picture. Regnan’s ALISON EWINGS explains

• Climate disclosures too narrow
• System-wide effects of climate change often ignored
• Find out about Regnan Global Equity Impact Solutions Fund
• Find out about Regnan Credit Impact Trust

IT’S been five years since the Task Force on Climate-related Financial Disclosures began trialling voluntary, consistent climate-related financial risk disclosures for use by companies.

While take-up has been good, investors still need to see a lot of improvement in ESG-related disclosures, says Alison Ewings, who engages with ASX-listed companies for sustainable leader Regnan.

About 80 per cent of big global companies now disclosed in line with at least one of the taskforce’s 11 recommendations.

But most companies are still taking too narrow a view of climate risks and failing to consider the underlying, system-wide interdependencies and economics risks of climate change that will impact their operations, says Ewings.

A Regnan assessment of disclosures shows they are often narrow in scope and place climate transition risks ahead of considering system-wide interdependencies and different potential economic scenarios.

Regnan is a leader in sustainable investing and an affiliate of Pendal.

“Look at what’s happened in Australia lately — fire, fire, flood, flood, flood — everyone who’s dependent on the Australian economy has been affected by those things,” says Ewings.

“But when you look at an individual company you see ‘well we’re fine’. But you’re not fine. You’re not an island. You’re part of the broader economy.

“We think about this as an additional risk that climate change is going to add for every business.

“Some businesses are more leveraged to economic activity than others, so they’re more exposed, but they’re all exposed to some extent.

“So instead of saying there’s no climate risk, internally we talk about it as there being a background level of risk that is not nil.

“This is something that’s not being explicitly considered by companies in their TCFD disclosures and we’re not sure that it’s really being explicitly considered by investors, insurers and banks.”

Five underlying climate risks for investors

Ewings says underlying climate risk can take five main forms.

First, general consumer behaviour will likely change as temperatures rise and extreme weather events become more common.

This could include changing preferences for food, clothing and holiday destinations, to the need to rebuild after natural disasters or even relocate for more favourable climatic conditions.

Second, businesses are all reliant in some way on the underlying infrastructure around them, from roads, telecommunications and power to access to water. Changes to the availability of infrastructure can have profound implications for a business’s operations.

Third, disruptions in supply chains due to extreme weather, shifting demand or interrupted transportation.

Fourth, businesses rely on the resilience of the communities they operate in to maintain their workforce and customer base.

Assessing the health of the community should form part of a business’s risk assessment.

And finally, with extreme weather no longer an infrequent, temporary phenomenon, overall economic growth is likely to be lower.

Businesses should reflect this base level reduction in demand in their planning.

“The key thing is the interdependency,” says Ewings.

“Once you get outside of your organisational boundary, that’s where things start to fall apart.

“For instance, companies do a good job of site-by-site analysis of the impacts of climate change to physical locations.

“But it is very rare to see consideration of the infrastructure on which they also rely on like the transport networks that move things to and from those sites.

“It’s rare to see anything about the resilience of the communities in which their employees work — it might well be that your factory is fine, but nobody can get there or nobody’s feeling like coming to work.

“All of these factors should be considered.”

Sustainable investing leader Regnan is exploring new approaches to ESG engagement. Regnan’s ALISON EWINGS explains

• Systems-wide engagement is needed to drive change
• Download Regnan’s 2022 Australian engagement report, From stock to system (PDF)
• Find out about Regnan Global Equity Impact Solutions Fund
• Find out about Regnan Credit Impact Trust

THESE days it’s a basic expectation that active managers will meet regularly with investee companies and issuers to drive behaviour that benefits shareholders and the community.

“Engagement”, as it’s known in the investment industry, is usually undertaken on a one-to-one basis between an investor and an investee.

For example, sustainable leader Regnan last year engaged with 40 ASX-listed companies – some on multiple occasions – as part of its Australian program. Engagements aimed to reduce economic, social and environmental risk to client portfolios.

Regnan’s 2022 engagement report From Stock to System (PDF) shows demonstrated progress in 98 per cent of engagements.

But as interest in ESG snowballs — and the complexity of issues increases — engagement must evolve to ensure continued effectiveness, says Regnan’s head of engagement Alison Ewings.

Engagement can be more successful — particularly on portfolio-wide risks — if it shifts away from a company-by-company approach and evolves into collaborative, systems-wide activity, says Ewings.

Evolution of engagement

Regnan’s latest report sets out the changing nature of engagement amid worsening greenhouse gas emissions, rising inequality and repeated examples of poor corporate practice.

It’s becoming clear that we need to look beyond closed-door, direct engagement with directors and company leaders to truly tackle these systemic risks, says Ewings.

“Historically, we’ve engaged in a very bottom-up fashion, looking at the ESG risks to an individual company.

“While there is still a role for this kind of engagement, we must acknowledge that individual companies are limited in the actions they can take on some ESG issues.

“For these multifaceted, system-wide issues, one-to-one engagement will not be enough to reduce the risks to portfolios.

“Climate change is a classic example.

“You can divest your way out of the risks to a certain point. But if climate change is left unchecked, it will still create risk in portfolios and the potential for associated economic shocks.”

New models for engagement

As a result, Regnan is making changes to its activities and investigating new models for engagement.

“We are approaching engagement in two ways.

“One is to engage right along the value chain to achieve system change and reduce portfolio risks from major ESG trends.

“The other is to look at opportunities to bring companies together to address these issues.”

Ewings points to Regnan’s establishment of a roundtable on sustainable agriculture , which brings together senior executives and directors to identify barriers to shifting to more sustainable agricultural and food production practices.

“The full impact is still unknown but it’s proving an effective way of raising awareness and developing a deeper understanding of these issues among market participants,” she says.

Progress on diversity, equity and inclusion

Regnan also had success during the year with its work on diversity, equity and inclusion, including a research paper that explored why companies struggle to make meaningful progress on diversity.

“We looked at how organisations can achieve their diversity goals in a meaningful way — both for individuals and for organisational value creation,” says Ewings.

Regnan’s research found that diversity strategies must include a conscious focus on inclusion and equity to reap the upside of a diverse workforce.

Other engagements during the year focused on issues ranging from the financial service sector’s exposure to carbon emissions, the physical risks of climate change and how companies can reduce the risk of exposure to modern slavery.

“These are significant changes to the way that we undertake our engagement activities,” says Ewings.

“Our ability to make positive change by engaging with single actors is becoming limited as the issues become more complex.

“We have to be actively exploring new models for engagement to address these system-wide challenges.”

A more intentionally inclusive approach to problem solving also enhances the pool of ideas for how to tackle major societal challenges, she says.

Investors should look for evidence of inclusion right across a business — even in product design, says Regnan’s head of engagement ALISON EWINGS

• Inclusion leads to better product design
• Look for companies with equitable employment practices, supportive culture and inclusive decision-making
• Find out more about sustainable leader Regnan

IN 2019, NASA planned one small step for women: the first all-female space walk from the International Space Station. But it did not go as planned.

The problem? There weren’t enough medium-sized space suits to go around.

“Truly inclusive decision-making goes beyond the workplace,” says Regnan’s head of engagement, Alison Ewings.

“By broadening the approach to consider customers and society at large, you’re more likely to have products and services that meet the needs of a wider range of people.”

Ewings says it is not uncommon for products and services to be designed without proper consideration of inclusion.

“We’re seeing companies talk about their experience of employing more women only to come across things like no availability of uniforms suitable to be worn when you’re pregnant.

“We’ve seen personal protective equipment the wrong size for women. We’ve seen machinery that cannot be operated by people under a certain height.

“These are product and service decisions made well before a company discusses how to implement a diversity and inclusion program.”

Beyond employee experience

Taking inclusion beyond the day-to-day employee experience is an important insight for investors.

“Can the impact you have be improved by thinking about how you deliver that more inclusively?” says Ewings.

“So, if you’re a health company, who are you including in your trials?

“For an education provider — if you can reach a broader audience in a developing country, the impact of what you can do about changing those people’s lives is far more significant if you approach the delivery of your product and service with an inclusion lens.

All companies can benefit from taking an inclusion approach to product and service design, says Ewings.

“It can be simple things like supermarkets offering quiet hours for people with autism or older people who find loud noises and bright lights an overwhelming experience.”

And while diversity has been the watchword for businesses seeking to bring broader talent into an organisation, research shows equity and inclusion are the critical factors in realising the performance potential of a diverse workforce.

Regnan’s award-shortlisted research report Beyond diversity: Equity and inclusion as an overlooked opportunity for investors (PDF) found that a focus on diversity without equity and inclusion can undermine the very benefits offered by diversity.

Three inclusion factors

Regnan’s research outlines three inclusion factors that investors should take account of when assessing companies:

• Equitable employment practices
• Supportive culture
• Inclusive decision-making

The benefits of focusing on equity and inclusion within the workplace is equally relevant to the experience of customers and the broader community and is therefore of interest to impact investors, says Ewings.

“A true focus on inclusion thinks about what it means for decisions that these organisations make and the products and services that they offer.”

Organisations that embrace equity and inclusion can apply these skills to their core operations unlocking opportunities to positively impact a wider constituency, and potentially with greater potency.

A more intentionally inclusive approach to problem solving also enhances the pool of ideas for how to tackle major societal challenges, she says.

ASX-listed banks and insurers have an important role to play in emissions reduction. Regnan’s ALISON EWINGS explains what that means for sustainable investors

• Sustainable investors should expect banks to help drive change
• Look for engagement, not avoidance
• Find out about responsible investing leader Regnan
• Find out about Regnan Global Equity Impact Solutions fund

HOW should sustainable investors think about banks that fund emissions-intensive businesses?

At first glance it seems like a red flag.

The finance sector has come under pressure in recent years to stop funding carbon-intensive companies.

Protest votes and activists now regularly disrupt annual meetings.

But increasingly, ESG-driven investors are understanding the sector’s role in funding transition.

Alison Ewings, who heads up engagement at responsible investing leader Regnan, believes banks and insurers play an important role in the economy’s transition to net zero.

Rather than withdrawing support for emissions-intensive sectors, an alternate approach is to engage and seek to directly finance change, says Ewings.

“Ultimately we need actions that will lead to emissions reductions in the real economy. Financial institutions have a very important role to play in achieving this.”

“Changes in credit policy or loan covenants can have huge influence on the way the climate transition unfolds — and the types of activities that get funded.”

Ewings believes the financial sector needs to shift its focus from reporting on dollar exposure to emissions exposure, taking into account the underlying quality of assets and their ability to make the transition to net zero.

“Banks are disclosing the dollar value of their exposure to different sectors, highlighting in most cases that lending exposure to fossil fuels is actually relatively small — particularly in the Australian context where there’s a lot of mortgage lending.

“But in some ways, that’s the wrong question. It’s the emissions profile of the exposure, not the dollar exposure, that matters.

“What are they doing in their credit policies to have a meaningful impact on client transitions? What are they doing to finance those transition activities?

Lenders can take an active role by making finance contingent on clear expectations for progress on transition.

“This is what’s important.

“Potentially banks can even increase their dollar exposure to these sectors, provided they are able to demonstrate their involvement is leading to to the transition of these businesses and to emissions reduction in the real economy.”

“We are starting to see enhanced disclosures from banks on the emissions trajectory of their lending activities, but there is greater scope to more clearly set out the banks’ role in bringing this about.”

Engagement vs. divestment

This is similar to the question investors face around engagement versus divestment. Actively deploying capital to support the transition can be a powerful force for change, Ewings says.

And importantly, failing to support those sectors able to transition can have the effect of simply forcing companies to seek alternative forms of capital without doing anything to reduce their actual emissions.

Public policy is another lever the sector can use to seek regulatory conditions supportive of transition.

Insurers can also play an important role.

Ewings points out that some of the newer technologies needed to get the global economy to net zero emissions can be by their nature higher risk.

“The ability to have an insurer underwrite a project can give a bank confidence to finance it.

“The focus needs to be on supporting transition in those sectors where activities can result in real emissions reduction.”

Regnan has engaged with banks and insurers, seeking detail on the nature of their emissions exposure and how they are developing risk management and product solutions that support transition.

Investors need emissions reduction in the real economy in order to manage climate risks within their portfolio, Ewings says.

“The role of the banking and insurance sectors in supporting these reductions is important.”

Engaging with investees is at the core of ESG. But the issues are now so complex that we need another approach. Regnan’s ALISON EWINGS explains

• Investors need to rethink how they engage with companies
• A system-wide approach is needed
• Find out about sustainable investing leader Regnan

COLLABORATION and co-ordination among all parts of society are needed if sustainability goals are to be achieved, says Alison Ewings.

Company-specific engagement remains important for driving direct outcomes. But many aspects of meaningful change can only come when businesses, not-for-profits, researchers and governments share information and co-ordinate action.

That’s the approach Regnan’s head of engagement Alison Ewings is increasingly taking.

Sustainable investing leader Regnan last month hosted its first Director Roundtable on Sustainable Agriculture, bringing together senior executives and directors to identify barriers to sustainable agricultural and food production.

“There’s still a role for company-specific engagement, but the complexity of many of the ESG issues we’re facing means there are a host of instances where this approach is limited,” says Ewings.

Part of the problem is that individual companies are constrained in the sustainability outcomes they can achieve acting alone, she says.

Case study: agriculture

Agriculture is a case in point, with complex sustainability issues across the value chain including climate change, soil health, pollution, water scarcity, food waste and biodiversity and eco-system loss.

Growers can be limited in what they can do because they need to meet the specifications of supermarkets and food manufacturers.

There is evidence they are struggling to invest in sustainability because lenders and investors may not ascribe a value to improvements, says Ewings.

“You can go to a lot of effort to improve your soil health, but if that doesn’t show up in the value of your asset then you might question the investment,” she says.

Sustainability is further complicated by the many small companies operating in agriculture.

By their nature, many small companies also have lower capacity to invest in sustainability and may not benefit from the same technology and advice that scale allows larger companies enjoy.

“And of course, not all of these entities exist in the listed space, so engagement sometimes means going beyond your investment universe, for instance engaging with private companies or industry associations representing these smaller groups,” says Ewings.

The waste industry is another example, requiring partnership across industry, regulators and academia to understand the full lifecycle impacts of the waste cycle.

Laws, regulations and practices differ from state to state and even between local councils, says Ewings.

“A system-wide approach is going to be required in order to change complex value chains,  that stretch across our entire economic and social system. For instance energy, finance and manufacturing.”

What needs to change

So, what are the barriers stopping Australia taking such an approach?

For starters, different levels of government are posing a challenge.

“There can be a need to harmonise state and local legislation where it creates inefficiencies or barriers to scale for solutions. The recycling space, for instance, comes up quite a lot.”

But business also needs forums away from the competition of business-as-usual where executives and directors can reflect and collaborate with suppliers and customers.

“A good example is the steel sector and ResponsibleSteel, an association across the supply chain that acknowledges the R&D challenge for low carbon steel are significant and therefore difficult for any single company to be able to invest enough to bring the change that is needed.

“Many of these challenges are multidisciplinary and so require a multi-stakeholder response, within and across sectors, as well as from consumers, governments and the right scientific minds.

A bewildering array of net zero frameworks can seem daunting for investors, but the underlying principles are straightforward, says Regnan’s Alison Ewings. Here’s what to know

• Every increasing array of net zero frameworks and guidance
• Underlying aim needs to be practical action and meaningful change
• Find out about Regnan Global Equity Impact Solutions Fund
• Find out about Regnan Credit Impact Fund

ASSESSING climate risk in a portfolio can be a daunting proposition.

There’s a bewildering array of frameworks available to help companies and investors set net zero targets, says Alison Ewings, who heads up engagement at sustainable investing leader Regnan.

Asset managers and owners can use a wide range of initiatives and protocols to help assess climate risk and establish plans to achieve net-zero.

Here’s just a few:

• Net Zero Asset Managers initiative
• Paris Aligned Investment Initiative’s Net Zero Investment Framework
• Science Based Target initiative for Financial Institutions
• UN Net Zero Asset Owner Alliance Target Setting Protocol, and
• Partnership for Carbon Accounting Financials

The list goes on — and for good reason.

The sheer scale of action needed to tackle climate change — and the important differences between sectors, asset classes and countries — means the finance industry must take a nuanced and targeted approach.

But how can investors get their heads around the complexity of the net zero problem?

Net zero for investors

Superficially, getting to a net-zero portfolio is simple — “you simply divest things”, says Ewings.

But that simplistic approach misses the point: not only can it come with important implications for returns, it also fails to manage the risk to a portfolio if climate change continues unabated, she says.

“It is not just about managing for net zero in portfolios. What we want to bring about is a net zero world,” says Ewings.

“Increasingly the frameworks are focused on driving meaningful change in the economy, not just in the individual portfolios of investors.”

Ewings says understanding the ever-increasing array of net zero frameworks is not as complicated as it looks. For all the apparent complexity in the frameworks, “most of them work together”.

“What looks like nine different things is actually much simpler — there are two key frameworks you can sign up to if you’re an asset owner, and another if you’re an asset manager. And then there’s a series of methodologies and tools to use to help you implement it.”

Three areas of focus

There are fundamentally three distinct activities at the heart of all these types of protocols, says Ewings.

• “The first is around the decarbonisation of portfolios and moving away from emissions intensive activities, including where they may have stranded asset risk attached to them.
• “The second is about directly investing in climate solutions that will reduce emissions.
• “The third is stewardship, which includes engaging with companies and influencing them to become Paris-aligned, factoring climate considerations into voting and supporting public policy outcomes that address climate risk.

Stewardship also includes engaging throughout the investment value chain — engaging with data providers on the types of information that you need or with rating houses on the types of assessments that you are interested in.

These frameworks emphasise the need  for asset owners and managers to work together to support net zero outcomes, Ewings says.

“It’s also around public policy discussions. There are many aspects of climate change that are not well handled by engaging with individual companies.

“This is partly because it’s not the most efficient way of doing it, but also because there has been a tendency in stewardship to focus primarily on listed equities, and that’s not the whole economy.

“In fact, what you might be doing is creating an uneven playing field. The good news is that as the frameworks evolve we’re seeing greater focus on a range of different asset classes and greater prominence of policy advocacy.”

The ultimate lesson for investors?

Regardless of the framework, the systemic nature of climate risk means that “unless the way you’re approaching net zero is aimed at bringing about meaningful change in the real economy, you’re not actually reducing your long term risk at all”.

The tight labour market demonstrates how ESG-related policies such as diversity and inclusion impact “real-world” business functions. Regnan’s ALISON EWINGS explains

• Tight labour markets make it hard to hire
• Refocusing on inclusion can raise the number of applicants
• Regnan report: How companies fail at diversity and why investors should care

WHETHER it’s a Great Resignation, a reaction to pandemic lockdowns or the product of border closures and low migration, one thing is true: it is harder than ever to find staff.

If that sounds familiar, you’ve probably been considering a variety of ways to improve your success in recruitment.

You may not have considered how an Environmental, Social and Governance lens can help.

Earlier this year responsible investing leader Regnan published an investor’s guide to diversity, equity and inclusion (DEI) — an ESG-related issue that’s especially relevant right now for employers battling to attract candidates.

Consider, for example, that more than two-thirds of Australian financial planners are men — but 60 per cent of graduates coming into the industry are women.

“The future of financial advice is absolutely female-led,” says Benjamin Marshan, Head of Policy, Strategy and Innovation at the Financial Planners Association.

DEI can help recruitment

What are recruitment’s best practices post-pandemic? How can you ensure you’re not inadvertently putting off potential candidates? How can you benefit from what a truly diverse workforce can offer?

A well-considered diversity, equity and inclusion program can help, says Regnan’s Alison Ewings, a co-author of the Beyond Diversity report.

Employers can improve their hiring practices by rethinking the process end to end — from job descriptions and competencies through to the advertising process, candidate selection and interview, says Ewings, who leads Regnan’s program of ESG engagement with ASX-listed companies.

“Minor tweaks can change the pipeline of applicants dramatically.”

Diversity in hiring matters. It widens the pool of candidates available for a role and so can help avoid inflating labour costs by artificially narrowing the number of applicants.

And when coupled with an inclusive and equitable work environment, it also drives improved business performance by harnessing new ideas and perspectives.

But much of the traditional hiring process can get in the way of hiring for diversity.

Take care with language

“The starting point is the job description and advertisement itself. You need to think quite carefully about what competencies are really required to do the job well,” Ewings says.

“Even in our own team, we drafted a job advertisement recently where we initially included a requirement for ‘superior project management’.

“That sounds like they need a formal qualification or have done major projects — but what we were really looking for was someone who’s highly organised.”

Careful use of language can broaden the pool of applicants.

“A study of 4000 job ads found that women were put off from applying for jobs that used wording associated with masculine stereotypes such as ‘aggressive’, ‘ambitious’ or ‘persistent’,” she says.

Significantly, women did not consciously note the language or realise it was having this impact and when asked why they did not apply for a role, they cited personal reasons.

“It’s similar with imagery. Who you show in photos of your workforce can be a natural screen for people that they aren’t even aware of.”

Rethink the interview process

Ewings also suggests rethinking the interview process itself.

“Not many job roles require someone to be good at being interviewed,” she says, saying some employers are now using a task-based approach for hiring that checks whether people can actually perform a role’s functions rather than whether they can perform well in an interview.

“It often started as a diversity, equity and inclusion initiative, for instance to recruit people on the autism spectrum who may not interview well. But in fact, they discovered it’s a better predictor of job performance in many roles across all hires,” she says.

Where interviews are the best way to screen people or as used as a final check in the process, Ewings suggests ensuring the same questions are used in the same order and that interview panels themselves are diverse.

“You’re trying to sell the job and build rapport, so you don’t want to be too dogmatic about it, but there’s a balance — you need to be able to look back and evaluate each candidate against what you’re looking for.”

She also says the interview question themselves need to be linked to the role’s competencies.

“You’ve got to benchmark the questions you ask back to the requirements of the job. It’s not just a matter of going for coffee with someone for a general chat.”

And what about de-identifying resumes to avoid bias in the recruiting process?

That can be a good idea, says Ewings, but it depends on your objective.

“If you set a target of having shortlists with a specific percentage of, say, women or people from multi-cultural backgrounds, then de-identification won’t help.”