Diversity and inclusion: More than just metrics

6 min read 6 Aug 21

The pandemic has affected each of us in different ways, both emotionally and financially. Yet research has shown that the economic toll of Covid-19, and the lockdowns to curb its spread, has been more severe overall for women around the world[1].

The past year or so has highlighted that women, like ethnic minorities, are disproportionately likely to be in more precarious, lower-paid employment. The United Nations estimates that, with sectors like hospitality and retail hit hardest by the pandemic, Covid-19 will contribute to a worsening of the gender poverty gap[1].

Following this setback, we believe it is more important than ever that companies help create a culture of inclusivity where everyone has a chance to contribute and thrive, irrespective of their gender, ethnicity or sexual orientation.

Why diversity and inclusion matters for investors

Historically, many investors viewed a diverse, inclusive culture as a ‘nice to have’ for companies. No longer. Today, there is recognition that it can materially contribute to better financial performance over the long term, as well as making a positive contribution to wider society.

McKinsey analysis[2] found that companies whose gender diversity was ranked top quartile outperformed their bottom quartile peers, in terms of profitability, by 25% in 2019. Top quartile performers for ethnic diversity outperformed by 36% that year.

Remember, past performance is not a guide to future performance.

We believe that having a diverse workforce – and a diverse leadership – should help a company ensure a healthy diversity of thought. After all, to continue to succeed, companies must be able to represent, and so more effectively serve, their diverse and evolving customer bases.

Encouraging greater disclosure

To meaningfully and consistently evaluate how well companies are performing on diversity and inclusion, we need quality data. An obstacle to this is a widespread lack of disclosure.

Although companies have come a long way in reporting top-level gender figures, disclosure usually becomes thinner when you dig deeper and beyond gender, to look at other aspects of diversity like disability, ethnicity and sexual orientation. We believe companies should be disclosing more than they do, so we engage with them to encourage greater transparency.

Representation alone is not enough to get a meaningful picture of a company’s culture and the way it is run. We therefore look at policies – on the likes of flexible working, maternity leave and anti-harassment – and how companies report on diversity, alongside representation on boards, in leadership roles and in the workforce, plus their targets for diversity at all levels.

We will engage with companies, directly and alongside other investors, where we believe they have improvements to make. Where we are shareholders, we use our votes to demonstrate that diversity and inclusion is important to us.

Encouragingly, there is growing willingness by companies to discuss the topic. In most cases, we find they have strategies – and often progress – to share with us. Understanding their processes and efforts that are underway helps us gauge a company’s direction of travel.

Given the importance of diversity and inclusion to corporate health, as well as to the health of global society, there is clearly much progress to be made over the coming years.

While we can’t expect change overnight, we can, as active investors, keep the pressure on the companies we invest in. By doing so, we can aspire to have a meaningful positive impact.

Find out more about our Creating Positive Futures (mandg.com) series

 

[1] COVID-19 and its economic toll on women: The story behind the numbers | UN Women – Headquarters

[2] How Diversity & Inclusion Matter | McKinsey

By Véronique Chapplow

The views expressed here should not be taken as a recommendation, advice or forecast.

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