Why should it matter to investors?
Representation matters in business and diversity should extend beyond just gender. Factors such as race, religion, socioeconomic background, sexuality and disability should all be of equal importance.
Different ways of thinking and different life experiences create more varied teams that can make better decisions. Moreover, greater diversity, achieved in an inclusive and equitable environment, leads to better outcomes for businesses and the community. McKinsey & Company found that diverse companies perform better especially if the organisation’s leadership is diverse.
They have found that organisations in the top quartile with gender-diverse executive teams were 21% more likely to experience above-average profitability than their industry peers, and organisations with ethnic and culturally diverse leadership are 33% more likely to outperform their peers.1
Diversity leads businesses to consider various perspectives and develop better, more robust strategies and approaches. This is likely to lead to an increase in productivity, translating to higher profitability and better financial performance.
Diversity also sparks innovation. Boston Consulting Group found that organisations with policies and practices supporting diversity increased innovation revenue by up to 12.9%.2 Embracing different perspectives can help businesses to innovate and generate new ideas and solutions, driving long-term competitiveness.
Beyond lip service
First Sentier Investors believes publicly disclosed targets can play an effective role in driving change, which is why we are signatories to initiatives including the FSC WIM Charter, 30% Club, and 40:40 Vision.
Recent research by Realindex supports this view, showing that gender diversity on boards has progressed significantly in the last decade, as most developed markets have put quotas in place. Senior management, on the other hand, attracts far less attention or regulation. It has fallen well behind in terms of progress. It suggests that what gets measured, gets done, and that pressure from regulators and investors can drive real change.
Source: Realindex research 2021
As we try to improve our own diversity, and encourage the companies we invest in to do the same, this raises questions about how to overcome obstacles and achieve change.
The research by our Realindex investment teams shows us that both companies and investors need to create higher expectations around diversity of all kinds, from publicly stated targets to legislated quotas.