INSIGHTS

WHAT A WONDERFUL (AND DIVERSE) WORLD

Olivia Sandlant, October 2021

A key sustainability measure that many investors are concerned about is diversity. There are many types of diversity, with gender diversity a key one. This can be measured quite easily by looking at those who comprise a company’s board of directors, executive team, and broader workforce. It is of interest because of the value it can bring to decision-making and performance. So why is this important, and can more diverse companies perform better than others?

Diversity is important, for a whole range of reasons. Diversity could be defined as the existence of different characteristics in a group of people - what makes all the individuals unique in different ways. Evidence shows that different perspectives and unique points of view can lead to significant benefits for companies, communities, and countries. We are also seeing larger capital flows toward companies with higher levels of diversity, as investors increasingly focus on Environmental, Social and Governance (ESG) factors when making their investment decisions.

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Increased levels of diversity in the workforce can also help reduce the gender pay gap (the average difference between the remuneration for men and women in an economy). New Zealand’s gender pay gap has dropped 32.1% as our workforce has become more diverse, from 14% in 2000 to 9.5% in 2020.

Gender pay gaps

gender pay gaps

A diverse company is a more prosperous one. A diverse workforce contributes more strongly to growth. People from diverse backgrounds bring a range of language skills, different ways of thinking, different ideas and creative solutions to problem solving, as well as many other benefits. A diverse workforce fosters more creativity and a more inclusive culture, as well as helping businesses avoid excessive employee turnover. Diversity also has many benefits within a business. Studies show that diversity within a company can make it more innovative, and that diverse leadership teams make better decisions. Diverse companies can also be more attractive places to work, which improves their reputations and helps attract and retain talented staff.

Companies that are diverse can also make for more successful investments. We believe companies with more gender diversity will not only enjoy superior decision-making and improved productivity, but they could also grow faster and prove to be more successful for investors. There is evidence to show that higher levels of female representation on company boards and executive teams can lead to improved performance in the form of more attractive returns and lower volatility. As an example, the Impact Shares YWCA Women’s Empowerment ETF has returned 84.3% since its inception a little over three years ago, easily outpacing the 64.5% return of the S&P 500 over the same period. In addition, as sustainable investing trends continue to grow, capital flows into more diverse companies could increase. Companies that are sustainability and diversity leaders are increasingly finding themselves priced more highly by investors and financial markets, and they can even have a lower cost of capital.

Total return of the YWCA Women’s Empowerment ETF and the S&P 500 index

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Which companies are some of the diversity leaders? We follow, recommend, and invest in many great businesses across the world. Pleasingly, many of these do very well from a sustainability perspective, as well as a purely financial one. Some of the local companies that we consider to be diversity leaders are Auckland Airport, Contact Energy, Meridian Energy and Spark. Across the Tasman, Woolworths and Xero have excellent diversity and inclusion initiatives in place, while Disney, L’Oréal, and Microsoft are international examples. All these companies are high-quality from a traditional investment perspective, and it is pleasing that they also recognise the importance of diversity.