This article is a part of the NordSIP Insights – Handbook – “Investing Along the 17 Shades of SDGs”.
Investing in companies that have endeavoured to facilitate gender diversity increases the range of diverse views expressed across the corporate world, inspiring a more informed decision-making process and an inclusive example for the next generations of leaders. What’s more? These social goals can be achieved at no detriment to financial return. On the contrary, the evidence suggests that such investments may outperform their more homogenous counterparts.
Gender Diversity Research
Research shows that there are substantial benefits to gender diversity for the economy as a whole and for financial returns in particular. A 2015 study from MSCI[1] finds that “companies that had strong female leadership generated a Return on Equity of 10.1% per year versus 7.4% for those without.” The same report also found that “companies lacking board diversity tend to suffer more governance-related controversies than average.”
Those conclusions are also supported by evidence from a 2016 Peterson Institute paper[2], which presents results supporting the benefits of gender diversity. Statistical analysis of 21,980 firms from 91 countries “suggests that the presence of women in corporate leadership positions may improve firm performance”. While there is no evidence that female board quotas contribute to higher profitability, the study does find evidence that “the payoffs of policies that facilitate women rising through the corporate ranks more broadly could be significant”. According to the report, the increased performance may be “the payoff to non-discrimination” or reflect “the fact that women increase a firm’s skill diversity.”
Data from a 2017 analysis conducted by UBS shows that gender-diverse global companies, with at least 20% female representation on the board and senior management on average outperform other companies in terms of return on assets, on invested capital or on equity over a five-year period.
A Gender Equality Benchmark Index
The financial benefits facilitated by gender diversity were the driver for the creation of the “Solactive Equileap Global Gender Equality 100 Leaders Index” family, designed to track the leading companies in sustainability and gender. The research insights are echoed in the performance of the index, which over the last five years, has consistently outperformed the MSCI World Index.
Equileap scores 3500+ companies worldwide. Based on this universe, the organisation builds the index in four steps. Eligible stocks are selected from companies in developed stock exchanges with a market capitalisation of at least US$2 billion and an average daily trading value of no less than US$5 million. Companies in the tobacco, gambling and weapons industries do not make the cut, nor do any other companies on the blacklist of the Norwegian Ethics Council. These companies are scored using 19 metrics to measure their progress towards gender equality across four themes of gender balance in leadership and workforce, equal compensation and work/life balance, policies promoting gender equality, and commitment to women’s empowerment. Based on these scores, the index selects the top 100 companies ensuring an equal weight exposure to US listed companies and non-US listed companies.
Investing in Gender Equality
The UBS Gender Equality ETF provides the exposure to the more gender-equal companies for investors seeking to orient their investment in favour of the gender progress. The ETF specifically targets a 50% weight for US companies, while other countries can each make up to no more than 10% of the portfolio at rebalancing.
Investors in the UBS Gender Equality ETF gain a diversified exposure to global stocks, whilst providing companies with a reward for pursuing gender equality, one of the 17 Sustainable development goals endorsed by the UN since 2015.
[1] Linda-Eling Lee Ric Marshall Damion Rallis Matt Moscardi, Women on boards – Global Trends in gender diversity on corporate boards, MSCI Research Insights, MSCI ESG Research Inc., November 2015
[2] Marcus Noland, Tyler Moran and Barbara Kotschwar, Is Gender Diversity Profitable? Evidence from a Global Survey, Peterson Institute for International Economics, 2016
