Why invest in companies that focus on inclusion and diversity
Keep it brief
- Issues relating to inclusion and diversity (I&D) may be material and could affect long-term performance – and now there is data to support this.
- Commitment to I&D can help drive innovation, overcome business challenges and attract and retain top talent.
- I&D is playing an increasingly important role in life at BlackRock and in our investment solutions.
Capital at risk. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed.
Inclusion and diversity can
affect your bottom line
We first must address that data quality and availability has been an obstacle in determining the materiality of I&D issues on company performance. However, at BlackRock, we believe there is a fundamental reason to consider I&D as a long-term investor today.
As societal preferences evolve – whether as an employee, consumer, or investor – issues such as I&D may become increasingly important to a company’s bottom line. There are select studies today that point to the potential positive correlation of select I&D factors and corporate performance indicators.
Diversity promotes problem solving
Whether it be cognitive or experiential, diversity can improve creativity and increase a team’s capacity and ability for problem solving.
In a collaborative environment, a person’s value does not depend on her absolute wisdom but on her ability to improve the collective decision.
Problem Solving by Heterogeneous Agents, Lu Hong, Scott E. Page (2001)
Similar minds cannot add to group wisdom the way diverse minds do. Increased creativity is another illustration of the power of diversity.
Empirical evidence finds that an increase of 10 percentage points in the representation of female directors on a company board is associated with
for a given R&D expenditures.
People with different gender, race and experiences can jointly contribute to more robust and innovative ideas from which companies are likely to benefit.
1 “Female board representation, corporate innovation and firm performance.” Jie Chen, Woon Sau Leung and Kevin P. Evans (2018)
Inclusive environments attract
and retain talent
Looking beyond gender diversity, research has found that LGBT-supportive policies can all be linked with higher stock returns, higher firm value, higher productivity and profitability.2,3 While further research is needed to understand the underlying mechanism, one theory is that sexual-orientation equality increases a company’s competitive advantages in the labour markets.4
Further, policies such as flexible hours and day care services, make sure that all talented employees – whether new parents or those taking care of elderly family members – can thrive in the companies and thus may help retain talent and reduce employee turnover.
More traditional human capital metrics – internal promotion, employee satisfaction, and management training, coupled with systemic change around employees to help them form new habits and practices – can further help companies grow and retain talents.
2 “Corporate sexual equality and firm performance.” Liwei Shan, Fu Shihe, Lu Zheng (2017)
3 “Do LGBT‐supportive corporate policies enhance firm performance?” Shaun Pichler, Janell L. Blazovich, Kirsten A. Cook, Janet M. Huston, William R. Strawser (2017)
4 “Soapbox: Why Women Managers Shine,”, Michel Ferrary, 2009.”
A simple value-weighted portfolio of the Fortune’s list of “100 Best Companies to Work for in America” – based on opportunities, benefits and diversity – generated a four-factor alpha of 3.5% from 1984 to 2009, which was 2.1% higher than the benchmark.
Research from University of Pennsylvania
Inclusion and diversity at BlackRock
At BlackRock, we believe “inclusion and diversity” is a skill which managers and leaders can improve, and, if they do, they would have a better chance of improving the engagement and output of the people working for and around them.
We invest heavily to build a culture where all talents are offered equal opportunities to thrive and all voices – not just the loudest or the most familiar – can contribute the ideas that help our clients achieve their goals. In order to serve our diverse set of clients, we need to have a diverse and inclusive form.
We pay so much attention to I&D, because we truly understand and recognize that a diverse and inclusive workforce can effectively translate into innovation and better decision-making. And companies that fail to treat inclusion and diversity seriously will lose out the opportunity to fully understand the dynamic business environment where they operate.
Investing in inclusion and diversity
Sustainable investing is about more than just the environment. We have also been focused on I&D as an investment offering on our sustainable investing platform. We are seeing increasing interest from our clients, and are working on solutions to help investors gain exposure to companies that are leaders in promoting inclusion and diversity principles within their operations.
Investing in inclusion and
diversity with iShares
For those wishing to invest in companies committed to I&D, ETFs may help provide efficient, transparent market access and could offer a convenient and cost-efficient way to incorporate I&D into a portfolio.OPENiShares Thomson Reuters Inclusion and Diversity UCITS ETF