Overlooking Diversity Is a Costly Mistake for Investors

Wrapped up

  • Letting companies know you care about Diversity, Equality and Inclusivity (DEI) by the way you invest is one of the best ways you can accelerate the changes we need to see.
  • DEI funds are weighted towards companies which perform well when assessed on inclusivity and diversity.
  • The Harvard Business Review found that companies with higher-than-average diversity had 19% higher innovation revenues.
  • The growing support for diversity at work shows that investors have the power to change the world for the better by being discerning about who gets their money.

Overlooking Diversity Is a Costly Mistake for Investors

We know that talent is spread across all people, and doesn’t care much about gender, sexuality, age, or race. If a boardroom is diverse then it’s a sign that the company has an open door for the talented people who should be in there, leading it to success and delivering returns for investors.

The world is making gains on Diversity, Equality and Inclusivity (DEI) — a five-year McKinsey study found boardrooms in the US & UK grew 1.3% more diverse every year between 2014 and 2019. But action needs money, and letting companies know you care about DEI by the way you invest, is one of the best ways you can accelerate the changes we need to see.

Diversity in the workplace

A more inclusive leadership team is important — but the modern investor’s commitment to diversity can’t end there. We believe that companywide actions to promote inclusivity across the whole workforce aren’t only the right thing to do, but will also result in potentially the best performance.

Indeed, a company’s performance on DEI is increasingly a redline for younger investors who are less tolerant of companies who don’t practice the values they hold. In other words, money is the catalyst of change.

Investing in diversity

Investing in a value like inclusion simply wasn’t possible until very recently. In the last few years, the millennial-driven shift in what investors are looking for has led to a new kind of fund appearing.

These DEI funds are weighted towards companies which perform well when assessed on inclusivity and diversity. By creating a more meritocratic environment, investors bet that they will outperform their traditional rivals. These funds combine value and values, and potentially make a sensible bet for the passionate investor.

There has been considerable attention on these investments in recent years, fueled by regular assessments of large companies’ workplace practices. When the Spencer Stuart Board Index found for the first time that every S&P 500 company had at least one woman on its board in 2020, it was widely reported. This indicates DEI is rising as an issue.

Even better, as more and more company shares are held explicitly on the grounds of the company’s inclusivity policies, boardrooms will be increasingly incentivised to take these values into account. If their progress begins to slip, they risk falling out of the fund, which could trigger a share price tumble.

Remember: this isn’t charity. More diverse companies have been shown to perform better. The Harvard Business Review found that companies with higher-than-average diversity had 19% higher innovation revenues. And the better companies perform, the more likely they are to win gains for investors like you.

 

Disclaimer

These are the views of the Author only. It is not Investment Advice or a Recommendation from Gather International Limited or its affiliates.

Capital at risk. Always do your own due diligence and consult with a qualified financial professional before making any investment decisions.

This article is for informational and educational purposes only.

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