Investors Still Struggling to Compare Diversity Metrics

Despite evidence of progress in gender diversity and disclosure, data quantity is winning out over quality. 

Increased availability of data on workplace diversity is gradually increasing transparency to investors, but progress in improving data quality remains slow, according to recent reports.

Last week, US investment manager Calvert Research and Management released a whitepaper concerning the discrepancy between the quantity and quality of diversity-related disclosures from investee companies.

“Companies often report in general terms about diversity programmes and management systems, but do not report in detail about how these programmes are executed,” said John Wilson, Director of Corporate Engagement at Calvert and author of the whitepaper.

“This lack of transparency means material information is either not disclosed to investors or disclosed in a way that is not consistent, comparable or complete. More than half of the largest 100 US companies [we spoke to] disclose only partial data and about one-third disclose no diversity information, despite having this data collected in a comparable manner, as required by law and reported to the Equal Employment Opportunity Commission (EEOC),” he said.

Also released last week, Bloomberg’s ‘Gender-Equality Index 2021’ report compared diversity disclosures from five categories or pillars. Companies featured on the GEI had an average diversity disclosure score of 94%, across areas including female leadership and talent pipeline; equal pay and gender pay parity; inclusive culture; sexual harassment policies; and pro-women brand. The 2021 index captured data from 380 companies across 50 industries in 44 countries and regions, including Barclays, Coca Cola, Bank of America and Esteé Lauder.

Several metrics indicate increased levels of gender diversity at leading companies. For example, on average, GEI-listed company boards are comprised of 29% women, and 61% have a chief diversity officer or equivalent.

However, while the number of companies providing diversity-related data is high, Bloomberg highlighted the “average data excellence score was 55%”, suggesting average quality of data provided to investors remains inconsistent.

Diversity and inclusion data inconsistent 

Index provider MSCI has logged improvements in female representation on boards in its ‘Women on Boards 2020’ report, as well as publishing research outlining the increased focus from asset owners on promoting internal diversity, but company progress remains inconsistent.

Taken overall, gender equality at board level would be achieved by 2045 based on current trends, according to MSCI’s analysis of disclosures from 3,000 firms from 23 developed and 27 emerging markets.

At the same time, institutional investors are increasing diversity at home, with 78% of public pension funds recently surveyed by MSCI saying they feel pressure to increase staff diversity.

This pressure to prioritise diversity and inclusion issues is not necessarily felt across all sectors and and investors need to continue to put pressure on investee companies to prioritise this going forward, MSCI noted.

This is reflected in Refinitiv’s Diversity and Inclusion report, which highlights the sectors engaging best with diversity and inclusion issues.

Covering the four pillars of assessment – diversity, inclusion, people development and controversies – the industries leading this year’s D&I Index Top 100 were banking, investment services and insurance firms, with 18 out of the 100 companies coming from these sectors.

Investors want quality over quantity

As of January 2021, Calvert has filed 16 resolutions against US companies that have released insufficient diversity data in line with EEOC requirements, and “will consider filing additional shareholder resolutions to encourage transparency”.

“Because research indicates that diversity is likely material to company performance, investors require consistent, comparable and complete information about diversity performance. However, this information is still often lacking,” Wilson said.

Calvert has called for US investors and companies to provide diversity disclosures in line with EEO-1 disclosure requirements, to ensure more consistency as well as generating a baseline standard for data quality. Wilson noted that EEO-1 will help investors “better pinpoint concerns and opportunities for improvement, while companies would be incentivised to prioritise effective diversity initiatives”.

“We will continue the dialogue with these companies to ensure that they follow through on their commitments,” he said.

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