Impact Blog
Diversity contributes to bottom line, studies show

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Calvert disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Calvert are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Calvert fund. References to individual companies for Engagement or Research purposes are provided for illustrative purposes only and may not be representative of the results of all of Calvert’s engagement efforts. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

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      By Shirley Peoples, ESG Research Analyst, Calvert Research and Management

      Washington - From the boardroom to the cubicle, a company's diversity practices can have a material impact on the corporate bottom line. Increasingly, companies understand the wide-ranging benefits of a diverse work culture, as indicated in "The Calvert Diversity Report: Examining the Cracks in the Ceiling."

      Studies have linked a diverse leadership team, employee base and inclusive policies to a company's financial performance. McKinsey & Co. found a statistically significant relationship between the level of diversity within a company and better financial performance. The study showed that companies in the top quartile for racial/ethnic diversity and gender diversity are 35% and 15% more likely to have financial returns above their national industry medians, respectively.1

      A study by global accounting firm Grant Thornton titled, Women in Business: the Value of Diversity, found that, "based on return on assets, companies with diverse executive teams outperformed by a significant margin." 2The study also cited foregone profit - or opportunity cost - of $567 billion in 2014 for American companies with all-male executive boards. In the United States, S&P 500 companies committed to diversity outperformed rivals by nearly 2% based on return on assets, the study also found.

      Calvert Diversity Report reveals progress, gaps

      First published in 2012, the Calvert Diversity Report has shown a steady proliferation of diversity policies and programs adopted by S&P 100 companies, with notable progress in equal employment opportunity (EEO) policies and internal and external diversity initiatives. In 2016, the date of the most recent survey, nearly all S&P100 companies had adopted comprehensive policies to facilitate the hiring, retention and inclusion of diverse employees.

      While this trend is encouraging, the report reveals some clear gaps in minority and female representation at the higher echelons of corporate America, particularly in the boardroom and among companies' highest-paid executives.

      Calvert's 2017 diversity report (reflecting 2016 data) found that women held 30% or fewer of all board seats in 86 of S&P100 companies. In addition, 41% had no diversity among their five highest-paid executives. In 2016, Credit Suisse reported that women filled just 16% of senior-management positions in the U.S., a marginal increase from its findings of 15.4% in 2014.3

      The World Economic Forum's Global Gender Gap Report provides an annual ranking of countries on their progress towards equality between women and men, which also indicates that there's still work to be done.4 In the 2017 report, which benchmarked 144 countries, the U.S. fell four places, from 45 in 2016 to 49. According to the report, the gender pay gap is expanding and if we continue on our current path, it will not close in the U.S. until 2185. The report also noted the U.S. could add $1,750 billion in annual GDP by 2025 if women were to reach full gender equality.

      Untapped Potential

      For investors, bridging these gaps represents potential value that can be realized with improved corporate practices. As noted in our Diversity Report, corporate efforts to foster a diverse workforce may reduce attrition, litigation costs and reputational risks. A positive reputation can serve to attract talent and foster customer and investor confidence. On the flip side, a poor reputation can deter talent and customers, while increasing scrutiny from investors and regulators. The McKinsey report also found that diversity serves as a competitive differentiator—helping diverse companies gain market share.

      A 10-year lens

      Calvert engages with companies on their diversity policies and assesses diversity performance as part of its investment analysis. Over the past 10 years, Calvert has filed 87 shareholder proposals at 73 companies calling for board diversity. We believe that individual and collective engagement efforts influence corporate behavior and help facilitate public awareness of these issues. Calvert's research and shareholder advocacy have catalyzed dialogue and action around diversity and gender equality, not only as a societal concern, but also as a business imperative.

      Bottom line: We believe companies with greater boardroom and workplace diversity have competitive advantages - affecting reputation, investor confidence and financial performance. Calvert has engaged with companies on diversity and gender equality for more than 10 years, catalyzing action and dialogue around these issues.