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Diana Tidd

Head of Index and Chief Responsibility Officer

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The debate around diversity is entering a new phase. Institutional investors are moving from talking about policies and metrics to wanting results, both in portfolio companies and in their own organization.

The case for diversity leading to better returns is moving forward. At MSCI, we previously spent a lot of time explaining to clients how our research indicated a link between diversity on boards and positive financial metrics. Today, the discussion includes how diversity contributes to a portfolio company’s innovation potential, how it can help attract talent in a highly competitive market, and how diverse thinking can reduce risk for both the company and its investors.

But we should not be oblivious to the fact that the pace of change is slow. One sign is the most recent MSCI Women on Boards report, which analyses female boardroom participation in the MSCI ACWI constituents, more than 3,000 companies across 23 developed and 27 emerging markets. The survey data has been produced annually since 2009 and has shown a sustained, if measured, increase in female representation in the boardroom. The 2020 study, however, reported a noticeable slowdown in the rate of increase. Based on the current four-year trend, the 30% level would only be reached in 2029. Gender parity would take until 2045.


How can institutional investors increase momentum? By identifying organizations, companies and asset owners that take action and have the market power to bring about change – and by following those models.

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We now regularly see institutional investors send ESG- and diversity-related questionnaires to their portfolio companies and their own supply chains. They are increasingly issuing public statements of voting policies, putting portfolio companies on notice that they will vote against non-diverse boards. They are repeatedly raising the bar: A major U.K. investor, for instance, has long voted against boards that lack gender diversity but has now declared that starting in 2022, it will vote against boards that fall short on ethnic diversity, too.

The drive for diversity should not only occur in portfolio companies, however. Institutional investors also need to capture the benefits themselves. Our survey shows that many are trying to do so.

Some 62% of executives at investors said their organization was under some pressure to increase diversity, with 19% saying the pressure was felt “to a large extent.” The data also suggests that public asset owners are setting an example: public pension funds reported the most pressure to improve diversity, with sovereign wealth funds also saying they were under substantial pressure.

To see the impact, look at the data on Japan, where 55% of institutional investors reported a large amount of pressure for change, against 22% in the United States. Japan legislated to promote female advancement in the workplace in 2016. The Government Pension Investment Fund for Japan integrated this concept by adopting the MSCI Japan Empowering Women Index in 2017.

Institutional investors are also catalyzing broader change. When investors look for outside managers, diversity is being increasingly baked-in to the RFP process, and investors want to see outcomes, not targets. This places real pressure throughout the investment industry.

The survey asked whether institutional investors felt under external pressure on diversity. But it is no longer necessary for the board, the HR department or other forces outside the investment function to nag; chief investment officers and other senior executives are recognizing the benefits. And they are not only setting policies and metrics; they are also looking for results.

Investment Insights Report Key Baer Pettit Duplicate 7

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