Diversity comes of age as an investment theme disability (mental or physical) and geography. Failure to The social case for greater inclusion is clear and there support DEI takes many forms and is often unintentional, is significant academic evidence aligning it to stronger 5 although it’s important to recognise that legal provisions financial performance . Consequently, many investors now exist, but sometimes prove a hindrance. Formal recognition regard limited gender diversity in investee companies as of diversity types, and understanding of the causes of non- a risk and have raised their expectations on the extent to inclusion, can foster development of appropriate processes which diversity is integrated into investment decisions. and strategies that embed greater inclusion. Corporate diversity data nearing critical mass Lessons from the last two years Data providers and investors are increasingly screening Looking at how the Covid pandemic affected diversity companies for diversity information, requiring greater progress brings the lack of gender diversity back into disclosure. Regulators are likely to reinforce the the spotlight as this period had a particularly adverse requirement for greater disclosure (see later section). We impact on women. A study from The Lancet covering the expect required data to be aggregated at company and first 18 months of the pandemic up to September 2021 board levels at the very least, with periodic and consistent showed that 26% of women experienced “employment reporting. Companies failing to provide appropriate loss” versus just over one in five men.2 Similar findings disclosures, strategic focus or meet certain thresholds of increased job losses for women came from a World may find themselves “screened” out or “voted against”. Bank3 report. The added burden on women of caring for However, diversity is a complex topic and there are data- others resulted in the pandemic experience widening a access hurdles facing investors in certain geographies. persistent employment gap. According to the International Engaging with companies on diversity issues is often Labour Organisation (ILO)4, the current global labour force participation rate for women is just under 47%, while necessary to overcome these obstacles and better for men it’s 72%. This difference of 25 percentage points understand an organisation’s diversity profile, strategic extends in some regions of Africa, the Middle East and focus and governance of the topic. The information South Asia above 50 percentage points. investors seek typically includes formal strategy statements, clear processes, board member responsibility, Beyond the employment gap is the salary gap. The a link to compensation and, where required, pathways to unadjusted pay gap averages 20% globally, according strengthen a company’s position. to the ILO. Yet this understates how much less women are paid because it does not take into account a range Driving positive change through active stewardship of relevant factors such as type of occupation, education Engagement takes place either bilaterally or in and experience that might give a truly accurate picture of collaboration with other investors. Allianz Global the wage differential. Data for this “adjusted” pay gap is Investors (AllianzGI) actively uses its proxy voting rights very limited. and usually votes against re-election of the chair of the The key question arising from the experience of women nominations committee of large-capitalisation companies in the pandemic is: if progress on gender diversity was in developed markets if women make up less than 30% of the board.6 We also expect nationality and ethnic diversity challenged, how much more difficult was it for other under-represented groups to advance? Answering this to appropriately reflect a business’s geographic footprint question fully requires broader and more granular data. and employee and customer profile. For example, But the issue leads to a more general point: it’s logical to AllianzGI would not support re-election of the chair of a assume that equality of access and opportunity for all large-cap listed US company’s nominations committee groups could narrow the labour force’s current gaps in if there was not at least one board member from an skills and employment. under-represented ethnic group. This rule will also be implemented in the UK next year. The evolution of diversity as an investment theme Collaborative engagement is also a powerful tool. In Investors now take a holistic view of sustainability 2021, AllianzGI joined the 30% Club Investor Group in concerns, expecting that issues such as diversity are France, which aims to increase female representation at embedded into the values of asset management firms. leadership levels of large listed domestic companies. Increasingly, asset managers are using publications like sustainability or stewardship reports to disclose their own The role of regulation diversity data as well as how they have engaged with Regulation on diversity is evolving. A growing number investee companies and cast proxy votes on this issue. of states in the US and the EU now insist on a minimum 2. L S Flor, J Friedman, C N Spencer, J Cagney, A Arrieta, M E Herbert et al, Quantifying the effects of the COVID-19 pandemic on gender equality on health, social, and economic indicators: a comprehensive review of data from March, 2020 to September 2021, The Lancet, March 2022 https://www. thelancet.com/journals/lancet/article/PIIS0140-6736(22)00008-3/fulltext 3. World Economic Forum, Global Gender Gap Report, March 2021 https://www3.weforum.org/docs/WEF_GGGR_2021.pdf 4. International Labor Organization, The gender gap in employment: What’s holding women back? February 2022 https://www.ilo.org/infostories/ en-GB/Stories/Employment/barriers-women#intro 5. An example is McKinsey, Delivering through diversity, January 2018, https://www.mckinsey.com/business-functions/ people-and-organizational-performance/our-insights/delivering-through-diversity 6. Allianz Global Investors https://www.allianzgi.com/en/our-firm/esg/our-approach 2 2