The human race is diverse because as humans we are wonderfully varied. People differ in gender, race, language, culture, social roles, sexual orientation, education, socioeconomic status, and in numerous other ways. Each person is unique and the more someone is diverse from you, the more likely it is that their skills, knowledge, and experience will also be diverse from yours. ‘Gender and ethnic diversity are clearly correlated with profitability, but women and minorities remain underrepresented’ (McKinsey 2021). There have been many studies that have found diverse organisations outperform their non-diverse peers, according to the Strategic Management Journal, for example, when researchers studied the management teams of the top firms within Standard & Poor’s Composite 1500 list, they found that ‘on average, female representation in top management leads to an increase of $42 million in firm value.’ (2012).
Most people agree that a company’s employees are its most valuable asset and a diverse workforce brings together people from different backgrounds and experiences. Diversity facilitates a more creative and innovative workforce. The bringing together of different employees with different qualifications, backgrounds, and experiences establishes key effective problem-solving within the workplace. Diversity in the boardroom is needed to power a company’s full potential and employing board directors with a range of expertise and various experiences will make companies more proficient and enriched. Every person is unique and the further someone is different from you, the more likely it that their skills and knowledge will be different from your own.
Historically within investment women have been underrepresented. But this has begun to change over time as the number of female investors is increasing. Not only does this benefit markets but it also supports the journey towards wealth equality. We do know that female investors are outpacing male investors when it comes to ESG investing. However, despite there being more women than ever in the labour market, the United Nations still report that there are still large inequalities in some regions, with women systematically denied the same work rights as men. Sexual violence and exploitation, the unequal division of unpaid care and domestic work, and discrimination in public office all remain enormous obstacles. Additionally, climate change and related disasters continue to have a disproportionate impact on women and children, as does conflict and migration.
The UN states that it is vital to give women equal rights to land and property, sexual and reproductive health, and to technology and the internet. But according to the UN, women only get 77 cents for every dollar that men get for the same work and 35% of women have experienced physical and or sexual violence. Ending all discrimination against women and girls is not just a basic human right, but is essential for a sustainable future; as the UN point out, it is proven that empowering women and girls helps economic growth and development. Goal 5 of the United Nations Sustainable Development Goals is Gender Equality, and this goal is designed to end all forms of discrimination against all women and girls everywhere. The goal also includes eliminating all forms of violence against all women and girls in the public and private spheres, including trafficking, sexual exploitation, and other forms of exploitation.
As a sustainable investor, I am often quizzed on my exclusionary decision-making, with one query being why I don’t believe Facebook belongs in an SRI fund or portfolio. A perfect illustration of one of the reasons why has been recently published on BBC news by Marianna Spring (Specialist disinformation reporter, BBC News). Marianna Spring has written an article about the misogynistic hate directed at her and how it had become a very regular occurrence. She set out to make a film for the BBC's Panorama programme and they set up a fake troll account across the five most popular social media platforms to see whether they are promoting misogynistic hate. Using an AI-generated photograph, they designed the fake troll to have similar attributes to the people who sent Marianna abuse. Their troll account was recommended more and more anti-women content by Facebook and Instagram, some involving sexual violence. So where the UN is clearly saying that discrimination against women and violence and exploitation is still a significant problem, Facebook is allowing content that actively promotes and encourages it.
Another relevant exclusion I have been questioned on is adult entertainment, one argument being ‘aren’t we liberal?’ and ‘isn’t it a choice to access porn, what harm does it really do?’ Research has shown that exposure to pornography changes perceptions, neural pathways, and lives as well, especially as it is introduced at younger and younger ages through the internet. There is a significant correlation demonstrated between sexually violent pornography and attitudes supporting violence against women. What pornography users often don’t know is what exactly goes into the production of a single image or video. They might not even think about how or why a performer ended up being on camera, or the situation that caused them to become involved in the adult entertainment industry. The tragic, unfortunate truth is that when it comes to adult entertainment, there’s practically no way to be assured that each performer is truly partaking consensually. Thus Pornography and sex trafficking are inseparably linked, and much of society either denies or is naïve to this disturbing fact. So in portfolios looking to do good and align with the Sustainable Development Goals of the United Nations, an activity that is in gross violation of human rights and is promoting not addressing incidents of sexual violence towards women has absolutely no place.
Both Facebook and pornography are thus in direct opposition to one of the targets/objectives created by the UN to achieve the gender equality goal, which is the enhancement of the use of enabling technology, in particular information and communications technology, to promote empowerment of women. Although digital technology is advancing rapidly globally, it’s not happening equitably. Approximately 60 percent of the world’s population is now online, but most of those people are in developed countries. Meanwhile, in less-developed countries, only one in five people are online. This is relevant because education, work, and public services are increasingly dependent on digital access. Lack of connectivity, therefore, is a growing obstruction to human development and the advancement of a fair and equal planet.
Where there are these digital problems exasperating violence against women and inequality, which can be excluded from a portfolio, a sustainable investor can also look to instead focus on technology that empowers and looks to address the gaps in technology in less developed countries. For example, there are a variety of initiatives looking to address these digital technology inequalities. In the private sector, Google’s ‘Next Billion Users’ venture conducts research and builds products to serve first-time internet users with their ethos being ‘building for everyone, everywhere. Whilst Amazon’s Project Kupier and SpaceX’s Starlink have sent thousands of satellites into orbit to fill internet dark spots around the world. Both these companies are held within funds in both the sustainable and SRI models, such as in the Brown Advisory US Sustainable Growth Fund.
Gender diversity and equality also have significant relevance in addressing the pressing and enormous global problem of Climate Change. The Oliver Wyman Forum and 30% Club’s ‘Climate Action Gender Gap report’ outlined research and interviews with more than 20 companies and established that not only are women largely omitted from most high-level government and corporate discussions on climate, their role as change-makers is largely not recognised and/or underestimated. However, companies must involve female colleagues, customers, and investors if they are genuine about achieving net-zero carbon emissions by 2050.
The report also exposed that women are the most probable change-makers for the climate in economic areas from company leadership to product development. Female investors are almost twice as likely to recognise the importance of the companies they invest in to assimilate ESG factors into policies and decisions. Another issue raised in the report is the underrepresentation of women at many leading companies and whilst more than a fifth of major corporations have pledged to reach net-zero emissions by 2050, few actively include or consider women in their climate action decisions and plans.
"Gender representation is important for companies with climate targets, as there is evidence that women in leadership positions contribute to climate goals. Women in government positions are more likely to sign on to international treaties to reduce global warming than men."
But gender isn’t the only feature of diversity that faces discrimination and barriers to equality. On Monday 25th May 2020, George Floyd, a 46-year-old black man, was murdered by Derek Chauvin, a white police officer with the Minneapolis Police Department. The area near the location where Floyd was murdered became a makeshift memorial with many placards paying tribute to him and referencing the Black Lives Matter movement. Also on 25th May 2020, in New York City Park, Amy Cooper called the police on Christian Cooper, a Black man bird watching in the area because he asked her to put her dog on the lead in an area where signs clearly mark, dogs must be on the lead. Before calling the police she told him that “I’m going to tell them there’s an African-American man threatening my life,” suggesting that she was intentionally using a racist system of police brutality to threaten and intimidate a man who simply made a reasonable request of her. Amy Cooper believed she could get away with making a false accusation and putting a man at risk because as a white person she understood society is inherently set up to discriminate against black people and advantage white people. Amy Cooper faced numerous repercussions for her actions, including a criminal charge of filing a false police report (that was later dropped) and losing her job at the investment firm Franklin Templeton.
These events and Black Lives Matter brought to the public’s awareness the uneven playing field that many black people face in all areas of life and in the workplace. Almost three-quarters of FTSE 100 companies failed to report the ethnic make-up of their boards in the AGM season, according to the Investment Association, while research from Race Equality Matters found that, six months after George Floyd's murder, 70% of the people surveyed did not think their employers had a firm action plan in place to improve racial diversity (Investment Week 2020).
As sustainable investors, we are evaluating our investments against a variety of sustainable and responsible themes and ESG scoring mechanisms. Diversity and Inclusion are some of the key parts of such screening. We have seen that not only is diversity and inclusion beneficial to performance and profit, but it also impacts the fight against climate change incorporating the E, the S, and the G. Within our sustainable models we hold the Baillie Gifford Global Stewardship Fund, this portfolio utilises five core criteria. One of the core criteria is Diversity. One of the fund’s top holdings is MarketAxess, a fintech company that has created a marketplace that makes it easier to trade bonds. MarketAxess focuses on building a strong, diverse workforce, and diversity, equity, and inclusion remain a priority for them as they recognise it is necessary to continue to be prosperous over the long term. MarketAxess cites diversity at the Board level as an essential component to accomplishing its strategic objectives and in achieving sustainable and balanced strategic advice. Within the Board’s structure, diversity is considered from several characteristics, including gender, age, race, ethnicity, nationality, cultural and educational background, professional experience, skills, knowledge, and length of service.
Across the Sustainable and SRI models, we also invest in BMO responsible funds. BMO recognise the value that diversity in the boardroom and senior management can bring to an organisation. For several years, BMO has placed great importance on gender diversity through several avenues. These include internal initiatives and targets, engaging and voting to support diversity, and by supporting industry groups such as Catalyst and the 30% Club (The 30% Club is a global campaign led by Chairs and CEOs taking action to increase gender diversity at board and senior management levels, and were co-writers of the aforementioned ‘Climate Action Gender Gap report’). It is a decade since the first 30% Club chapter was founded in the UK and BMO were founding members of the group and continues to support its efforts today, both in the UK and in additional chapters that have been established globally. BMO is also members of the Diversity Project that aims to accelerate advancement towards an inclusive culture in the investment and savings profession.
The aim of the United Nations Sustainable Development Goals is for ALL people to enjoy peace and prosperity, ‘and despite all the rhetoric about the value of diversity, white women and people of colour remain seriously underrepresented in many industries and in most companies’ senior ranks.’ (Harvard Business Review Dec 2020).
As sustainable investors, we can be part of the solution rather than investors in the problem.
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