ESG | Feature


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The figures vary and with progress slow in some areas it appears that there is a lot of work to do. “The statistics have improved, but there are still some shocking ones, such as 20% of the 2,700 companies in the MSCI ACWI have all male boards,” Meggitt says.


She also points to there only being around 30 women in full-time executive roles in the FTSE250. “That is shocking. There is so much further to go.” Meggitt is not getting hung up on such headline grabbing facts. “The stats are a


countries. To achieve


this,


it


will


vote


against the chair’s re-election if it feels things are not moving in the right direc- tion. The strategy appears to be working. “We have been doing this for 18 months and have already received anecdotal evi- dence of companies that have improved their boardroom diversity within that time- frame,” Meggitt says. “We feel that, by join- ing forces with a wide range of stakehold- ers calling for change, we can make a genuine difference.” Also setting a 30% threshold for female directors is BNP Paribas Asset Manage-


employee turnover. “It needs to focus on human capital,” Czupryna says. “Compa- nies that put their employees at the fore- front of their strategy is where we see the most promising area of expansion in ESG.”


BABY STEPS You need to look at diversity in its


broadest sense. David Czupryna, Candriam


snapshot of where it is now, but not where it is going. This is why corporate disclosure is important. It tells you what the company is doing to improve its culture.” Policies on parental leave, people returning to work after a long absence and mentoring schemes are all positive signs for Newton. “Diversity and inclusion policies are a pretty good indicator of a strong corporate culture,” she says.


Strong policies are a good start but there are other factors to consider when it comes to improving corporate diversity. Meggitt names building the pipeline as the biggest issue. “If companies are doing this in the right way then in 10, 15, 20 years we are going to see a huge improvement in terms of women in the top ranks,” she says.


THE 30% CLUB Newton has made diversity, especially when it comes to gender, one of its main ESG areas. It has even set a voting policy on increasing the number of women in the corporate decision-making process. The asset manager wants women to occupy 30% of boardroom seats, or what looks rea- sonable in businesses based in developing


ment. From next year it will vote against the appointment of any male director if this threshold has not been met.


The asset manager has set this minimum target to make a greater impact. “Studies show that it makes a difference when you have at least two or three women in a work- ing group on financial performance,” says Michael Herskovich, head of corporate gov- ernance in BNPP AM’s sustainability research team. “The rationale behind it is that it will be important for companies’ financial performance.” Investors with a diverse leadership team on their checklist must be prepared to work hard. If they only focus on companies that have a mix of people in the boardroom it would limit their investable universe as whole industries, such as tech and mining, could be excluded. “There are not enough companies that are advanced enough for us to build an investable universe based on diversity,” says David Czupryna, head of ESG client portfolio management at Can- driam. Unlike Newton and BNPP AM, Can- driam does not have a strategy on diversity. It perceives it to be too narrow and would have to include working hours and


Investors need to remember that setting diversity targets is a relatively new policy for many corporates. Indeed, there is not much of a track record to judge the long- term results on, and institutions are typi- cally long-term investors. “We do not have enough research to establish a strong case for historical performance,” Czupryna says. Yet Herskovich disagrees. He says that a five-year track record is enough to spot a positive outcome from a diverse leadership team. So this is an issue that divides investors.


There are other issues to consider. “There are a few strategies out there on gender specifically, but it is hard to make a case that these strategies can outperform long term because it is such a narrow factor,” Czupryna says. “If you have 30% of women at board level, would that outperform com- panies that have no women on the board? “People understand gender diversity but do not understand that on its own it is not enough. You need to look at diversity in its broadest sense,” he adds.


It is important to note that several other factors come in to play when assessing a company’s growth potential, so diversity should be considered part of a wider analy- sis and should not dominate it. For Czupryna, there is more to diversity than just putting people of different back- grounds around a table. It does not neces- sarily mean that you are going to have a smarter board to control and guide the management team. “Diversity should not come at the cost of experience; it should reinforce the board’s experience,” he says. Herskovich concludes that diversity is more effective when people from different backgrounds are included. “Gender is important, but an increase of overall diver- sity, be it expertise,


international back-


ground and origin is also needed to create positive outcomes,” he adds.


Issue 88 | November 2019 | portfolio institutional | 43


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