Diversity, equity and inclusion across the regions

Diversity, equity and inclusion (DEI) is one of a growing number of investment approaches that has gained increasing traction as investors move away from the confines of narrow and purely financial considerations. Indeed, McKinsey defines DEI as “three closely linked values held by many organisations that are working to be supportive of different groups of individuals, including people of different races, ethnicities, religions, abilities, genders, and sexual orientations”. Such approaches are also widely credited with yielding better corporate and organisational - and therefore investor - performance. McKinsey data - albeit from 2019 - showed that the most gender-diverse companies were 48% more likely to outperform than the least gender-diverse companies, and based on past trend lines, that percentage has likely increased since. Further, a 2022 Bloomberg report states that “across corporate America, executives are being given a clear message: if your companies don’t improve their diversity, investors may be the ones to make it happen”. With such claims and considerations in mind, various sources and market observers give their perspective on the substance behind such aims, and the progress of DEI in Asia.

DEI and investment performance

Naturally, one of the most important questions for investors approaching DEI strategies is whether they contribute positively towards performance. After all, conflict with fundamental fiduciary obligations to deliver returns to investors may seriously challenge this thesis.

Camille Barré, impact and ESG analyst at Mirova, an affiliate of Natixis Investment Managers, affirms that “research consistently demonstrates that increasing the representation of women in leadership positions can have a wide-ranging positive impact on organisational and economic performance, ultimately leading to greater returns for investors”. She also cites studies demonstrating that more diverse management teams produce more innovation, with companies with more women in leadership positions delivering around 10% more revenue from “innovative products and services”.

Danielle Welsh-Rose, deputy chief sustainability officer, investments at abrdn, confirms that “there has certainly been an increased focus from investors in certain markets on DEI issues, particularly in Australia, the US (although recently this has become more fragmented), and the UK”. She instances collaborative initiatives to influence policy and corporate practices, remarking that “many investors are engaging in DEI, and have been using proxy voting as a tool to achieve better board diversity”.

A 2023 statement by Sandra Healy, CEO and founder at workforce data company Inclusio, notes that “diverse companies are 70% more likely to capture new markets”, while “diverse and inclusive teams have been shown to make better decisions up to 87% of the time”.

Meanwhile, Mirova’s Barré adds that more women in management positions “can result in a better understanding of end-customers, leading to increased sales, particularly in the consumer market, where women have a significant influence”. This, she avers, “underscores the importance of gender diversity in driving financial success and positive social impact”, while abrdn’s Welsh-Rose quotes the investor-led 40:40 Vision organisation in Australia, which “has increased focus and activity on listed companies to achieve at least 40% of women in executive roles”.

Investor attitudes towards DEI

Preferences among investors, whether institutional or otherwise, in favour of DEI are naturally going to influence the approaches of asset managers. So what signs are there of such preferences, and what policies or benchmarks are in place to enable them to track and assert such preferences?

Observing the “growing but slow trend” among investors to seek out DEI-positive companies and organisations, often classed with “impact investing”, Barré notes that “various policies and benchmarks have been developed to guide investors in assessing and promoting DEI within their portfolios” in response. In this context she cites Euronext’s 2022 announcement of the Euronext Equileap Gender Equality Eurozone 100 and Euronext Equileap Gender Equality France 40 indices, and Morningstar’s Gender Diversity Indexes.

Meanwhile, wider expectations of greater investor support for DEI are typified by a December 2023 Forbes headline proclaiming that “Investors will drive more DEI commitment”. The case, there as elsewhere, is simply that “the business case for DEI is well known”, with the customary accepted metrics for better corporate performance and innovation. A BCG report from September 2023 also asserts that, according to the BCG BLISS Index, “corporate investment in comprehensive DEI and employee-centric programming offers significant long-term value and is a powerful catalyst that drives employee satisfaction, boosts retention and builds stronger business outcomes”.

Best results from DEI

If investors are demonstrating preferences in favour of DEI, then what are the most remunerative ways to express such preferences and make allocations to support them?

According to Welsh-Rose, as with ESG investing, looking at DEI through an investment lens needs to go beyond a simplistic “box-ticking” exercise. She counsels that “understanding the benefits of improved DEI metrics and performance, as well as the barriers that are in place, are key to ensuring that any engagement activity can be targeted towards improved company performance”. What is more challenging is the need to address systemic barriers more broadly in industries, which requires policy advocacy.

Mercer, which operates a vigorous DEI investment advisory practice, recommends three steps for institutions and other investors looking to integrate DEI into their investment portfolio. First, this means defining diversity - with different focus areas appropriate to the particular investor; second, building a process and a plan - with clearly articulated goals and the processes to support them; and third, implementing that plan - by identifying diverse-led funds and opportunities.

For private markets investment, the US Institutional Limited Partners Association (ILPA) has an online resource centre for investors, with tools and guidelines covering issues such as due diligence on investee targets, monitoring questionnaires, engagement with funds and company boards, and so on. Barré singles out the Gender Lens Investing Initiative (GLI) and the 2X Criteria, which she describes as “global industry standards for assessing and structuring investment opportunities that address gender issues”.

Barré also notes that “some institutional investors and asset managers have integrated DEI considerations into their proxy voting and engagement strategies, using their influence as shareholders to advocate for greater diversity and inclusion within the companies they invest in”. She regards these and other approaches “as important tools for investors seeking to align their investment strategies with their values [to] promote positive change”.

Asia and DEI

Rightly or wrongly, Asian markets have often been seen as being on the trailing edge when it comes to socially positive investment policies such as DEI. However, this may not in fact be the case. Assessing the regional situation in November 2023, the Global Diversity Practice consultancy states that “Asia embodies an extraordinary range of ethnicities, religions, and languages. From the Indian subcontinent to Southeast Asia, from East Asia to the Middle East, the continent showcases remarkable diversity [and] it is essential to recognise and appreciate this complexity by considering each country individually, rather than taking a generic approach towards the continent as a whole”.

Welsh-Rose notes the diversity of the region itself, “as Asia comprises such a diverse set of countries, with wide ranging approaches to DEI from leading to lagging”. Overall though, she remarks on “a growing awareness of DEI, in particular as it relates to gender”, with the percentage of women on boards and in CEO roles in Asia “growing steadily, off a low base”.

Barré, meanwhile, quotes the Global Gender Gap Report 2024, which indicates that the highest gender parity is found in Europe and Northern America, with East Asia and Pacific in fourth place and South Asia close to last. New Zealand, she adds, is the only APAC country in the global top ten, with Australia (24th), the Philippines (25th) and Singapore (48th) close behind. However, India (129th) and Japan (118th) appear further down the list.

Welsh-Rose adds that some of the growth in DEI implementation has been driven by new regulations, “and other factors such as investor pressure have also contributed to growth”. She sees Asia as still lagging behind markets such as Europe and Australia, but says “we are seeing steady improvement with regards to gender”.

Affirming that there has been a global shift in the understanding of DEI, Barré emphasises that “there is no ‘one size fits all approach’ for APAC, and the conversations are always evolving”. She points out in particular the demographic need driving businesses’ embrace of DEI in Asia. “Shrinkage in the working-age population is now well-established in Japan, South Korea, and China, and others will follow”, she cautions, which she adds makes it essential to create inclusive and equitable workplaces and “[to] value the unique attributes and perspectives of individuals from all backgrounds”.