A new BlackRock report discovered significant financial benefits for companies with robust gender diversity. The report found that the most gender-balanced companies outperformed the least diverse companies by 29 percent, as measured by average return on assets (RoA). The report also found financial benefits for companies where women are in leadership positions and take longer maternity leaves.
BlackRock also found that gender-related disclosures are increasing, with further increases expected due to regulatory requirements and emerging standards from international bodies like ISSB and SSAF.
Gender diversity benefits. The report, Lifting financial performance by investing in women, found financial benefits arising from gender diversity in a number of measures.
- Companies with the most diverse workforces outperformed their least-diverse peers by 1.6 p.p. (29 percent) RoA per year, on average, over the 2013-2022 period.
- MSCI World Index companies with female CEOs outperformed companies run by men by 1.0 p.p. on average on the RoA measure over the 2014- 2022 period.
- Companies where middle management best mirrors the women’s representation in the overall workforce generated 36 basis points higher risk-adjusted monthly returns compared to peers where this diversity metric is poor, over 2016-2022.
- Women-owned or managed hedge funds have outperformed an average hedge fund by 10.5 percent over the last 16 years.
- A survey of more than 350 startups showed that women-owned startups delivered twice as much per dollar invested compared to those founded by men.
“Neither under-representation nor overrepresentation of women—or men, for that matter—is optimal,” wrote BlackRock.
Glass ceiling. The report found that women’s representation deteriorates with seniority. 18 percent of executive seats in fiscal 2021 were held by women, and only 6 percent of CEO seats in fiscal 2022.
Companies may see financial benefit by increasing their promotions of women. A hypothetical long-short portfolio that maximizes the relative women’s promotions exposure generated 0.72 percent excess return per year (relative to the benchmarked portfolio of MSCI World Index) over the past four years.
There may also be benefit over the longer term, as promoting women is associated with lower employee turnover rates. The report estimated that improving women’s underrepresentation at higher ranks by 5 p.p. is associated with a 3.6 percent decrease in turnover rates the following year, and 4.6 percent two years later.
Maternity leave. BlackRock said it is difficult to measure how “woman-friendly” a company’s culture is, but the length of average maternity leave taken can be a good proxy.
The report found that incorporating maternity leave data into an investment portfolio helps boost returns. Allowing for portfolio tilts towards companies with higher average maternity leaves taken would have improved the portfolio’s performance by 1.07 p.p. per year over the benchmark (Russell 1000 Index) over the past four years.
Disclosures. The report found a steady upward trend in diversity disclosures globally. The percentage of companies in the MSCI World Index disclosing women’s representation in the workforce rose from 32 percent in 2012 to 80 percent in 2021.
The report chalks up the increase to increased inquiries from investors, evolving ESG rating methodologies, rising interest in DEI practices and regulators’ push for greater disclosure of human capital-related issues.
In terms of regulation, the report pointed to new “EU pay transparency directive,” approved by the European Parliament in March 2023, that will require companies with over 100 employees to calculate and publish their median pay gap between women and men starting from 2027. Australia and the UK have introduced similar public disclosure requirements.
The U.S. does not so far have a similar requirement, only a narrative summary of human capital-related risks. However, the report noted that the SEC is currently working on an updated rule on human capital disclosures.
Standardization efforts are also underway at the International Sustainability Standards Board (ISSB) under the International Financial Reporting Standards (IFRS), as well as the Sustainability Standards Advisory Forum (SSAF), supported by G20 members.
According to BlackRock, the ability to compare companies on their material human capital measures is important for investors and easier when disclosed metrics are standardized.
“Understanding the human capital aspect of corporate assets is increasingly relevant from an investment perspective. We expect disclosures to improve as human capital and diversity metrics become more established as drivers of financial performance and investment decisions,” the report stated.