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Social equality and inclusion

Investing in diversity for economic and social benefit

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Untapped Potential

Approximately 35% of entry level employees are made up of White men, yet they accounted for 59% of the senior management ranks and 66% of C-Suite (Exhibit 1). We believe this disparity goes well beyond differences explained by education, experience, or skills, and is often attributed to organizational bias (unconscious or otherwise).

Exhibit 1: Representation in the Corporate Pipeline by Gender and Race.

While some progress has been made at improving corporate diversity, the pace of change has been glacial despite mounting empirical evidence suggesting that there are measurable benefits associated with more well-rounded workforces and leadership teams. Further, the progress to date has been limited to gradual gains along gender lines; the overall rate of people of color serving on corporate boards, for example, has been stagnant over the past decade.1 Indeed, most U.S companies just started collecting data on the racial composition of their workforce and leadership, but public disclosure is still sparse. Some companies have acknowledged this shortcoming and introduced programs to foster gender, racial, age, and sexual orientation equality. Yet the results have been underwhelming as detailed in recent research by McKinsey and LeanIn.Org:2

“While there have been a few gains in board representation for some demographic groups, advancement is still very incremental, with goals of achieving proportional representation to the presence of women and minorities in the U.S. population sometimes multiple decades away at current rates of change.”

Source: United States Census Bureau, “Annual estimates of the resident population by sex, race, and Hispanic origin [Data set ],” 2020

  • People of color are significantly more likely to leave their company than White people.
  • Women of color face the greatest obstacles and receive the least support. Black women, in particular, receive less support from managers and view the workplace as less egalitarian than their White peers.
  • 40% of Black women say they need to provide more evidence of their competence, compared to 28% of White women and 14% of men.
  • At senior levels, the gap in promotions for women is even more pronounced for women of color: 21% of senior managers are women, but only 4% are women of color.
  • Due to persistent pay gaps, the average woman misses out on more than $400,000 during the course of her career. The pay gap for Latina (47%) and Black (38%) women is even wider than women overall (20%).
  • Women, particularly women of color, have been disproportionately impacted by the coronavirus pandemic and are more likely to have been laid-off or furloughed. They are also at-risk of falling out of the workforce due to family conflicts, pressure or stress, all of which threatens to stall their careers and financial stability.3
  • 53% of Lesbian, Gay, Bisexual, Transgender and Questioning (LGBTQ) workers report that discrimination negatively affected their work environment; 10% have left a job because the work environment was unwelcoming.4

The reasons for the persistence of this uneven playing field are complex and they often start at the top. According to a 2020 study by the Center for Talent Innovation now called Coqual, more than half of leaders do not value ideas that do not resonate on a personal level. It is our opinion, given that most leaders are White men and existing workplace dynamics have enabled their success, they are less likely to see the need for the significant time, resources, and personal commitment required to effectively improve equality. It is relatively easy to update human resources policies and hire consultants to implement diversity programs. It is far more challenging to try to change corporate culture, especially if executive management is not fully committed. A recent study by McKinsey has shown that while companies have made progress in improving diversity through hiring practices, efforts to build a more inclusive culture are lagging. Survey results from a global sample of companies show that employees give a 52% positive rating to diversity efforts, with 31% expressing negative sentiment. But for inclusion efforts, including indicators such as equality, openness and belonging, only 29% were positive and 61% negative.5 This data supports past empirical studies, which have shown that employees value a supportive culture and leadership team more than a nondiscrimination policy.

The business case for equality

While the societal implications of workplace inequality are extensive, there is also increasing evidence of tangible economic consequences. Research seems to reinforce that companies with strong cultures of equality, emphasized and modeled by top management, may have a competitive advantage over their peers. A 2019 survey of global companies by McKinsey found that companies in the top quartile for gender diversity on executive teams were 25 percent more likely to have above-average profitability than companies in the fourth quartile. While more gender diverse companies were more likely to outperform peers on profitability metrics, the difference was even more pronounced for ethnically diverse companies (Exhibit 2).

Exhibit 2: The Business Case for Diversity in Executive Teams is Solid.

Source: McKinsey, “Diversity wins: How inclusion matters,” May 2020. Past performance is no guarantee of future results. Data would differ if a different time period was displayed. Short term performance shown to illustrate more recent trend.

Why does research show more diverse companies may deliver better profitability? The advantage is manifested in several ways…

One significant drawback of a homogenous talent pool is groupthink. When executives promote new managers who look like them, went to the same schools, share the same experiences, and grew up in similar socio-economic situations, the result can be a commonality of ideas and lack of creativity. Indeed, recent academic research has found that homogeneity stifles innovation and leads to less effective decisions, while ethnically diverse leadership teams offer companies more problem-solving tools, broader thinking, and better solutions.6 Given the U.S. economy’s transformation into the information age, companies that struggle to innovate and/or make the right strategic decisions will be at a disadvantage relative to more diverse competitors.

It has been well documented that employees are more engaged at companies they feel proud to work for, and workplace equality can be a key ingredient to productivity. This is true not just for the disadvantaged populations, but for the majority as well, as a culture of meritocracy helps bring out the best in all employees. A series of studies conducted by McKinsey over the past 10 years has found the following benefits attributable to equality of opportunity in the workplace:

“Diversity is a competitive differentiator that shifts market share toward more diverse companies”

McKinsey & Company
  • Higher employee engagement and satisfaction
  • Less turnover/absenteeism
  • Higher employee productivity
  • Recruiting advantage
  • Improved customer orientation

The final point regarding customer orientation is likely to become increasingly relevant given the changing nature of demographics in the U.S. Ethnic minority purchasing power exceeded $3.9 trillion, as of 2018, equal to 26% of total U.S consumer spending.7 Given that half of all children born since 2010 are now members of an ethnic minority group, this trend is expected to continue for the foreseeable future. Furthermore, women currently control $10.9 trillion of U.S. financial assets, a figure expected to grow to $30 trillion by 2030,8 giving this group economic power exceeding the U.S. GDP.

Social equality outside the workplace

Of course, U.S. workers do not live in a vacuum where a more equal workplace unilaterally evens the playing field for society at large. There are still systemic challenges involving equal access to transportation, clean air/water, healthcare, education, housing, financial services, and legal justice that continue to hinder disadvantaged populations. At the macro level, the International Monetary Fund has found that increasing income inequality can inflict harm on a country’s long-term economic prospects, particularly its capacity for sustainable growth. The key reasons cited include the potential for financial market imbalances and political instability, both of which are said to discourage business investment. Another important factor is the limited ability of lower income families to invest in education, which can stunt economic mobility.9 Forward-thinking corporations are making investments in their communities with the goal of raising the economic bar and standard of living, while providing a meaningful outlet for employees to “give back” as well. Employees and consumers (particularly millennials) are increasingly attracted to companies and brands that are making a positive impact on society. The indirect benefits of healthier local economies include: a more prosperous workforce, greater local demand, more stable local institutions, increased worker mobility, higher tax base to provide services, and overall higher quality of life. For some companies, there are also direct economic benefits to fulfilling unmet needs around access to health care, rebuilding inner cities, and providing childcare services, to name just a few.

CIO’S women & girls equality strategy (WGES)

To capitalize on the economic potential of gender equality, the Chief Investment Office (CIO) has developed a comprehensive investment approach called the Women & Girls Equality Strategy (WGES). WGES applies a gender lens to a public equity portfolio by considering a wide spectrum of criteria that focus on both gender equality and financial fundamentals. This approach gives women-focused endowments and foundations the opportunity to align core exposures in their portfolios with their stated missions. It can also enable individual investors to incorporate personal values and objectives such as equal opportunity, the role of women in the economy or the importance of women’s empowerment into their investment portfolio.

Growing economies through parity

Closing the gender gap in the workforce could add a staggering $28 trillion to the global gross domestic product.

Closing the earnings gap for Black workers in the U.S. would boost total Black wages by 30 percent and draw approximately one million additional Black workers into employment.

—McKinsey & Company. July 2020.

This strategy uses a two-part due diligence framework to identify industry leaders with respect to equality and empowerment. First, it looks for thoughtful, proactive corporate policies relating to women and for a commitment to use business practices to change the global landscape of rights and equality for women and girls. The second component considers a company’s track record and performance on quantifiable factors in seeking to ensure that policy decisions produce the intended outcomes.

Specifically, the WGES investment process evaluates a company’s policies on family leave and other benefits such as child care and elder care; commitments to pay equity for women; track records in hiring, retaining and promoting women; the composition of their workforce, from new hires through the board of directors; and career-advancement opportunities for women. The strategy also examines human rights policies governing a company’s supply chain and subcontractor relationships; whether a company’s policies specifically address the protection of women; and overall adherence to international labor standards for women and girls.

Through this approach, the strategy realizes measurable impact with respect to empowerment and equality. Exhibits 3A and 3B compare women’s employment and benefits in companies in the WGES portfolio as of June 30, 2021, versus companies in its stated benchmark, the S&P 1500, a broad-based stock index. Companies sought by the strategy, on average, employ more women at all levels of the corporate hierarchy, and offer significantly better family leave benefits to employees than those in the S&P 1500.

Exhibit 3A: Comparison of Women Employed at Companies in WGES Portfolios vs. Companies in S&P 1500.

Sources: Chief Investment Office; Equileap as of June 30, 2021. Please refer to Index Definitions and Important Disclosures at the end of this document. Portfolio characteristics and holdings are as of the date indicated and are subject to change periodically and may not be representative of current characteristics and holdings.

Exhibit 3B: Family Leave Benefits.

Sources: Chief Investment Office; MSCI as of June 30, 2021. Please refer to Index Definitions and Important Disclosures at the end of this document. Portfolio characteristics and holdings are as of the date indicated and are subject to change periodically and may not be representative of current characteristics and holdings.

Certain information contained herein (the “Information”) has been provided by MSCI ESG Research LLC, a Registered Investment Adviser under the Investment Advisers Act of 1940, and may include data from its affiliates (including MSCI Inc. and its subsidiaries (“MSCI”)), or third party suppliers (each an “Information Provider”), and may have been used to calculate scores, ratings or other indicators and it may not be reproduced or disseminated in whole or in part without prior written permission.


CIO’S Social equality & inclusion (SEI) strategy

While WGES is tightly optimized around gender equality factors, the CIO has designed its Social Equality & Inclusion (SEI) strategy as a broader diversity and inclusion approach that incorporates ethnicity, LGBTQ, disabled, veteran, and human rights issues as well. SEI seeks to identify leading companies that are actively building a culture of equality and have demonstrated success at promoting disadvantaged populations into leadership positions. The CIO conducts a comprehensive assessment of human resource policies, employee benefits, disclosure practices, and objective performance data to determine which companies are achieving these successes along the following factors:

  • Workforce Diversity & Leadership
  • Employee Development
  • Protection for Human Rights
  • Comprehensive Family Benefits
  • Equal Opportunity/Pay
  • Supply Chain Diversity
  • Community Support
  • Climate Impact
  • Access to Finance & Healthcare
  • Controversies, Fines & Lawsuits

Companies are held accountable for performance across their supply chain, as well as how they impact their local communities (both positive and negative). Our goal is to look beyond simple head count numbers, to determine which companies have built a sustainable culture of social equality that will likely translate into tangible economic results. As shown in Exhibit 4A and 4B, portfolio holdings in the SEI strategy demonstrate a better track record on key social equality factors than the S&P 1500 index.

Exhibit 4A: Social Equality Impact Metrics.

Sources: Chief Investment Office, Refinitiv, Equileap as of June 30, 2021. Please refer to Index Definitions and Important Disclosures at the end of this document. Portfolio characteristics and holdings are as of the date indicated and are subject to change periodically and may not be representative of current characteristics and holdings.

Exhibit 4B: Board Diversity

Sources: Chief Investment Office, Refinitiv, Equileap as of June 30, 2021. Please refer to Index Definitions and Important Disclosures at the end of this document. Portfolio characteristics and holdings are as of the date indicated and are subject to change periodically and may not be representative of current characteristics and holdings.

Integrated fundamental analysis and risk management

Both the WGES and SEI strategies merge social investing with the traditional fiduciary asset management principles. Rigorous fundamental analysis seeks to ensure that every security held in these strategies can stand on its own as a sound investment, with the potential to generate financial returns that seek to meet or exceed those of its benchmark. We conduct a traditional fundamental review to make sure we are buying what we believe to be attractive stocks, not just social “do-gooders” on behalf of our clients. Finally, we conduct a portfolio construction exercise to enact appropriate diversification and risk control. The goal of this final step is to neutralize any unintended risk exposure and have the featured social characteristics drive the relative returns of the strategies. The end result, we believe, is two portfolios of companies well positioned to compete for talent, manage operational risks, invest in innovation, and help serve unmet needs in the marketplace.

In addition to the proprietary equity strategies offered in the S2I suite, the CIO maintains a broad platform of third party managers covering a range of asset classes. Together, these offerings are intended to address the CIO four pillars of sustainable investing.

Person holding a pride flag on a city street with a bridge in the background

Commitment to engaged and healthy workers

Polar bear swimming with ice and mopuntains in the background

Contributions to climate and environmental sustainability

Person with a clip board making notes

Principles of Governance
Commitment to ethics and societal benefit

person writing down a calculation at a desk

Contributions to equitable, innovative economic growth and sustainable communities

Please note that the examples under each theme are illustrative of the types of investments possible, and are not necessarily strategies available today.

To learn more about investment opportunities and the Chief Investment Office’s sustainable investing portfolios, please contact your advisor or the Socially Innovative Investing Team at


The CIO Socially Innovative Investing (S2I) team manages a suite of proprietary equity portfolios that invest in industry leaders with respect to environmental stewardship, human capital engagement and corporate governance. The S2I strategies are based on a growing awareness that strong ESG and financial performance are not mutually exclusive; rather, they are mutually beneficial qualities.

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