The Case for Gender Equality

The conversation around gender equality in the workplace reached a crescendo in early 2017, as millions marched for women’s rights around the world. A few weeks later, an international strike urged women to forgo their paid and unpaid responsibilities and show the world the impact of a day without women. And, on the eve of International Women’s Day, a bronze statue of a young girl appeared on Wall Street, defiantly facing the iconic charging bull. This “Fearless Girl” symbolized State Street’s campaign to increase the number of female directors, calling on the thousands of public companies it invests in to take action.

Collectively, these protests and campaigns reflect a growing sense of frustration around the glacial pace of women’s progress in the workplace and global economy. A 2015 McKinsey study showed that if women’s participation in the labour markets matched that of men’s, as much as US$28 trillion could be added to the global annual GDP by 2025.¹ Companies are beginning to recognize this untapped potential, and what’s at risk if they fail to provide a more gender-equal and inclusive work environment: access to the widest pool of talent, more productive and innovative teams, and ultimately, stronger financial performance. Underlying this is the message that, increasingly, investor dollars are also at stake – and that gender equality can be a powerful financial incentive.

An Investment Imperative

What began as an ideology – equal rights for women – has become an undeniable economic and investment imperative. As investors seek alternative drivers of risk-aware alpha in a challenging market environment, and companies look for new ways to demonstrate sound governance and attract capital, the demand for transparent data regarding gender equality and diversity practices has never been greater. Bloomberg launched its Financial Services Gender-Equality Index in May 2016 to meet this growing demand, providing standardized, aggregate data to measure where companies stand on gender equality.

Demand for ESG and Gender-Based Data

Gender data is part of a broader set of information known as environmental, social and governance (ESG) data, traditionally used by investors focused on strategies variously labelled as sustainable, responsible or ethical investing. Over the past decade, demand for ESG data and socially responsible investment strategies has skyrocketed, driven by six key stakeholder groups:

• Institutional investors are relying on ESG data to assess firms’ ability to mitigate operational risk and maintain corporate competitiveness.
• Asset managers are acknowledging the difficulty of capturing alpha from traditional, commoditized financial datasets, and looking to ESG factors to better understand a firm’s or portfolio’s outperformance potential.
• Millennials, high-net-worth individuals and women are more likely to use ESG data to align their investments with their values.
• Companies are using the data to inform policies and practices and attract talent.
• Exchanges and governments are demanding more robust data to encourage regional corporate competitiveness and attract more foreign and domestic capital.
• Media and journalists use ESG data to support their reporting on the business imperative behind diversity, inclusion and other topics.

In 2016, membership in the US Principles for Responsible Investment grew to over 1500 members, with US$60 trillion in assets. The Global Sustainable Investment Alliance reports that nearly US$23 trillion – 26% of assets under management globally – is currently invested in assets incorporating ESG investment strategies.² Rising interest in gender-lens investing specifically is also reshaping the ESG landscape. A 2016 study from the SIF Foundation tracked gender-lens investing for the first time, reporting that US$397 billion in investor assets “had an explicit focus on products or companies that actively support women’s social and economic advancement”.³ In response, firms have developed products like State Street’s SHE ETF, tracking companies with female leaders, and the Pax Ellevate Global Women’s Index Fund, which invests in companies advancing women’s leadership. Institutional managers are also seeking robust and widely available gender data to help inform these and other strategies.

Methodology: Measuring the Gender Ecosystem

The Bloomberg Financial Services Gender-Equality Index (BFGEI) expands the universe of available data, arming investors with information far beyond current disclosure requirements. Its unique, holistic datasets provide transparency across the entire ecosystem of gender data: (1) internal company statistics; (2) employee policies; (3) external community engagement; and (4) gender-conscious product offerings. Each measures an element crucial to reaching gender parity. Internal company statistics, such as the percentage of women executives or the percentage of women in the top 10% of compensated employees, demonstrate a firm’s commitment to promoting women into senior-most leadership positions. Employee policies, such as fully paid parental leave and equal pay for women, illustrate how firms are cultivating that advancement and encouraging a diverse working environment. A firm’s sponsorship of financial education programmes, or support for public advocacy organizations and legislation, also offers a strong indication of its engagement with the community. Similarly, the availability of gender-conscious product offerings measures how firms are advancing gender equality within the larger economy, by providing financial resources and access for women clients and women-owned businesses.

Each company included in the BFGEI is required to submit an annual survey⁴ and score at or above a global threshold established to reflect disclosure and the achievement or adoption of best-in-class statistics and policies across all four categories. Created in consultation with third-party experts such as Women’s World Banking, Catalyst and the National Partnership for Women & Families, survey questions are updated annually to better reflect trends and demand from the investment community, as well as new developments in diversity and inclusion practices. And, as interest from both companies and investors continues to grow, future iterations may focus on additional industries and metrics (see Figure 1).

This expansion is indicative of companies’ growing desire to assure both investors and the public of their commitment to establishing gender equality and strong corporate governance. The index highlights a number of initiatives firms have engaged in to increase their pipeline of female leaders, and better recruit and retain women: 75% of index member firms provide return-to-work programmes for women; 73% require a gender-diverse slate of candidates for management roles; 83% offer or sponsor financial education programmes for women in their communities. The BFGEI 2017 member firms have an average of 26% female representation on boards, double the total financial services average of 13%.

The 2017 BFGEI’s global footprint also provides insight into how different regions are addressing gender equality in the workplace. Among index member firms, 84% of Americas-based member firms implemented a supplier-diversity programme, 80% of Europe-based member firms incorporated gender-specific compensation reviews and 93% of APAC-based member firms offered unconscious bias training. As global membership grows, the index will also capture how companies are meeting regional challenges, such as parental leave benefits in the USA, return-to-work programmes in Europe, elder care in Japan and childcare services in Australia. And, as exchanges and governments consider the merits of encouraging or requiring disclosures or the adoption of specific policies, the ability to standardize data across regions and multinational companies will be critical to that debate.

Setting New Standards for Gender Equality

In addition to measuring how well firms are progressing towards gender equality, the BFGEI can help identify potential factors contributing to an organization’s success. Its holistic nature – offering insights into previously opaque areas like the prevalence of mandatory diverse candidate slates or the percentage of women among a firm’s highest compensated group of employees – helps investors and the firms themselves measure progress, examine potential correlations between these unique sets of information and draw comparisons against peers.

By featuring firms with a demonstrated commitment to gender equality, the index is helping to set a new standard for the industry and beyond, encouraging companies to re-evaluate their own policies and practices. Over the course of a year, one firm included as a member of both the 2016 and 2017 BFGEI began requiring unconscious bias training for all managers, started covering fertility services and implemented a supplier-diversity programme including women-owned business. Another member firm increased its maternity leave by four weeks, extended paternity leave by seven weeks and started offering return-to-work programmes for new mothers. And in perhaps the most tangible sign of progress, Bloomberg’s 2016 inaugural BFGEI member firms collectively increased the average number of women across all levels of leadership between FY 2014 and FY 2015.

Financial Performanceandthe Way Forward

The BFGEI catalyses a virtuous cycle, as index membership and investor demand continues to grow. More data allows investors to build stronger, more robust strategies targeting companies with diverse workforces and inclusive environments. It is also helping them achieve stronger returns. One strategy – investing in S&P 500 companies with the most women in board, management and workforce roles – has outperformed the benchmark by 141% over the past 10 years.⁵ Similarly, the Pax Ellevate Global Women’s Index Fund outperformed the MSCI World Index for a two-year period ending 30 June 2016.⁶ In turn, companies are encouraged to implement and improve upon the practices and policies understood to drive gender equality, and disclose the data around those changes. As the BFGEI grows, it will reflect the leadership and progress of corporations, the investment community, media, exchanges and governments, working collectively towards gender parity. And, as one influences the other, we’ll continue to build on transparent, actionable data to better measure – and drive – the financial and human impact of diversity and inclusion in the workplace.