Gender-balanced companies outperform peers: investing in women boosts financial performance

• Aparna Sreevalsan
• 7 December, 2023

A NEW analysis revealed that companies in the Morgan Stanley Capital International (MSCI) World Index with balanced gender workforces outperformed their peers by up to two per cent annually.

The study, which was released last month comes as the Institute of Chartered Accountants in England and Wales (ICAEW) urges its members to contribute to the FCA consultation period which ends on December 18.

The BlackRock study named Lifting financial performance by investing in women also found out:

• Women’s representation tends to deteriorate with seniority, to the detriment of performance.
• There may be a persistent glass ceiling, making it difficult for women to reach the very top ranks.
• Companies with the most diverse workforces outperformed their country and industry group peers with the least-diverse workforces in terms of return on assets (RoA) by 1.6 p.p. (29 per cent) per year, on average, over the 2013-2022 period.
• Companies closest to parity across key roles, including revenue-producing, engineering and top-paying roles, have outperformed the companies that are furthest away from parity in these roles in terms of RoA over recent years.
• Investing in companies with more women- friendly culture may help boost performance.

This global study of almost 1,250 large organisations that provide at least some gender data is one of the largest ever conducted, despite the fact that other researchers have also attempted to show relationships between gender parity and financial performance.

“Human capital is very important to investment performance,” said Sandra Lawson, the BlackRock managing director who led the work. “It’s a pretty powerful correlation.”

BlackRock’s research supports the significance of taking social and gender representation into account when making investment decisions, in the face of criticism levelled at big money managers for utilising environmental, social, and governance (ESG) issues in their portfolios.

The analysis bolsters the claim that such factors are consistent with fiduciary obligation by utilising return on assets rather than share prices to minimise market effect.

BlackRock, Inc. is an American multinational investment company based in New York City. They provide investment, advisory and risk management solutions.

Currently, the UK financial regulator, the Financial Conduct Authority (FCA) is taking proactive measures to ensue that UK financial services businesses of all sizes promote inclusive and equitable work environments.

This is because D&I is widely acknowledged as being essential to corporate success.

According to Reuben Wales, head of Financial Services, ICAEW, these reports have made it clear that the FCA will push for legislative change – moving from voluntary to compulsory and in accordance with law and regulations.

He said these analysis reports from various organisations like BlackRock, Deloitte, etc. also demonstrate a substantial correlation between gender parity and return on assets, with reduced turnover and greater returns reported by businesses with a diverse range of genders in management.

For this reason, the FCA and the Prudential Regulation Authority (PRA) have released proposals to encourage advancements in enhancing diversity in the broader financial services industry.

To know more about FCA Consultation: https://www.fca.org.uk/publications/consultation-papers/cp23-20-diversity-inclusion-financial-sector-working-together-drive-change

To read more on proposals: https://diversityhub.com/uk-financial-regulators-propose-new-diversity-and-inclusion-framework-in-consultation-paper/