Lottie Meggitt continues Newton Investment Management's series of columns on DC issues
Gender equality has been a persistent topic in the press over the last year, with the #MeToo campaign garnering mass global support, while gender pay-gap figures revealed stark pay inequalities still exist in most industries.
With millennials the dominant cohort in many defined contribution (DC) schemes, and often the loudest voices in gender-related debates too, the pensions and investment world needs to ensure it is well-equipped to meet client expectations.
And it's not just client demand to consider: a host of empirical evidence is making clear the benefits of diversity in enhancing company performance by improving decision-making and avoiding dangerous groupthink. For example, firms ranking in the top quartile for executive-board diversity were found to achieve a 53% higher return on equity compared with those in the bottom quartile1. Furthermore, increasing the proportion of women in the workforce could add $12trn (£9.1trn) to the world's economy by 2025 vs a business-as-usual scenario - a rise of 11%2.
With increased calls from beneficiaries and the increasing prevalence of rigorous research, incorporating diversity considerations is slowly but surely moving onto the agenda of all schemes, not just those with a social impact mission. A recent survey of 100 global asset owners with combined assets of $8trn found that 74% mentioned diversity in their annual reports, an increase versus two years ago according to the report's authors3.
If both DC and defined benefit schemes want to ensure their assets are being managed in a way that is aligned with the views of members - and this consideration is particularly acute in DC where it is the members who are bearing the risk - we think there are three things they should be asking of their investment manager:
1. Research: There are multiple ways to assess a company's gender-diversity performance. There are numerical statistics such as the percentage of the workforce that is female, as well as less concrete measures, for example parental-
leave policies, flexible-working arrangements and development programmes to promote the female leadership pipeline.
2. Voting: The exercise of voting rights is a vital mechanism for asset managers to express their views on behalf of their clients. For example, at Newton we will vote against the re-election of the chair of the board's nomination commitee where we see insufficient gender diversity performance or policies to improve it at AGMs.
3. Engagement: It isn't enough to simply monitor a firm's performance when so often diversity performance and public disclosure is poor. In our view, through active engagement, investors can encourage real change on an issue we believe can have a material impact on the value of their investments over the long term.
Lottie Meggitt is responsible investment analyst at Newton Investment Management
For more information please contact: Catherine Doyle, head of DC UK, Newton Investment Management, at [email protected]
Important information: This is a financial promotion. This document is for professional investors only. These opinions should not be construed as investment or any other advice and are subject to change. This document is for information purposes only. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell investments in those countries or sectors. Issued in the UK by Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England No. 01371973. Newton Investment Management is authorised and regulated by the Financial Conduct Authority.