Sponsored Commentary from Etica

Diversity and inclusion benefit companies and investments in the long term. This is the conclusion from various reports published over the last year by training institutes and financial-consulting companies. Information and research form the basis for analysis and screening tools to enable a financial model that Etica has always believed in: a sustainable, ethical and inclusive economic system.

An effective strategy focused on improving a company is founded on heterogeneity. This is the conclusion of a study published by the Harvard Business Review, entitled “Getting serious about diversity”. The authors, Robin J. Ely, professor at the Harvard Business School and David A. Thomas, president of the Morehouse College, propose clear and concrete actions to promote diversity and inclusion in the workplace, generating positive results from a social perspective and beyond. The social actions indicated by the authors also aim to help leaders and managers change the way a company works, to create safe workplaces, where diversity and inclusion thrive, driving out discrimination and controlling behaviours. Organisations that strive for heterogeneity, implementing it within their structures, are far more successful in engaging their employees in company life and establishing a more effective strategy aimed at continuous improvement. This is an essential element, which will also lead to greater economic value in the long term, as promoting diversity in the professional sphere leads to positive results also from a strictly financial perspective.

Etica has always believed that diversity (or sustainability) also benefits performance and has always applied this to finance, adopting successful actions in the field of diversity, inclusion and sustainability in various phases of the process of establishing and structuring the investment funds to which the Italian asset-management company dedicates itself with great care.  

In addition to this, another report was published a few days ago entitled “Gender 3000 2021”, which focuses not only on the composition of BoDs of companies but also on management positions. This study analysed 3000 companies in 46 countries and has identified some improvement regarding gender issues: between 2015 and 2021, there was a 9% increase in the number of women on BoDs (global figure) and a 2% increase in female senior managers between 2019 and 2021. The number of female CEOs increased 27% globally, although they still represent just 5.5% of the total. In any case, the report highlights a correlation between more diversified companies in terms of gender and company outperformance; this is the reward of diversity. Companies with above-average gender diversity generated an alpha of 200 basis points.

Remaining on the topic of gender diversity, another very interesting report is “Womenomics”, a study prepared by Goldman Sachs, which shows that the companies with more female managers have historically generated better results. However, the same report identifies that the problem of the gender pay gap remains, i.e. the lack of correspondence between female and male salaries (for the same role) that is still around 12–18%.

Diversity and inclusion are therefore fundamental for a fairer society, in addition to the not-insignificant benefit of generating value for business in the long term.

Etica’s ethical approach to finance, exclusively offering sustainable funds, is based on a rigorous issuer-selection process called ESG EticApproach®.

This is a proprietary methodology that starts by establishing negative exclusion criteria, rejecting issuers involved in controversial activities. This is followed by positive assessment criteria: only best-in-class issuers, with a solid qualitative and reputational profile will be included in the Etica fund cluster; those committed to adopting equal opportunities and diversity policies, policies ensuring observance and promotion of human rights and policies that fight against discrimination. This filter is also applied in the sphere of bonds, adopting specific parameters for analysis of states, such as the Gender Equality Index.

In addition, Etica is also active in the field of diversity and inclusion through its engagement policy, adopting the Sustainable Development Goals as a reference framework. This interaction with companies aims to support enterprises in adoption of more virtuous and transparent actions through ongoing dialogue with top management.

The theme of gender-equality and women’s emancipation — understood as a strengthening of the perception of expertise, awareness and self-esteem — has a crucial role in the UN Agenda 2030 for Sustainable Development, the action plan composed of 17 Sustainable Development goals, with a separate goal dedicated to achievement of gender equality and overcoming the gender gap, often identified by the fact that women are still under-represented in managerial positions and/or paid less than their male counterparts. Etica takes these goals as a basis to establish engagement activity with companies and define the necessary changes with them to move in the direction indicated by the UN Agenda. In general, dialogue is established around a series of themes significant for corporate social responsibility and good governance. A company with solid governance has far greater potential for good economic results in the long term. 

To measure the impact of securities selection and engagement activity, Etica publishes an annual report analysing the environmental, social and governance effects of companies that the funds invest in. The theme of gender equality was included in the most recent report, published in December 2020, which looked in particular at the question of gender diversity in BoDs. The impact of selection led to an 8% increase against the benchmark in terms of companies with 20% or greater female representation in their management team.

According to Etica, these tools — engagement activity, the issuer-selection process with ESG screening and analysis of results with the Impact Report — are the cornerstones for responsible financial management and to face the coming years, considering that sustainability is and will continue to be one of the key market trends. 

Furthermore, the situation that we have recently experienced with the Covid-19 emergency has highlighted that still today, the groups worst affected are women and young people, demonstrating that there is still a long way to go to overcome discrimination and establish approaches to economic growth with a more inclusive perspective. 

Investors are currently very interested in these matters, as are governments and companies. The ESG drive that we are finally seeing also from the financial world could represent the turning point for an issue that we can no longer afford to ignore. (There is no planet B).