7 MAR, 2022
By Constanza Ramos
On the 8th of March we celebrate International women's day. Fortunately Diversity, inclusion and gender equality have become more relevant, and the companies are putting more emphasis in reaching gender equality at all levels of management. We see more and more women CEO's, women leading teams, and women heading boards in male dominated industries, such as the Financial sector. International women's day is a day to celebrate women and their essential role in all the aspects of our society.
With these ideas in mind we wanted to have a look at the ETFs which invest in Diversity, and gender equality to understand the real impact of diversity and inclusion in the economic benefits of companies. We have received the insights from BlackRock, Lyxor and UBS pioneers on the the themes of diversity, inclusion and gender equality, to take us through their ETFs and to analyse the economic and social impact of these ETFs.
Sustainability has become one of BlackRock's core standards. Our CEO, Larry Fink, said so in his letter to CEOs two years ago and we continue to say so now. Moreover, the events of the last year and a half have further heightened a trend that has already been forcibly brought to the fore by the pandemic and which has fed into an acceleration in the integration of ESG (environmental, social and governance) solutions.
This growing interest can be seen in the inflows into investment products, which have largely resulted from ESG solutions outperforming their traditional benchmarks, but also from the increased commitment by all the links in the chain to making financial markets work for a better world for all.But this demand has to be matched by a suitable offer that can absorb it, so it is essential that institutions such as BlackRock strengthen our commitment to innovation in order to develop solutions that respond to these demands, the strong development in index creation in recent years, for example.
This commitment has resulted in funds such as the iShares Refinitiv Inclusion and Diversity UCITS ETF, a product developed in conjunction with Refinitiv and focused on companies with the highest diversity standards.The companies included in the index are selected by analysing criteria such as annual reports, websites, public material, reports and press mentions, from among thousands of firms. From these, the top 100 are selected according to diversity, inclusion, personal development and press sentiment criteria.
This ETF aligns very well with our philosophy because it fits perfectly with our commitment to diversity; we strongly believe that companies whose boards have a wide variety of experiences and backgrounds are better positioned to generate value over the long term. Diversity helps enrich decision-making and is considered a standard of quality and efficiency. However, we are also aware that the notion of diversity can vary from market to market, so we rely on analyses that combine global and local perspectives to ensure that the criteria underlying the idea of diversity are addressed as broadly as possible.
Diversity is one of the principles that shape socially responsible investing, which is an investment approach that addresses extra-financial, sustainability issues during the investment process. These considerations allow investors to assess the funds to which they allocate capital in terms of the environmental, social and governance risks and opportunities they face.
Support working women with ELLE, Europe's first ETF in gender equality.
Achieving gender equality is the path to the well-being of families and communities, while strengthening productivity and economic growth. Directing capital towards those companies that achieve an effective balance in gender equality is not only a way to promote equality but also a source of increasing returns on capital over time.
The Lyxor ETF replicates the Solactive Equileap Global Gender Equality index designed by Equileap, a research organization created to accelerate progress toward gender equality in the workplace. Using the Solactive Equileap Global Gender Equality Scorecard, the index selects 150 companies from a global database containing 3700.
The objective is to find the leading company according to the four key criteria listed above.
In addition and to be more specific on how the index is organized, companies are all equally weighted in the portfolio, ensuring that no privilege is granted by size; there is also a limit on the weight of US companies and a 10% limit for other countries; no sector can represent more than 25% of the index composition; size and liquidity filters are also applied with a US$2bn market capitalization and a minimum of US$5m average daily traded volume.
Finally, ethical criteria are applied by excluding companies involved in controversial businesses such as alcohol, gambling, tobacco, weapons, nuclear energy and unconventional fossil fuels, companies that violate international standards such as the UN Principles and OECD guidelines. Companies in gender-related legal proceedings are also excluded.
To begin with, it should be noted that Gender Equality is the fifth of the 17 UN Sustainable Development Goals (SDGs). In addition, Gender Diversity is an investment theme that is also addressed under the umbrella of the environmental, social and governance (or ESG) assessment. Long-term analysis reveals that gender diversity in companies can have positive implications in terms of profitability.
The UBS Global Gender Equality ETF is an innovative solution, which invests in global companies committed to sustainability and gender diversity, and which has been able to raise significant assets since inception, with the fund’s AuM amounting to more than $800mn. This is an important consideration, both financially and symbolically, considering that more than half was raised since the beginning of 2020, just before the impact of COVID.
The 100 companies selected for the index replicated by the UBS ETF, Solactive Equileap Global Gender Equality 100 Leaders, are chosen for their strong track record in gender diversity and sustainability. To select those 100 companies, Equileap's research starts with 3,000 companies listed in 23 different countries. Companies are chosen based on 19 diversity criteria, including equal pay, work-life balance, transparency and accountability, gender equality and sustainability policies. The goal is that such an index should help investors select and invest in companies that are aligned with their values. In turn, this should encourage companies to review and reflect on their diversity policies.
In addition to the above, at UBS AM we maintain a constant dialogue with the companies in which we invest, thanks to our Engagement and Stewardship team, which also includes gender diversity objectives. The idea is to proactively seek to assist these companies in managing and developing their diversity plans, improve their internal diversity policies, listen to what the obstacles and challenges are to move from commitment to implementation, and increase transparency in their day-to-day operations.
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