Morningstar's philosophy is "empowering investor success". It's a mantra to always put power, platform, and resources to work and democratise investing. Fast forward almost 40 years and the mission remains the same.
What has changed, however, is the way in which this is lived out, the lens through which we interpret it, and the metrics we use to measure it. Now more than ever, the focus is shifting towards clear governance around diversity, equity and inclusion (DEI) and how it impacts both company culture and product and service development.
The financial services sector has a role to play in addressing prejudices that have real economic consequences. There is a huge opportunity here: to use our platforms, products, partnerships and global position to advance positive change and help establish new, industry-wide standards around these issues.
The Power of Indexing
One of the ways Morningstar does this is through its impact indices, which measure beneficial social and environmental impact. From the Morningstar UK Gender Diversity index to Morningstar Minority Empowerment, investors can achieve positive outcomes as well as competitive returns.
As a global index provider and a company that champions diversity and inclusion, we want to use our products and research to quantify progress on key DEI issues.
In terms of advancing the cause for gender equality, the corporate sector continues to play a critical role. Societies that tap into the full potential of their populations are more competitive, and the same principles carry over to the business world – research has shown forward-looking diversity policies often go hand-in hand with better long-term performance.
The Morningstar Gender Diversity index family offers exposure to companies exhibiting strong gender diversity policy and practice, and uses the Equileap Gender Equality Scorecard for data and insight into gender equality in the corporate sector. The scorecard is based on 19 criteria, including the gender balance of senior management, the gender pay gap, and policies around parental leave and sexual harassment.
But How do you Foster DEI?
Diversity is the collective mixture of differences and similarities that include values, beliefs, experiences, backgrounds, preferences, and behaviours. Equity considers what disadvantages are inherent to certain groups of people and the systems that create those gaps. Inclusion refers to creating an environment where all individuals are treated fairly.
Combined, these three elements are essential for fostering a successful workplace. It helps create a space that welcomes, celebrates, and empowers all people – one where everyone belongs, and where colleagues feel safe and comfortable to be themselves.
Here are three examples of companies with high gender equality scores that made it into the UK gender diversity index: AstraZeneca (AZN) would stand out, with its parental leave polices of 29 weeks for primary carers and two weeks for the secoNatwesndary carer at full pay in the UK; Diageo (DGE) stands out for offering 26 weeks of paid parental leave to both primary and secondary carers; and, until last year, at least, NatWest (NWG) was the only company in the UK with both a female CEO and CFO.
By putting a consistent methodology and process behind our indices, we are increasing transparency around some of the most critical impact investing themes.
Investment products such as DEI-focused indices even have the ability to effectuate broad-based governance changes within corporate firms, and impact investors’ buy-in in increasing diversity in corporate leaderships.
A paper by the National Bureau of Economic Research (NBER), for instance, highlights that campaigns launched by the "big three" index fund giants BlackRock, Vanguard and State Street Global Advisors could be responsible for up to two thirds of the 50% increase in women on US company boards in recent years.
DEI may start with fostering that diverse, equitable and inclusive company culture, but really, it goes as far as influencing company governance and investor behaviour.
Fabio Peyer is director of indexes marketing Europe at Morningstar. This article was originally published for Governance Week 2023 and has been re-edited and published for readers in 2024
