The Diversity Premium: More Women, Higher Returns.

“The higher the female representation across the companies we cover, the better share price returns we have observed since 2010,” said Eugène Klerk, Credit Suisse’s head of global ESG research.

Andrew Harrer/Bloomberg

Andrew Harrer/Bloomberg

Large institutional investors are actively pushing for gender diversity on both the boards and in the senior management ranks of the companies in which they invest and their efforts are paying off in performance, according to Credit Suisse’s 2021 “Gender 3000” report.

The study, which includes a gender-diversity-centered analysis of over 3,000 listed companies, documents a strong correlation between gender diverse leadership at companies and high share price returns, among other financial measures.

Companies with women strongly represented in senior management and on the board may yield a “diversity premium,” the report said. A diversity premium is the correlation between a more gender-diverse leadership and higher returns on capital, higher margins, and lower volatility through the market cycle. It also gets reflected in diverse companies’ valuations and share price performance.

According to the report, companies with above-average percentages of women in management and board positions (over 20 percent and 25 percent, respectively) show higher share price returns than companies with less gender-diverse leadership.

For example, the stock of companies with more than 20 percent women in management returned an annualized 9.7 percent between 2010 and 2021 year-to-date. The stock of companies with less than 15 percent women in leadership returned an annualized 7.5 percent during the same period. That’s a gap of more than 2 percentage points.

The data on women in leadership also shows an impact on margins. “Comparing the average margin since 2010 for companies with over a 20 percent diversity threshold with those below 15 percent reveals a premium of 1.6 percentage points. If we lower the threshold to less than 10 percent, the gap is wider still,” according to Credit Suisse.

“The story is quite straightforward: the higher the female representation across the companies we cover the better share price returns we have observed since 2010,” said Eugène Klerk, Credit Suisse’s head of global ESG research, speaking at a conference on Tuesday. “So very clearly suggesting that there is a correlation between the degree of female representation and share price returns.”

Credit Suisse also found continued improvement in gender diversity both in boardrooms and in C-suites.

For instance, in 2021, female representation in corporate boardrooms reached 24 percent, an 8.9 percentage point increase from 2015 numbers. In C-suites, female representation has increased from 17.6 percent in 2019 to 19.9 percent in 2021.

On a regional level, North America and Europe tout the highest percentages of female representation on corporate boards and inside C-suites, a trend researchers attribute to an increased focus on environmental, social, and corporate governance strategies among investors in North America and greater regulatory and shareholder pressure in Europe. In Europe, some diversity-related quotas and targets for boardrooms date back to 2004, the report said.

“We see continued improvement across the board,” Klerk said.

For asset managers and institutional investors, a lack of diversity in a company is considered a risk. “We believe there are risks for boards that lag regulatory and market expectations related to diversity, or fail to reflect the diversity of the pools of director talent they should be drawing from, or do not mirror the diversity of the workforces and consumer bases they serve,” said Alyssa Thornton, a spokesperson for Vanguard.

From a proxy-voting perspective, Thornton said the asset manager’s stewardship team has held more than 280 “engagements” on board and workforce diversity issues since the end of July, initiatives that led to Vanguard’s funds supporting 57 percent of board diversity-related shareholder proposals and voting against 173 director nominees whose “board diversity fell behind market norms and expectations,” Thornton said.

But gender diversity is still not where it needs to be. Of all C-suite positions, which included chief executive officers, chief financial officers, and business managers, only 5.5 percent of CEOs were women.

“There’s good news and bad news,” Klerk said. “The good news is if you look at CEOs and CFOs, there is a general uptick in the share of women. However, it is fair to say that if you look at the magnitude of the percentages, then they still are obviously far too low.”