Europe leads the way in gender diversity at board level

There are stark geographical differences when it comes to female board participation in fund's underlying companies, according to research from MSCI for International Investment's sister title Investment Week. 

Figures reveal that while over half of funds focused on Europe have an average female board participation of at least 30%, just 8.5% of funds focused on Asia can claim the same in 2022. 

"On an aggregate basis, developed market funds perform better on portfolio level female board participation versus emerging market peers," explained Rumi Mahmood, senior associate at MSCI.

Board gender parity delayed to 2059 at current pace

Veronique Morel, wealth manager at Raymond James, said the data "rings true". 

"It is more widely acceptable to have females on boards in more developed markets than in emerging markets," she said. 

She noted that while there have been shifts in cultural attitudes, there are some countries that still operate a more patriarchal attitude, such as Japan. 

According to research from BoardEx published in 2021, the highest-ranking Asian country for women's board participation is Malaysia, which sits at an average of 29%, the same as the US. However, after that, the next highest is Singapore and India, both at 17%. 

Malaysia's strong standing is a reflection of regulatory requirements in the nation, which mean companies have to report on diversity statistics and explain low diversity metrics.

Japan meanwhile sits fourth last across all countries ranked with 14%, however the report noted that this was a big move for the country, which has ranked last place since the series began in 2014. 

A metric for fund buyers

Analysing underlying company board diversity can provide fund buyers an additional ESG lens, said Mahmood.

"Board diversity can be indicative of diverse knowledge and viewpoints, a more inclusive company culture, and broader view of risk management," he said. 

Morel agreed that female board participation of underlying companies was a "very strong metric to use as a selection criteria for a fund". 

"Having women on board is essential to the good functioning of a corporate," Morel said. 

Indeed, a study from Bank of America Global Research published in 2021 found that S&P 500 companies that are more diverse and inclusive saw better results and lower risk. Companies with "above-median" gender diversity on boards had a 15% higher return-on-equity. 

Evie Mulberry, managing partner of the Astia fund, which invests in women-led companies, explained that based on her experience and research, "if you do nothing other than include women in your solutions, you achieve two things that really matter." 

The first is a higher return. "From an economic perspective, it is estimated that if women have the same access to capital as men in the venture economy, we would have a 6% increase in US GDP. There is no other single factor that could increase growth of our economy in that way,"
she explained.

The second is innovation. "Inclusive teams have a greater ability to innovate and they do out-innovate even top-performing, super-intelligent homogeneous teams," Mulberry said. 

However, Mahmood warned that comparative analysis of performance at a fund level based on board diversity is multifaceted.

"Funds with higher or lower female board participation can exhibit higher or lower performance versus peers," he explained.  "But it is challenging to attribute fund performance to solely the gender composition of boards, in the backdrop of numerous market, industry, and economic factors."

The geographical split between funds based on this metric suggests there are social and demographic factors behind the disparity. 

Senior management gender equality still 30 years away

Mahmood noted there is historically lower education and emancipation of women in developing nations and some have low female labour participation. 

Looking again at Japan, there are efforts by its government and the Tokyo Stock Exchange to increase diversity, but cultural challenges remain. 

Ninety One's Global Environmental Impact Report looked at gender diversity metrics of the companies within the fund. 

In the case of Nippon Ceramic, it noted that women account for 60% of the company's employees, but that percentage falls dramatically at the management and board levels to 11% and 14% respectively. 

"Given Nippon Ceramic is predominantly based in a rural part of Japan (Tottori), it struggles to encourage women to accept management positions," Ninety One managers Deirdre Cooper and Graeme Baker said in the report. 

Asset managers have increasingly taken an interest in female board participation in the nation. 

For instance, Legal and General Investment Management last year "tightened" its policy on diversity for Japan and filed 51 votes against the chairmen or most senior member of the board during the second quarter, up from six the previous year.

It also noted that of the six companies it voted against in 2020, three have now installed a female board member. 

As Morel put it: "I still have hope for Asia".