15 Stocks to Invest in Change

These companies achieve high Minority Empowerment Scores because they demonstrate a strong commitment to diversity and inclusion

Karen Wallace 30 June, 2020 | 1:28AM
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15 stocks

When corporate executives say they value diversity, do they mean it? Can they point to significant actions they are taking to improve representation within their workforce? Are their efforts having measurable success?

And what happens then? Even if a company has progressive recruiting practices, do people of colour stand the same chance of being promoted to management ranks as white employees? How about at executive levels? And is there a diverse board of directors to push the company toward greater equality? Moreover, have company leaders taken steps to make their workplace more inclusive? Does the corporate culture condemn discrimination and celebrate difference? Is the company mindful of its social impact?

These questions demand answers, especially now. The coronavirus pandemic has disproportionately affected African Americans. The killing of George Floyd by Minneapolis police has shone a harsh light on deeply entrenched practices and inequities that continue to marginalise and oppress people of color. Consider that the median net worth of a white household in the US is 10 times greater than that of a black household, a disparity that has grown over the past half-century. 

To this end, companies must be held accountable. Corporations have a critical role to play in changing society for the better. And not only is diversity and inclusion the right thing to do from a social perspective, it also leads to better business outcomes. Research from McKinsey, Credit Suisse, and others have shown that more diverse companies achieve superior financial results. The reason is pretty unequivocal: different perspectives foster innovation and improve decision-making.

How to Measure Change

In 2018, Morningstar launched a Minority Empowerment Index to highlight companies that stand out for their commitment to diversity and inclusion. The index’s selection criteria incorporates factors used by the NAACP to measure corporations’ commitment to equality in areas like board diversity, discrimination policies, and community development programs. It relies upon the company-level analysis of Sustainalytics, which specialises in environmental, social, and governance research. (Sustainalytics has agreed to be acquired by Morningstar).

Companies are assigned a Minority Empowerment Score based on their commitment to racial and ethnic diversity within their workforce, boards, supply chains, and society at large. Policies and programs are considered but, importantly, emphasis is also placed on measurable behaviour. Therefore, a company isn’t eligible for the index if Sustainalytics judges it to have a poor track record on matters related to diversity and inclusion; this is determined based on a careful examination of incidents and controversies.

Here are a few of the main components of the Minority Empowerment Score:

Board diversity: assesses the level of gender and/or national diversity on the board. Sustainalytics looks at the proportion of women on the board and the quality of the board’s diversity policy (for example, does the company include targets and commitments to increase board diversity?)

Discrimination policy: assesses the quality of a company’s policies to eliminate discrimination and ensure equal opportunity.

Diversity programs: assesses the strength of a company’s initiatives to increase the diversity of its workforce. Corporate culture is examined, paying specific attention to:

  • Employee affinity groups, diversity councils, or networking groups
  • Mentorship programs
  • Initiatives supporting a diverse workforce
  • Diversity monitoring or audits
  • Managerial or board-level responsibility for diversity initiatives
  • Targeted recruitment
  • Training and guidance regarding diversity
  • Diversity initiatives that go beyond legal compliance

Scope of social supplier standards: This indicator provides a general assessment of whether a company has supply chain/contractor policies regarding items such as nondiscrimination.

15 Companies Committed to Change

The below companies achieve high Minority Empowerment Scores because they have demonstrated a strong commitment to diversity and inclusion across several indicators. Those marked with an “X” are areas where the company has demonstrated particular strength.

Morningstar assigns Economic Moat Ratings of “wide,” “narrow,” or “none” as a way to evaluate the size and strength of a company’s competitive advantage. Wide- or narrow-moat companies have sustainable advantages that should allow them to fend off their competitors and generate positive economic profits. The Morningstar Minority Empowerment Index currently has more exposure to wide-moat companies and less exposure to no-moat companies than the broad market.

SRI companines

This article originally appeared on Morningstar.com.


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About Author

Karen Wallace

Karen Wallace  Karen Wallace, CFP® is Morningstar’s director of investor education.

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