If companies needed another reason to increase diversity on boards, new research from AXA Investment Managers has shown that the level of board diversity is associated with higher returns and can be a predictor of better financial outcomes.
Board diversity, while found to be a driver of higher contemporaneous returns on equity, was also dubbed as the new “profitability moat” in the study for its ability to keep competition at bay.
Of the top 25 per cent of companies (by profitability), the study found that, while the companies faced considerable downward pressure on profits from 2005 to 2017, those with higher diversity fared significantly better.
“Our study shows that board diversity is an important characteristic for investors to consider as it is a key predictive measure of a company’s ability to withstand competitive forces and therefore a ‘must-have’ in the face of intense market competition,” said head of sustainable investing, AXA IM Rosenberg Equities, Kathryn McDonald.
Europe chief investment officer, Gideon Smith, also spoke to alternative data sets and found that, while they could potentially provide valuable insights, there were significant challenges to working successfully with the information.
Smith said there were “inherent challenges” to working with data sets like web content scraping, media sentiment, credit card point-of-sales and search trends.
“The winners in this brave new world of alternative data will be the people who can handle the quantity of information and refine that information in order to extract its value,” he said.