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September 29, 2021

Does an Ethnically Diverse Board Mean Better Stock Performance?

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September 29, 2021

Does an Ethnically Diverse Board Mean Better Stock Performance?


Calvert

Does an Ethnically Diverse Board Mean Better Stock Performance?

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September 29, 2021

 
 

Calvert has tested the relationship between the ethnic diversity of corporate boards and equity performance using data from 2012-2020. In this article, we share our findings with practical applications for investors:

  1. On average, large-cap Australian, Canadian, British and American corporate boards have become more ethnically diverse, with American boards the standouts.
  2. We found a significant relationship between the degree of corporate board ethnic diversity relative to country demographics and monthly equity performance.*
  3. Our research suggests that using ethnic diversity factors can improve U.S. large-cap equity stock selection. There may be additional benefit in tilting toward more ethnically diverse companies across all four developed markets
  4. We believe “ethnic fractionalization,” which measures the likelihood that two randomly chosen people have different ethnicities, is more nuanced than a binary metric, such as “White versus non-White.”
 
 

* Past performance is no guarantee of future results.

 
 
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As a leader in ESG investing for more than 40 years, Calvert is uniquely qualified to evaluate the complex range of risks and opportunities for the companies we invest in.
 
 
 
jade.huang
Director of Applied Responsible Investment Solutions
Calvert Research and Management
 
 
 
 

RISK CONSIDERATIONS
Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline and that the value of portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in any strategy. ESG strategies that incorporate impact investing and/or environmental, social and governance (ESG) factors could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. As a result, there is no assurance ESG strategies could result in more favorable investment performance. In general, equity securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed countries. Fixed income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. Longer-term securities may be more sensitive to interest rate changes. Real estate investments, including real estate investment trusts, are subject to risks similar to those associated with the direct ownership of real estate. Alternative investments are speculative, involve a high degree of risk, are highly illiquid, typically have higher fees than other investments, and may engage in the use of leverage, short sales, and derivatives, which may increase the risk of investment loss. These investments are designed for investors who understand and are willing to accept these risks. Performance may be volatile, and an investor could lose all or a substantial portion of its investment.

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There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market.

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