Evaluating Links Between DEI and Investment Returns

Diversity, equity, and inclusion as an investment style stems from broader evolution in the environmental, social, and governance (ESG) space. As such, DEI as a foundation for securities selection is a fresh concept and one that merits further examination.

Diversity, equity and inclusion as an investment construct is getting more attention. That’s prompting questions from asset allocators and retail investors regarding the veracity of DEI investing. The Calvert US Large-Cap Diversity, Equity and Inclusion Index ETF (CDEI) is an example of an exchange traded fund that can demystify DEI for a broad investor audience.

CDEI debuted in January, so it’s fair to consider this a new ETF. In this case, age could belie pertinence. as this strategy is on the radar of many high-ranking executives. Yet data indicates that momentum could use a boost.

A 2023 survey of US CEOs by Deloitte found that DEI remains a top priority for most CEOs, but that the momentum behind DEI efforts has slowed significantly since 2020,” noted the Society for Diversity.

Does DEI Boost Investor Returns?

CDEI isn’t old in ETF terms. But it could become an avenue of discovery for investors. This is particularly true for those wondering if there are links between DEI investing and improved investor outcomes.

Data suggests publicly traded companies emphasizing diversity, equity and inclusion principles outperform competitors that are not making similar strides.

“A 2020 study by McKinsey & Company found that companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above their respective national industry median,” added the Society for Diversity. “The study also found that companies in the top quartile for gender diversity are 21% more likely to have financial returns above their respective national industry medians.”

However, to date, researchers haven’t been able to establish causal links between corporate-level DEI commitments and equity price performance. Still, there are other positive DEI-related factors prospective CDEI investors should not ignore.

“Companies committed to DEI are more likely to attract and retain top talent, create a more inclusive workplace, and build stronger relationships with customers and stakeholders,” concluded the Society for Diversity.

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