How to Index Gender Diversity

And who are "gender leaders" in Asian stock markets?

Dan Lefkovitz 08.03.2022
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It will be years before we can fully assess the damage that the Covid-19 pandemic has inflicted to the cause of gender equality. What’s clear now, is that women have fared poorly over the past two years. From exposure to the virus as frontline workers to rising domestic violence to shouldering the family care burden, women have been disproportionately affected across the globe.

The pandemic-driven economic downturn of early 2020 was labelled a “shecession” because of how it impacted industries like hospitality, tourism, and retail, in which women are overrepresented. According to the U.N. the number female employment declined by 54 million in 2020 and 45 million women are estimated to have left the global labour market altogether. In tracking progress toward its gender-related Sustainable Development Goals, the U.N. has warned of four lost decades. Morningstar research shows that in the corporate sphere, the gender pay gap has widened.

No wonder then that for some investors, gender diversity has become a more urgent consideration. This is partly a matter of social justice. But there are also financial factors at play. Research from McKinseyCredit Suisse, and others have linked gender diversity to better corporate results. “Cognitive diversity” can improve decision making, and since women often exceed men in educational attainment, gender diversity widens the talent pool.

Morningstar Gender Diversity indexes emphasize companies across the globe committed to equal opportunity and access. The indexes incorporate 19 gender-related criteria while reflecting the broad equity market. Index analysis suggests that gender-lens investing can be about both values and value.


Indexing Gender Diversity

Lack of transparency constitutes a formidable obstacle to corporate-level gender research. According to Equileap, a specialist researcher, just 15% of companies globally publish information on the gender pay gap, the persistent and pernicious differential between female and male salaries. Company-level disclosure informs Equileap’s Gender Equality scoring—the basis for Morningstar Gender Diversity indexes. Equileap scores roughly 4,000 companies within developed markets in Asia, Europe, and North America.

Gender research must go beyond numbers. While it's important to count how many women are represented at various levels of a company's labour force, policies, such as parental leave, are also critical to an inclusive workplace. Equileap assesses companies on 19 criteria across four broad categories:

  1. Gender Balance in Leadership and Workforce
  2. Equal Compensation and Work-Life Balance
  3. Policies Promoting Gender Equality
  4. Commitment, Transparency, and Accountability

It’s also critical to examine actual behavior. So Equileap evalutes a company's legal record when it comes to gender discrimination and sexual harassment.

The Morningstar Gender Diversity Indexes are derived from their equivalent large- and mid-cap equity benchmarks. They hold most of the same stocks as their parent indexes but tilt constituent weight so that better-scoring companies are overrepresented relative to their market capitalization, while poor scorers receive below-market weight. Companies involved in gender-related legal proceedings are excluded.


Asian Gender Leaders

What are some Asian companies that score well for gender diversity and receive above-market weight in Morningstar Gender Diversity indexes? Standouts span geography and sector:   

  • Hang Seng Bank (00011), Hong Kong-based, scores well for female representation across all levels of its workforce—the general employee base, management, executives, and the board of directors. It also offers parental leave and flexible work options, which promote gender diversity.
  • NTT Data (9613) of Japan scores decently on representation, especially across its workforce at large. The IT service provider’s policies promote equality within its business and its supply chain. It offers parental leave and flexible work.  
  • City Developments (C09) of Singapore scores well for female representation within its executive and management ranks. The property business has strong policies to promote employee development and combat abuse. It offers parental leave and flexible work and scores well for promoting diversity within its supply chain.
  • CLP Holdings (00002) of Hong Kong stands out for its anti-abuse policies and its efforts in the areas of career development, employee training, and equal opportunity. The utility receives partial credit for gender diversity within its workforce and for its parental leave and work flexibility policies.


Mitigating Risk

What can we learn by analyzing Morningstar Gender Diversity indexes’ composition and behavior as of the first quarter of 2022? From a sector perspective, the indexes tend to devote above-market weight to:  

  • Utilities
  • Consumer Defensives
  • Energy

Meanwhile, the indexes tend to devote below market weight to:

  • Technology
  • Basic Materials
  • Industrials

According to Equileap, utilities tend to score well for gender diversity at the board level, for training and career development, and inclusive recruitment. Meanwhile, the technology sector struggles with female representation and has a history of sexual harassment.


Regionally, the indexes are tightly constrained in their deviation from market weight. But most of Equileap’s top scoring markets are European, including France, Spain, Sweden, and the UK. Australia is also a leader, in large part due to strong gender equality legislation, though the state does not mandate paid parental leave.

The US, Hong Kong, and Japan are the lowest scoring markets. In the U.S., just 5% of companies report on their gender pay gap. In Hong Kong it’s just 4% and in Japan 2%. Hong Kong does score well for gender balance in its workforce, with roughly 40% female representation. Gender diversity within Japanese companies is the lowest of the developed markets studied by Equileap.

What about returns? The Morningstar Gender Diversity indexes do not have a long history. Their returns thus far look similar to the market, which is by design. Inevitably, the indexes will slightly outperform the market in some conditions and lag in others.

Interestingly, the gender diversity indexes have been less volatile than their broad equity market equivalents so far. During down markets, they have generally lost less. This stems from their preference for companies with economic moats, or sustainable competitive advantages, and businesses with strong financial health characteristics, as indicated by the Morningstar Risk Model. These attributes tend to be more stable than relative returns over time. So, these results are encouraging.

Gender diversity, like many of the criteria falling into the environmental, social, and governance investing framework, goes beyond making the world a better place. Companies that create inclusive cultures are tapping into the labour force’s full talent pool while benefitting from cognitive diversity. They are not only advancing the cause of human rights but could also be maximizing shareholder value.


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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
City Developments Ltd5.64 SGD0.00
CLP Holdings Ltd62.95 HKD-2.63Rating
Hang Seng Bank Ltd108.30 HKD-1.90Rating
NTT Data Corp2,358.00 JPY0.08

About Author

Dan Lefkovitz  Dan Lefkovitz is Strategist, Indexes Product Management. 

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