markets & economy  |  may 20, 2021

Diversity, Equity, and Inclusion in the Spotlight

From tragedy comes unity and a commitment to improve.


Key Insights

  • The wave of global protests against racial injustice and social inequality in 2020 has compelled companies to examine their links to systemic racism.

  • In our many years of ESG engagement, we have never seen companies exhibit the kind of unity and commitment as they have on diversity, equity, and inclusion (DEI).

  • After speaking with hundreds of companies in 2020, it is clear that those that do not regard DEI as a core value will likely struggle to compete for talent and see their market share eroded.

Donna Anderson

Head of Corporate Governance

Maria Elena Drew

Director of Research, Responsible Investing

Amid the tumultuous market environment of 2020, as virtually every country grappled with the unprecedented coronavirus pandemic, another important investment movement was emerging from a tragedy of a different kind.

The interest of investors and other stakeholders in diversity, equity, and inclusion (DEI) exploded following the tragic death of George Floyd at the hands of Minneapolis police in May 2020. An extended period of protests against racial injustice followed, both across the U.S. and in cities around the world. These incidents prompted many of us as individuals to examine how we could promote positive change in our own lives, but they also caused corporations to examine their links to systemic racism and explore ways to change these persistent, destructive patterns. Corporations were responding to a variety of stakeholders as they undertook this analysis: their employees, investors, communities, potential future employees, and boards of directors. Often, corporate leaders felt it was an important moment to speak out.

In this paper, we describe the ways that DEI intersects with investment decision-making at T. Rowe Price. We also share what we learned in 2020 after speaking with hundreds of companies about their perspectives and actions to create truly inclusive and representative workplaces.

Generating Insights on DEI and Corporate Culture

(Fig. 1) A lack of comprehensive and comparable data is an ongoing challenge

Generating Insights on DEI and Corporate Culture Graphic

Source: T. Rowe Price.

The Task of Collecting Data on DEI

T. Rowe Price generates insights about DEI and corporate culture in four principal ways, but the lack of comprehensive and comparable data in this area remains a serious challenge.

1. Primary Research

The first way we collect information about corporate culture, including DEI, is through our investment analysts’ primary research of the companies they follow. Assessing corporate culture is difficult for any outsider to gauge, but after many years of following a company and its peers, our analysts have developed a deep understanding of the businesses, with the necessary knowledge and resources to make these assessments. Insights into culture are frequently included in our proprietary internal research, which is shared across our Equity, Fixed Income, Quantitative, Responsible Investment, and Governance teams.

2. Proxy Voting Guidelines

Another principal way of obtaining information about diversity is through our Proxy Voting Guidelines, which specifically address board diversity. Since 2018, our voting policies have reflected our investment view that boards lacking in diversity represent a suboptimal composition and a potential risk to the company’s competitiveness over time. We recognize that diversity can be defined across a number of dimensions. However, in our view, if a board is to be considered meaningfully diverse, some representation across gender, racial, ethnic, or nationality lines must be present.

In key developed markets, our policy is that a lack of board diversity represents a failure on the part of its nominating and/or governance committee. Accordingly, we generally vote against the reelection of these directors. Each year, we have increased the number of global markets where this policy is applied.  

3. Corporate Engagement

The third way we generate insights about companies’ approach to DEI is through our environmental, social, and governance (ESG) engagement program. Each year, members of T. Rowe Price’s investment division host thousands of one-on-one meetings with senior management teams of the companies our clients are invested in.

In 2020, about 1,002 of these meetings were characterized as ESG engagements because of their intentional and specific focus on issues in the ESG realm. DEI has always been a frequent topic of discussion in these meetings, but in 2020, it rose to become one of our top engagement priorities. These ESG engagement notes are published on our internal research platform, alongside other fundamental company research. In this way, these discussions contribute to our firm’s collective knowledge of the corporate cultures generally—and DEI practices specifically—of our portfolio companies. Later in this report, we discuss some of the key insights drawn from the hundreds of DEI discussions we held with companies in 2020.

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of May 2021 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. There is no assurance that any investment objective will be achieved. All charts and tables are shown for illustrative purposes only.



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