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ESG: Investors are voting for diversity in board elections

Investors are voting against the election of male directors in companies that lag on gender diversity, according to new research from Regnan. ALISON GEORGE explains what it means for investors

  • Reduced support for male directors in low-diversity companies
  • Diverse boards benefit from broader skills sets
  • Find out more about responsible investing leader Regnan [regnan.com]

INVESTORS are voting against the election of men to boards that lag gender diversity targets, according to new research from responsible investment pioneer Regnan.

It’s another indication Australians are placing more importance on Environmental, Social and Governance factors when making investment decisions.

Regnan’s findings reflect a toughening of gender diversity recommendations from proxy advice firms. That’s come in response to escalating concern among institutional investors that some ASX-listed companies are dragging their feet on finding female directors.

Regnan’s head of research, Alison George, says a study of voting patterns at annual meetings in the second half of 2021 shows a decline in support for male directors on low-diversity boards.

“Investors are showing they are willing to take a stronger line with companies that are yet to achieve gender diversity at board level ,” says George.

Less support for male-dominated boards

Regnan examined two groups of companies in the ASX 300 — those with low gender diversity at board level and a smaller group with no female directors at all.

For the low-diversity boards, male directors were supported by 93% of votes on average compared to 98.8% for women.

“Support for re-election of directors in Australian companies is typically very high — a vote that dips below 95 per cent stands out,” says George.

“While this is a small sample set it’s quite a strong difference. Gender diversity concerns are driving the outcome.”

Held to account

Investors were using their votes to hold those responsible for slow progress to account, said George.

Male directors seeking election for the first time faired far better (at 96.2 per cent support) than those seeking re-election (92.2 per cent across all low-diversity boards).

In companies with no female directors at all, support for re-election of male directors fell to 86.3%.

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Signs of improvement

The companies are getting better at finding new female directors, says George.

There has been concern in recent years that a small pool of women were being appointed to an excessive number of boards.

“It’s clear that the pool of talent being accessed is growing. We are starting to see some interesting candidates who have come from non-typical backgrounds.”

Australia has seen success in recent years lifting the number of female directors, partly through the activities of the 30% Club which advocates for 30 per cent female representation on boards.

“There is good evidence that this 30 per cent target matters,” says George.

“Once you have 30 per cent, the dynamics of the boardroom change to be more inclusive of diverse views, which is when we really start to see the positive impact of new ideas and perspective on business value.”

In 2020 super fund HESTA launched its 40:40 Vision project which targets 40 per cent women in ASX200 board and executive roles by 2030. (Regnan’s parent company Pendal Group is a founding partner of the campaign.)

Find out about

Regnan Global Equity Impact Solutions Fund

Diversity means better boards

“The skills needed on boards has been an area of focus for corporate governance in recent years,” says George.

“There’s been a rethinking of how many lawyers, bankers and accountants we actually need on boards, versus skill sets in technology, marketing and customer experience for example.”

One way to improve board-level skill sets is through greater diversity.

“Companies that think harder about the types of skills and background required will find they gravitate naturally to improved director diversity.

“A company board should reflect the strategy of the business and the challenges in the operating environment, as well as seeking balance and breadth of skill sets and experience.”

About Alison George

Alison George is Regnan’s head of research. She has deep experience in ESG, responsible investment and active ownership. Alison oversees Regnan’s research frameworks, processes and outputs, ensuring it remains at the forefront of industry practice and meets evolving clients needs.

About Regnan

Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.

Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.

The Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.

The Regnan Credit Impact Trust (available in Australia only) invests in cash, fixed and floating rate securities where the proceeds create positive environmental and social change. Both funds are distributed by Pendal in Australia.

Visit Regnan.com

Find out about Regnan Global Equity Impact Solutions Fund

Find out about Regnan Credit Impact Trust

For more information on these and other responsible investing strategies, contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at jeremy.dean@regnan.com.

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at February 23, 2022

PFSL is the responsible entity and issuer of units in the Regnan Global Equity Impact Solutions Fund (Fund) ARSN: 645 981 853. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund.

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