Impact Highlights Report

By Matthew Gatt, CFP®, Lead Advisor
and Kate King, CFP®, Partner and Chief Investment Officer

The Securities and Exchange Commission (SEC) mandates that all publicly traded companies must release disclosures about their organization to the public. The information, which is mostly financial in nature, provides investors with data that informs their investment decisions. Disclosures make available an enormous amount of data, but there is also a good deal of potentially relevant information that is either inconsistently reported or not publicly available. Conceptually, disclosure mandates give equal access to data for all investors. In reality, this data does not always form a complete analysis of a company, often excluding pertinent information about a company’s environmental and social performance.

To build a deeper picture, many investors, including fund managers, are demanding more transparency from companies, expanding the criteria they use to move beyond just analysis of financial returns. Some investors want to craft portfolios that align with certain values. Other investors want a more complete picture of a business’s risk and impact. For both sets of investors, greater access to data allows for better investment decisions, and data flows via disclosure.

Demanding More Environmental, Social, and Governance Data
For many years, investors have pressured companies for more than just financial disclosures, demanding access to social, environmental, and governance (ESG) data that offers a more complete picture of a business’s risk and impact. In the past, these requests have generally been ignored. Companies have been reluctant to share any data that may dissuade potential investors or result in less than favorable headlines. The landscape is shifting slowly toward greater disclosures that address the concerns of impact-oriented investors.

Mutual fund managers that hold large numbers of stock in certain companies play an important role in the drive for more data. Through dialogue and shareholder proposals these managers can persuade companies to release otherwise private data around critical ESG issues. In this report, we focus on the social and governance issues of diversity and pay equity within the workforce and how disclosures promote change within companies.

Letter from the CIO

The annual meeting of shareholders is a hallmark of corporate accountability, and an opportunity for shareholders to be in direct conversation with a company’s leadership on issues of concern. All year long, however, institutional values-oriented investors are working to get access to the data needed to address those issues.

Our world is far from perfect, and engaging in those conversations – with the right data – is the collaboration required for incremental improvement. Finding and implementing solutions becomes possible only when data is shared and varying perspectives on existing policies and structures can be discussed. There is usually a trade off between equity for all stakeholders and profitability for shareholders; finding the right compromise, together, is our definition of progress.

Kate King, CFP®
Chief Investment Officer

The Data is Out There

Much of the data investors want to be disclosed by companies is unevenly available across industries and businesses. Diversity and pay equity data is already out there, it’s just hidden from the public view. Each year, the federally mandated Equal Employment Opportunity Report (EEO-1) requires all private-sector employers with more than 100 employees to submit demographic data. This includes data by race/ethnicity, gender, and job categories. Previously, this information has been locked away, without being released to the public. Proactive mutual fund managers are turning up the pressure on companies to disclose pay equity and diversity information for their workforce and leadership.

Diversity and Pay Data Matter
Why is the disclosure of this information valuable for investors? The EEO-1 data creates a baseline from which investors can evaluate how companies are diversifying their workforce and creating pay parity. Research shows that these factors positively affect companies’ performances, making them more resilient over time. Public disclosure of data also leads to greater corporate accountability, creating a positive social impact.

What the Data Shows Us

Benefits of Workplace Diversity

Diversity in the Workplace Graph

Sources: HBR & McKinsey

The Realities of the Gender Pay Gap

Gender Pay Gap
Diverse workforce

Fund Highlight
Impax Asset Management

Our ESG-focused portfolios include mutual funds that have been pushing companies to disclose EEO-1 data. Below we highlight some examples of how one of the funds, Impax Asset Management, has pushed businesses to think more about these topics.

Pay Equity

Employee pay has traditionally been shrouded in secrecy, allowing pay disparity and gender pay gaps to continue.1 For decades, through a combination of dialogue and shareholder advocacy, Impax Asset Management has pushed for transparency in this arena. The data allows them to account for these factors in their investment decisions, resulting in real change in that process. Here are a few examples of their recent successes and continued work.

PNC Financial
Through dialogue, Impax encouraged PNC to think more about pay equity. This engagement led to the company sharing its steps to address the issue. As a result, PNC disclosed all pay data in 2020 for the first time ever.

Oracle
Impax filed their fourth consecutive pay equity shareholder proposal, which received substantial (46%) support during Oracle’s 2020 shareholder meeting. The tenacity of fund managers to consistently address pay equity builds momentum over time.

HCA Healthcare
Impax filed a shareholder proposal to disclose pay equity. The proposal was withdrawn when HCA Healthcare agreed to disclose all pay data for the first time.

Citizens Financial
Through engagement, Impax asked Citizens Financial to commit to expanding its pay equity reporting. In 2021 they published a gender and racial pay analysis as part of their proxy statement. Citizens also added a racially diverse director in 2021 and included a board matrix of director competencies and demographics.

Diversity

Diversity within the workforce provides access to a greater range of talent, not just the talent that belongs to one worldview. It also provides insight into the needs and motivations of the entire client/customer base. Impax has been working tirelessly to move towards diversity goals for many years. Here are a few of their recent successes:

Tractor Supply Company
Impax filed a shareholder proposal to disclose diversity data within senior management. Tractor Supply Company published diversity and inclusion disclosure and the proposal was withdrawn.

Hubbell, Inc.
As a result of direct dialogue, they appointed two new female independent non-executive directors to the board. The company confirmed that Impax’s engagement was instrumental in driving these changes.

T-Mobile
Following engagement in 2020, where they were encouraged to strengthen their governance policies and enhance the diversity and inclusion disclosure, T-Mobile added another female to their board, bringing the number of women to three. Half the 14-member board are now either women or people of color. Additionally, as part of their 2021 proxy statement, T-Mobile included a comprehensive diversity disclosure. 

Incremental and Important Steps

We recognize these are small steps on the journey towards a more equitable society. At North Berkeley, our goal is to help clients understand the data and considerations relevant to their personalized decision process. For many clients, that includes participating in this arc of change by orienting their portfolios to include both financial and ESG considerations.

Interested in learning how to create impact with your investments?

If you are looking for guidance around socially responsible investing or would like us to review your current portfolio, please reach out to us for a free consultation.

Call (510) 528-5820 or email info@northberkeleywealth.com

This commentary on this website reflects the personal opinions, viewpoints, and analyses of the North Berkeley Wealth Management (“North Berkeley”) employees providing such comments, and should not be regarded as a description of advisory services provided by North Berkeley or performance returns of any North Berkeley client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. North Berkeley manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.