Do diverse and inclusive workplaces benefit investors? An Empirical Analysis on Europe and the United States

TL;DR

This paper investigates whether incorporating diversity and inclusion criteria into investment portfolios benefits investors, finding that responsible, diverse, and inclusive companies may actually yield lower returns in the US and Europe.

Contribution

It provides the first empirical analysis of the impact of D&I scores on investment returns in European and US markets.

Findings

Investors may experience lower returns when investing in diverse and inclusive companies.

D&I scores are associated with reduced financial performance in the studied markets.

The study challenges the assumption that diversity and inclusion always benefit investors.

Abstract

As the COVID-19 pandemic restrictions slow down, employees start to return to their offices. Hence, the discussions on optimal workplaces and issues of diversity and inclusion have peaked. Previous research has shown that employees and companies benefit from positive workplace changes. This research questions whether allowing for diversity and inclusion criteria in portfolio construction is beneficial to investors. By considering the new Diversity & Inclusion (D&I) score by Refinitiv, I find evidence that investors might suffer lower returns and pay for investing in responsible (i.e., more diverse and inclusive) employers in both the US and European market.