40% of companies discussed diversity on earnings calls, up from 4% in prior quarter, new data shows

Corporate America is turning a critical eye toward its diversity, equality and inclusion policies in the wake of the coronavirus pandemic and the civil unrest that’s swept the nation, new data from RBC shows.

The firm found that 40% of S&P 500 companies discussed diversity, equality and inclusion policies during second quarter earnings calls, up from 4% in the first quarter, and 6% during the same quarter a year ago.

“Most of the comments have been made during prepared remarks, with companies highlighting their heightened, longer-term focus on diversity & inclusion and its importance to their corporate strategies,” RBC analysts led by Sara Mahaffy wrote in a note to clients Thursday. The firm found that comments came primarily from companies in the staples, discretionary, financials, communication services and utilities sectors.

But many are quick to note that it’s one thing for companies to speak in vague, over-arching terms about their commitment to equality in the workforce, while it’s quite another for that commitment to play out on the ground level.

After George Floyd was killed by Minneapolis police officers in May, many companies came out in support of protesters and pledged renewed commitments to fighting systemic racism. According to RBC, 38% of S&P 500 companies have since announced initiatives and action plans. These include internal policies such as hiring and development programs, as well as external efforts including donating to racial justice organizations.

Social values aside, there’s a real financial risk for companies that fail to put their money where their mouth is on this issue. A lack of diversity in background and experience can stifle innovation and promote group think, while companies that don’t prioritize inclusion may struggle to attract and retain top talent and younger workers.

Additionally, ESG investing, or when a company’s environmental, social and governance factors are evaluated alongside traditional financial metrics, continues to attract record levels of capital. During the second quarter global assets under management in ESG-focused funds topped $1 trillion for the first time, according to data from Morningstar. If companies fail to prioritize their employees and social issues, they could see investors shun their stock. This is especially true as millennials become a larger portion of the market. 

According to an Edelman Trust Barometer Special Report from June, which RBC cites, 64% of U.S. respondents said that companies taking steps to ensure that their ranks are reflective of society as a whole was important in earning and maintaining consumer trust. Additionally, 63% of the 2,000 respondents said that brands that issue statements in support of racial equality must also install concrete policies to “avoid being seen … as exploitative or as opportunists.”

Far from impacting returns, ESG funds outperformed the broader market amid the Covid-19 rout, and data from Refinitv shows that companies that rate highly in ESG workforce scores have outperformed those with lower scores every year since 2014.

It’s traditionally been nearly impossible to track progress at S&P 500 companies because they are not required to disclose statistics on the composition of their workforce. Reviewing company-specific ESG reports, RBC said that currently about one fifth of corporations release statistics around representation on a race and ethnicity basis.

But with investors increasingly pushing for transparency, the firm noted a trend of more companies publicly disclosing “quantitative targets on their own workforce representation with timeline commitments.”

RBC’s data is through August seventh, when roughly 90% of S&P 500 companies had reported quarterly results.

– CNBC’s Michael Bloom contributed reporting. 

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