Thomson Reuters Diversity & Inclusion (D&I) Index and ratings, powered by Thomson Reuters Environmental, Social and Governance (ESG) data, are designed to transparently and objectively measure the relative performance of companies against factors that define diverse and inclusive workplaces.
The D&I Index is powered by 24 ESG measures that define diverse and inclusive workplaces which are calculated once a quarter in sync with the index rebalances. Only the 100 highest ranked companies are included in the index. For further details about how the scores are calculated, we have provided a detailed methodology paper available on our website.
The D&I Index is currently made up of mostly “blue chip” companies which are by their nature large cap in size with some mega caps. One of the reasons for this is due to the ESG database covering mainly the world’s largest 5,000 companies; by default the starting universe is already quite heavily skewed towards mid- and large-cap-sized firms. We acknowledge that these are also companies that are most likely to report against ESG information, although the latest reporting trends show this is changing.
Because the index uses free-float market cap weightings, there are also skews in terms of some sectors having a greater weight on the overall performance of the index, e.g., Healthcare, Technology and Consumer Non-Cyclicals, and some companies due to their size will have an overweight effect on the index. The index also has a bias towards developed market companies.
We analyzed from 7/31/2011 to 7/31/2016 the performance characteristics of the D&I Index companies using yearly rebalances prior to 2016 and quarterly rebalances for 2016 until present.
We can see some patterns emerge when benchmarked against the Thomson Reuters Global Developed Index, made up of 7,549 stocks as of 7/31/2016. This benchmark was chosen because it is also global and made up of developed companies including large caps with a broad universe of stocks for comparison.
Top 100 D&I companies have had better Return on Equity (ROE) over the duration than the benchmark, stronger operating profit margins and better dividend yields, as well as lower beta than the benchmark.
Details concerning the characteristics of the D&I Index versus the Thomson Reuters Global Developed Index from 7/31/2011 to 7/31/2016 can be found below:
D&I Index summary
Cumulative Returns from 7/31/2011 to 7/31/2016
Risk/ Risk adjusted Returns from 7/31/2011 to 7/31/2016
Top Performers from 7/31/2011 to 7/31/2016
Bottom Performers from 7/31/2011 to 7/31/2016
We also have compared the performance of the D&I Index versus FTSE4GOOD 100 Global Index and MSCI World since July 31, 2011, with the D&I Index demonstrating better returns against all of these until July 31, 2016.
Based on the current D&I scoring methodology, the 100 highest ranked D&I companies have over time outperformed the Thomson Reuters Global Developed Index benchmark since 2011. Characteristics shown by the top 100 companies include but are not limited to: better return on equity, better profit margins, higher dividend yields and lower beta.
The D&I Index is first-of-a-kind, based on a broad set of D&I relevant measures, some of which we have explored in some detail in this report. The theory that leading diversity and inclusion companies with the help of the D&I scores can outperform other global developed stocks has shown promising performance characteristics so far.
The scores that are derived from this underlying data are also a new signal that investors and market practitioners will soon get to evaluate. Based on our research so far, we think that the D&I scores are proving to be a promising indicator that will increase in importance over time for investors looking to diversify their ESG investment strategies.
The D&I Index and ratings are powered by Thomson Reuters ESG data, designed to transparently and objectively measure the relative performance of companies against factors that define diverse and inclusive workplaces.
Designed on the hypothesis that companies tracking, reporting and achieving on measures of diversity, inclusion and people development will offer better performance over time than those achieving lower scores, or not tracking these measures, Thomson Reuters D&I Index contains the information to help you identify long-term opportunities and risks in your investments.
Available through Thomson Reuters Eikon®, the D&I Index ranks over 5,000 publicly listed companies with ESG data based on a composite of metrics. The top 100 ranked companies with the best overall score are selected for the index.
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