2021 ESG Annual Report


Background: Our team has built positions in leading retail companies that we believe are poised to benefit from investments in omnichannel capabilities. Given the human capital intensity of retail, we believe retailers that foster supportive and inclusive work environments are more likely to deliver financial outperformance. Following the U.S. anti-racism protests in 2020, many companies publicly pledged to increase their commitment to diversity and inclusion. Additionally, the ongoing pandemic fueled labor shortages that created headwinds for organizations reliant on customer-facing roles. In this environment, our team engaged with the senior management of five retail holdings to examine their commitment to equity, inclusion and diversity (EID). Scope and Process: To facilitate comparison across companies, we developed a series of questions around EID practices, disclosures and goals material to financial performance and to developing a more equitable society. Through our analysts’ longstanding relationships, we arranged meetings with management to pose the questions and gauge the responses. Overall, we found that the companies were keenly interested in moving forward in these areas, although some were at a more advanced stage than others. Among the leaders, one large retailer has long championed diversity, and we believe that its EID efforts have enhanced its business. Specifically, a diverse workforce has helped it drive creativity, for example leading it to introduce cosmetics and food offerings catering to a wider array of ethnic and racial groups, and building broader and deeper connections with customers. Based on our use of proprietary web traffic data, we were able to confirm that this EID-enabled “creativity engine” was helping to attract more consumer interest than for a key competitor. Another company explained that it is working to introduce progress on diversity goals into executive compensation formulas—a key step forward which we believe demonstrates its importance and establishes accountability. In contrast, some mall-based retailers had given EID topics limited attention, and were unable to provide meaningful data on their practices. They generally acknowledged that more work needs to be done, particularly as it relates to narrowing diversity gaps between stores and headquarters—hence our ongoing support for their investment in “upskilling” and other efforts to drive career mobility. Outcome and Outlook: Our team was pleased that these companies were focusing on EID while acknowledging potential areas of improvement. In our view, a business’s talent often drives success, making staff well-being a key priority, particularly in employee-intensive sectors like retail. Although much has been accomplished over the past couple of years to combat pay, gender and racial inequality, we have found that few companies have incorporated EID metrics into management compensation, something we advocated for in our engagement campaign. Adding a “social” component to management’s incentives is essential to drive change and should rank with more traditional financial metrics in assessing company performance. Importantly, we understand that companies may be at different stages of their EID journey. Thus, we can serve as a resource for those who are just getting started, as well as offer perspective to those who are more advanced and may wish to fine-tune their efforts. The Workforce Diversity Imperative

ISSUE Equity, Inclusion and Diversity


STRATEGY Global Equities Data Science Integrated (GEDI)


JOHN SAN MARCO Senior Research Analyst

FLEURA SHIYANOVA Research Associate Global Equity Research


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