Race & Ethnicity Disclosure: US Companies’ Rocky Start

• One-fourth of MSCI USA IMI constituents have disclosed employee breakdowns by race or ethnicity. Of these, there were at least 70 variations of workforce demographic categories.
• The lack of standardization in reported data — based on age, gender, race, ethnicity, disability and sexual orientation or gender identity, or some combination thereof — has greatly hindered comparability.
• The utilities sector had the highest percentage of companies reporting employee breakdowns by race or ethnicity (65.6%), as well as by gender (86.9%). Health care had the lowest for race or ethnicity (14.8%) and gender (68.3%).

Violence against the Black and Asian American communities in the U.S. has put racial injustice in the global spotlight. As a result, companies are facing greater scrutiny in terms of the representation of ethnic and racial minorities in their workforce and leadership; many corporations have pledged to adopt efforts aimed at countering systemic racism.¹

While U.S. companies with more than 100 employees are required to collect and report data on gender and race or ethnicity to the U.S. Equal Employment Opportunity Commission, this information is not always disclosed publicly.² Ahead of the 2021 proxy season, MSCI ESG Research collected diversity data that was voluntarily disclosed by MSCI USA Investable Market Index (IMI) constituents. Of those companies, only 26% have disclosed workforce breakdowns by race or ethnicity, while 76% have divulged data by gender, as of February 2021. Limited transparency could impair investors’ ability to assess companies’ progress in the realm of diversity.

Workforce Breakdowns by Gender and Race or Ethnicity

This chart includes the 2,327 constituents of the MSCI USA IMI as of February 2021. Source: MSCI ESG Research LLC

We collected thousands of diversity data points related to four fiscal years (from 2017 to 2020) under broad thematic categories. Companies have reported on a range of different demographic and workforce groups. Similarly, companies used varying geographies when reporting diversity data.

Unstandardized Reporting Leads to Unstructured, Hard-to-Use Data

While granular information is valuable and can be helpful in certain contexts, including investors’ engagement initiatives, the main problem with such voluntary, unstandardized reporting is that it can result in unstructured data of limited value. Instead of shedding light on broad corporate diversity practices, inconsistently defined data can impair investors’ ability to make comparisons.

For example, many companies have used the categories under the EEO-1 report³ to disclose workforce breakdowns by race or ethnicity, while others combined the categories, creating different demographic groups. Moreover, some companies opted to use broader definitions such as ethnic minorities, People of Color or BIPOC (Black, Indigenous and People of Color). In addition, some companies reported race and ethnicity breakdowns separately from gender breakdowns, whereas others combined these data sets. Among companies that have disclosed diversity data thus far, we have identified at least 70 variations of demographic categories related to the race or ethnicity of their workforces.

Meanwhile, as of February, only 5.9% of MSCI USA IMI constituents reported hiring or workforce diversity targets as a way to implement change. In addition, we found evidence of career development plans targeted at underrepresented groups among only 2.1% of MSCI USA IMI constituents.

Sector-Level Analysis: Highs and Lows

At the sector level, utilities had the highest percentage of companies that reported employee breakdowns by gender (86.9%) and by race or ethnicity (65.6%). It also had the highest percentage of companies that have established employee resource groups (24.6%), adopted hiring or workforce diversity targets (11.5%) and disclosed career development plans targeted at underrepresented groups (4.9%).

In contrast, the health care sector had the lowest percentage of companies that have disclosed employee breakdowns by gender (68.3%) and by race or ethnicity (14.8%), the energy sector had the lowest percentage of companies that have disclosed career development plans targeted at underrepresented groups (0%) and the real estate sector had the lowest percentage of companies that have adopted hiring or workforce diversity targets (1.4%) and established employee resource groups (2.1%).

Diversity at Sector Level: Best and Worst

This exhibit is based on 2,327 constituents of the MSCI USA IMI as of February 2021. Source: MSCI ESG Research LLC

While most companies reviewed have disclosed workforce breakdowns by gender, workforce breakdowns by race and ethnicity remained sparse. Of those companies that did disclose racial and ethnic data, many have used a variety of different demographic categories, workforce groups and geographies. Such limited transparency and unstructured data can impair investors’ ability to assess companies’ diversity efforts. However, with racial injustice and systemic discrimination in the global spotlight, pressure for companies to increase transparency and accountability is bound to increase.

¹For example, see: Friedman, G. “Here’s What Companies Are Promising to Do to Fight Racism.” The New York Times, Aug. 23, 2020 Kerber, R,. Coster, H., McLymore, A. “U.S. companies vow to fight racism but face critics on diversity.” Reuters, June 10, 2020 Fitzhugh, E., Julien, J.P., Noel, N., Stewart, S. 2020. “It’s time for a new approach to racial equity.” McKinsey & Co., Dec. 2, 2020

²Lower thresholds apply to federal contractors.

³Companies are required to provide workforce breakdown by gender and by the following categories: (1) Hispanic or Latino; (2) White; (3) Black or African American; (4) Native Hawaiian or Other Pacific Islander; (5) Asian; (6) American Indian or Alaska Native and (7) Two or More Races.

Further Reading

Diversity in Focus

Isn’t It Time Investors Talked More About Diversity? Podcast

Women on Boards: The Hidden Environmental Connection?

Is the US tech sector ignoring minority talent?

MSCI and Social Responsibility

Is the US tech sector ignoring minority talent?