More female leadership is correlated with stronger profitability. Also, female investors are more likely to care about ESG risks than men.
The original version of this article first appeared in The Business Times.
International Women’s Day (IWD) will be celebrated this week, which gives us an opportunity to re-examine the merits of advocating for greater inclusivity at workplaces – and in particular, gender diversity.
The data suggest that gender diversity is more than a feel-good factor. Capitalism is put to work when companies choose to make inclusivity a priority.
Numerous studies show that more female representation in the leadership ranks is tied to stronger profitability. To add to that, if efforts continue to be made to narrow the pay gap on the gender front, more female investors — who are found to be more likely than men to care about environmental, social, and governance (ESG) risks — can be empowered to vote more decisively against ESG risks with their money.
Given this, an argument can be made that this situation creates a powerful virtuous cycle for businesses to be motivated to value their role as responsible corporate citizens, while better securing the bottom line.
Let’s first review the data on hand. A 2017 McKinsey analysis of 300 companies worldwide showed that companies with the highest percentage of women on their executive committees bring about a 55 per cent premium in operating results.
Another 2016 study of nearly 22,000 global companies, by the Peterson Institute for International Economics and Ernst & Young, showed that several cases were found to have a correlation between the proportion of women in management and company profitability, with its magnitude “not negligible”.
Similarly, data from Credit Suisse’s 2021 report on gender diversity in the corporate sector showed that companies with more women in management positions tend to clock a better economic performance.
In a recent interview with fund manager Mirova, CEO of Michelin Florent Menegaux was asked about how he saw the link between diversity and performance. He points out that when the company evaluated past failures, many of them came down to the inability to foresee risks or to come up with alternative and innovative ideas. These failures, in turn, can be traced back to the excessively uniform viewpoints of project stakeholders, he said.
S&P Global Market Intelligence’s 2019 study not only found that female CEOs led a 20 per cent rise in stock price momentum while female CFOs saw a 6 per cent increase in profitability in the 24 months post-appointment, these results are also determined to be economically and statistically significant.
Critically, the S&P report found that one driver of superior results by females may be that females are held to a higher standard, dispelling the idea that female executives with weaker skills have been installed in order to meet a gender quota.
“The average female executive has characteristics in common with the most successful male executives, suggesting that common attributes drive success among males and females, alike. Overall, the attributes that correlate with success among male executives were found more often in female executives,” the S&P report said.
“This finding refutes the commonly held belief in ‘token’ female executives.”
Gender gap and ESG
It is clear that the current female representation at leadership ranks and on boards globally is not ideal. One silver lining though is that women are more likely to be chosen to head the sustainability portfolios of companies than men.
2021 data from Russell Reynolds reviewing 46 senior ESG leaders from large, global organisations appointed over 18 months prior found that seven in ten of them were female.
Likewise, Credit Suisse noted that the proportion of heads of sustainability units who identified as female stood at almost 45 per cent of all such positions in its global dataset. This is positive, given that a company’s approach to sustainability carries significant financial, reputational and regulatory implications, while social and sustainability bonds are increasingly becoming a greater part of financing, the bank said.
“A company’s ESG rating can have a direct impact on its access to capital or indeed capital requirements. In that respect, its ESG rating affects a company’s cost of capital and ultimately its share price, making the role of growing significance.”
Another report from consulting and recruitment firm Kronor Group showed that nearly half of ESG specialists hired by hedge funds globally — 49.6 per cent — were women over the two years ended Dec 31, 2021. By comparison, women made up just 28.6 per cent of total hedge fund hires globally. More than 10,000 hedge fund hires were evaluated for this report.
That would also outstrip the overall gender representation at asset management firms: a 2021 Morningstar global survey found that just 14 per cent of fund managers were women.
Meanwhile, various studies show that women are significantly more likely than men to review potential investments holistically, by looking at whether companies they invest in account for ESG factors.
This comes though, as data from the UN show that women’s aggregate wages globally are only 77 per cent that of men — that, according to the World Bank, reflects some US$160 trillion worth of lost human capital. Put simply, narrowing the gender gap has the potential to boost total global wealth.
Consider then, a world where there is greater representation of female leadership that raises the odds of better economic performance. In that same world, more global wealth and investment decision-making is held in the hands of women who would channel capital to companies judged to be operating with lower ESG-related risks.
Taken together, championing for gender diversity is not for mere buzz — it may help to light the way towards a steadier path for inclusive capitalism. So this IWD, may the message of empowerment to embrace gender equity sound out a little louder, and for good reason.
Endowus hopes to empower more women to take care of their own finances, in whichever life stage they may be at. As part of our community impact initiative, Endowus Empower, we have established a Women & Investing community to empower women with the choice, confidence, and community to kickstart their investment journey and work towards their life goals — with exciting partnerships and engagements to come in the following months.
- Securing your net worth: Highlights from the Endowus Leadership Forum 2023
- Investing with a gender lens
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Past performance is not an indicator nor a guarantee of future performance. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund.
Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endowus Singapore Pte. Ltd. (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.