By Fong Yee Chan, senior product manager, sustainable investing
International Women’s Day presents a great opportunity every year to take stock on progress in the long march toward gender equality. Investors, companies and governments around the world have made headlines with their efforts to achieve better gender balance. Yet, studies demonstrate that there is still much progress to be made, signaling that it’s time to focus on more powerful and collaborative approaches to addressing gender imbalance.
There’s an established body of evidence that gender diversity can come with both social, economic and financial benefits1—a key driver behind its increased prominence on investor, corporate and government agendas. Despite this increased attention to addressing gender imbalances, studies show women continue to be underrepresented in the workforce. Furthermore; female representation declines as seniority level rises.2 Recent data demonstrates that the gender pay gap is far from being closed, with men earning on average 10-20% more than women in most OECD countries.3
Some progress is evident at corporate board level. As shown below, most developed market countries increased their company Women on Board (WOB) ratios between 2017 and 2018. In addition, among companies in the FTSE Developed Index, the average improvement in WOB ratios was 1.6%4. While this may be indicative of some gender equality progress, it’s worth noting that even those countries with the highest WOB ratios are still short of equal board representation (see chart below).
Source: FTSE Russell. Data as at June 19, 2018
Why is progress slow? Achieving better gender balance is a complex objective. To make significant strides that materially address gender imbalances, studies point to the need to help women advance at all career levels5. This requires actions such as fostering an inclusive and respectful culture, ensuring that hiring and promotions are fair as well as making senior leaders and managers champions of diversity.
As long as imbalances persist, it’s clear that more work must be done. Investors should explore a range of approaches to understand what is driving good (or poor) diversity performance. The good news is that the availability and quality of diversity and inclusion data has improved in recent years making it possible to integrate these considerations into investment strategies and to use this data to engage with companies.
Indexes can serve as a tool to help investors integrate diversity and inclusion issues into their passive portfolios. The FTSE Women on Boards Leadership Index Series helps investors identify companies demonstrating leadership in gender diversity and social impact. The series includes both US and UK versions, and adjusts constituent weights based on both the company’s Women on Board ratio and Social Pillar Score—a metric that encompasses a wide range of social issues, including measuring corporate practices on diversity and inclusion. From an engagement perspective, it also helps investors identify those companies demonstrating leadership (or those who need to be doing more) on gender leadership and social impact.
Gender diversity is an important topic with global relevance—achieving greater gender equality and female empowerment is a core objective of the UN’s Sustainable Development Goals (SDGs)6. Benchmarks and their underlying data can be a useful tool for investors wanting to integrate gender considerations into their investments. Over the last few years climate change and the transition to a low carbon economy have emerged as a critical investment drivers that are being increasingly integrated into benchmarks and passive investments. There are some indications that diversity and inclusion may become the next major sustainability theme to move from niche to standard.
1 IFC, Women in Business Leadership Boost ESG Performance, 2018; World Bank, The Cost of Gender Inequality, 2018
2 McKinsey & Company, Women in the Workplace, 2018
3 OECD, Gender Wage Gap, 2019
4 Between 2017 and 2018. Source: FTSE Russell. Data as at June 19, 2018
5 McKinsey & Company, Women in the Workplace, 2018
6 For more information on SDG 5 – Gender Equality see here
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