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Change Pays, Episode 2: How Important Is Gender in ESG?

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Change Pays, Episode 2: How Important Is Gender in ESG?

About this Episode

Environmental, social, and governance (ESG) factors are of dramatically increasing interest to investors who are concerned about companies adopting practices that will mitigate risk and ensure their long-term sustainability. As a result, ESG risks and opportunities are increasingly shaping the way companies do business around the globe. But how important is gender in ESG? In this episode, Sonja Gibbs, Managing Director and Head of Sustainable Finance at the Institute of International Finance, Mona Naqvi, Senior Director of ESG Product Management at S&P Dow Jones Indices, and Audrey Choi, Chief Marketing Officer and Chief Sustainability Officer at Morgan Stanley, discuss their respective interpretations of gender’s role in ESG.

From S&P Global, Change Pays is a monthly podcast exploring gender equality and inclusivity in the global economy, workplace, and markets. Host Molly Mintz interviews influential leaders from S&P Global and decision-makers from companies and countries around the globe to continue the conversation about what it means to create inclusive economies and accelerate progress.

Listen and subscribe to this podcast on Apple PodcastsSpotify, and Google Play.

Show Notes

Learn more about the topics referenced in this episode:

  • Sonja Gibbs, Managing Director and Head of Sustainable Finance at the Institute of International Finance, mentioned the Business Roundtable statement urging companies to concentrate on providing benefits to all stakeholders rather than primarily on deriving profits for shareholders.

  • Mona Naqvi, Senior Director of ESG Product Management at S&P Dow Jones Indices, talked about studies linking gender and financial performance. Recent S&P Global Market Intelligence research shows that firms with female CEOs and CFOs have produced superior stock price performance compared to the market average.

  • The S&P 500 ESG Index  selects companies based on S&P DJI ESG Scores, a robust dataset that accounts for industry-specific, financially material ESG opportunities and risks. The index is designed to maintain broad benchmark-like industry exposure while improving ESG performance, and excludes companies with activities in key negative ESG areas.

  • Audrey Choi, the Chief Marketing Officer and Chief Sustainability Officer at Morgan Stanley, discussed the Morgan Stanley Institute for Sustainable Investing’s latest Sustainable Signals Poll, which found that individual investors are highly interested in targeting climate change and plastic waste reduction through sustainable investing.

  • Learn more about what #ChangePays means for women’s impact on financial markets, politics, and the economy.


Introduction: To me, Change Pays means empowering women around the world to become confident and impactful leaders. Change Pays is about creating a more inclusive workplace to advocating gender equality. Change Pays for me is something that combines the power of research to reinforce the importance of an inclusive and diverse workforce. Change Pays means finally an opportunity and a platform for our collective voices to be heard.

Molly Mintz: From S&P Global, this is Change Pays, a new monthly podcast exploring inclusivity and gender equality in the global economy, workplace, and markets. I'm Molly Mintz. This month: How important is gender in ESG? ESG stands for environmental, social, and governance risks and opportunities on which companies are measured. ESG is of dramatically increasing interest to investors who are concerned about companies adopting practices that will mitigate risk and ensure their long-term sustainability. As a result, ESG issues are increasingly shaping the way companies do business around the globe.

I spoke with Sonia Gibbs, the Managing Director and Head of Sustainable Finance at the Institute of International Finance...

Sonja Gibbs: Gender straddles both social and governance issues. I mean, you could even argue that it's part of the whole environmental question because in many places, women are particularly climate-vulnerable because of the nature of the work they do.

Molly Mintz: Mona Naqvi, Senior Director of ESG Product Management at S&P Dow Jones Indices...

Mona Naqvi: If you look at the data or when you think about gender as a channel through which better R&D emerges, better decision-making, more diversity of opinion, then you can start to see how it's not enough just to have gender equality at a particular level of management, but to have it permeate through every level of the organization

Molly Mintz: And Audrey Choi, the Chief Marketing Officer and Chief Sustainability Officer at Morgan Stanley...

Audrey Choi: We found that two issues that really rose to the top for investors are climate change and plastic waste. Gender was also right up there, but those were the top two. Others were gender equity, poverty and income inequality, a whole range of other things, but I would say climate change, plastic waste, gender and income inequality seems to be the top ones that we're seeing.

Molly Mintz: Who each have a unique and distinct interpretation of gender's role in ESG. Let's get started.

Sonia, thank you so much for taking the time to talk with me. When you think of the term 'sustainability' and that entire concept, and when you think of how it is related to gender equality, what similarities and interdependencies do you see between those two concepts?

Sonja Gibbs: Sustainability is a complex concept. It has many parts of it, many factors that feed into it. There's the sustainability of economic growth. Can a country continue an appropriate growth rate that will continue to benefit its citizens? Does it have the right policies in place to grow in a equitable manner to limit income inequality and wealth inequality? For example, the gender diversity piece of this I think falls into the kind of governance and equality components of ESG and sustainability. If gender equity is part of sustainable growth in the sense that you are not taking full advantage of your economy's growth potential, if gender diversity is not well established, if there are economies that have very wide gender gaps, they tend to perform less well economically. If you look at a list, there are many rankings of gender gaps and so on by country, but if you broadly look down the list, you'll see a fair amount of correlation between wealthier countries that have lower levels of both inequality and gender gaps. And gender gaps, you know, you wouldn't want to think of that solely as pay disparity, right? I mean, there are many, many different ways to measure gender gaps. You couldn't look at how much women participate in the economy, what kind of opportunities they have. You can look at education, and that's actually an area where many countries have made headway; in terms of educational attainment or equality, you can look at health rates and mortality rates, and you can look at performance in the world of business or political empowerment. There's a whole range of aspects to gender diversity and gender gaps. One common element I think is that having relative gender equality can feed into stronger rates of growth.

Molly Mintz: How is the Institute of International Finance working with different companies and financial institutions and countries to bridge that gap and make that actually happen?

Sonja Gibbs: I think I would put this in the context of our broader work on sustainable finance and ESG investing. Part of what we're trying to do here at the IIF is to support the scaling up of sustainable investment in sustainable finance. And that can be directed in a variety of ways. It can be directed towards environmental issues, toward alleviating social problems and toward better governance, and in all of these, gender plays a role. To scale up sustainable finance, to scale up funding for sustainable development, certain conditions need to be in place. There needs to be markets, you know, well-developed markets so that investors can invest. Our job as the Institute of International Finance is to help these markets develop appropriately so that they have the right framework so that they can be scaled up. It's all very well for a specialist, boutique, small investor to be in a position to make these kinds of investments or take a long-term risk. But to do it at big scale, you need large institutional investors.

Molly Mintz: It sounds like you see gender and gender-related factors straddling both the social realm and the governance realm of ESG. I find that really interesting because it would appear that the majority of people would think of gender as solely a social factor.

Sonja Gibbs: I do think that's right, that gender straddles both social and governance issues. I mean, you could even argue that it's part of the whole environmental question because in many places, women are particularly climate-vulnerable because of the nature of the work they do. Or because their mobility may be lower, but focusing on the social and governance pieces, I would say that there's increasing attention being paid to the place of gender in firm governance, you could say, and sovereign governance, as well. The role of women in government is another area where there's a great deal of interest and also an area, I think, where there's been a lot of change in the past few decades, right. There are many countries, including in emerging markets, that have seen a lot of improvement or a lot of increase in the number of women in senior government roles.

Molly Mintz: The global community is paying attention. For the 2020 G20 Summit next November in Saudi Arabia. One of the themes of the leadership summit, notably, and I'm quoting, is: 'Realizing opportunities of the 21st century for all by empowering people, creating the conditions in which all people, especially women and young people can live, work and thrive.' What are your thoughts on this?

Sonja Gibbs: Two thoughts. I think this is an admirable effort to raise awareness of these issues in a part of the world where, if you look at kind of rankings on gender gaps over time, some countries in the Middle Eastern region, some countries in Africa, have traditionally had difficulty with gender gaps. So it's an admirable focus, and likewise, the interests in issues like water scarcity and renewables are very appropriate. You know, each  country will want to include some agenda items that resonate particularly in their region. I think in that sense, it's very well chosen. The other issue I think is that the past several years have seen a tremendous, tremendous increase in awareness of inequality, of very basic measures of inequality. And in part because, as you know, inequality has simply risen sharply over the past decade. Awareness, both of wealth and income inequality and of gender inequalities, has risen. They're a topic that's no longer sort of a small niche area that somebody might do a PhD thesis on; rather, it's a topic of conversation, you know, at the dinner table. If you look at the Business Roundtable statement that came out recently, you know, these issues of parity, you might say, are very central. So it's much more widely discussed. I think what's harder is finding feasible solutions or feasible ways to address a problem, but I think there's a lot of really interesting recommendations that will be coming out of the Saudi Presidency. There's a tremendous amount of consultation going on at the G20 level and also with the  B20, the Business 20, which will be looking at some of these same issues from a private sector, corporate point of view.

Molly Mintz: What do you expect to come out on that front from the B20?

Sonja Gibbs: It's early days yet, but there will certainly be some recommendations around enhancing the role of women in the corporate environment. In a group of countries as diverse as the G20, you're not going to get a clear cut, 'Let's recommend that all companies have, you know, 50% of women on their boards.' It's not going to work like that, but rather maybe a toolkit of ways to look at the problem. Raising awareness of opportunities — for women to play greater roles in the corporate sector; for policies that make it easier for women to gain more power, whether that's parental leave policies or insurance or whatever types of flexibility in the workplace; training; development; mentorship. All of these are ways to help address the gender gap. But I want to stress that there isn't any, you know, silver bullet or one-size-fits-all solution. Each country is going to have a different set of circumstances, but with some common elements of wanting to improve gender parity across all these different areas. Even something as straightforward, you might say, as the level of female participation in the workforce, that was an issue that the Japanese G20 paid a lot of attention to, and there's been really quite significant progress made and awareness raised of the need to do this.

Molly Mintz: On a personal note, how has overseeing sustainability and sustainable investing for the IIF shaped your personal view of gender equality and these different inclusivity concerns?

Sonja Gibbs: It's been interesting for me over the past couple of years as we've built up our sustainable finance practice very rapidly to see what a range of interesting developments are taking place in this arena, in different places, in different countries, in different aspects of sustainable finance and investment. So for example, you might see a networking group for 'Women in Infrastructure' that probably didn't exist, you know, five or 10 years ago. There is concern about gender diversity as being taken much more seriously now than it was even five years ago. I think five years ago you might've put gender equality, gender parity, into a bucket of things that, 'Oh no, you know, that's really a shame and you know, we should do something about that,' to now, there's a much broader range of investors looking to find ways to actively address this problem. I think it goes hand in hand with a greater willingness to express dissatisfaction about the way our society works and whether that's because of wealth or income inequality, a lack of political rights, or inequality based on gender or sexual orientation. All of these things I think are being treated far more seriously.

Molly Mintz: What are the shifts that you think caused people to take this more seriously? Because you talked about how the tide floats the boats and scaling up and scaling down, but structurally, what do you think caused this whole shift in opinion and perception?

Sonja Gibbs: Part of it is a bottom-up demand that something needs to be done about it. I would apply this to a whole range of ESG issues, including gender, that it's just moved far more than a niche. Right? For so many of our member firms, we see ESG integration as being, firms are looking to do this across their entire platforms for lending and investing. It's not a corner, it's not even one business line. It's something that's fundamental to business strategy. And that I think is a big change. And that's been partly bottom-up because customers and clients have been demanding it, partly that whole sort of picking up a newspaper in the morning or looking out your window and seeing protests, seeing that people in so many parts of the world are fed up with how the system works. They feel compelled to do something about it. And part of it is certainly a policy impetus, regulatory driver, and right now that tends to be more on climate issues, where you're seeing so many more initiatives designed to get the financial sector to focus on climate risk mitigation, on finding opportunities to finance the transition to invest in green and sustainable investments. So there's so many initiatives looking to make this happen at the kind of policy and regulatory issues. So the combination of those two things, sort of bottom-up demand from clients and customers and then maybe a top-down steer from policy makers and regulators, have combined to put all of these ESG issues right at the forefront of attention.

Molly Mintz: How important is gender in ESG?

Sonja Gibbs: I would argue that the importance of gender is increasing rapidly from a rather low base, and I think the low base is in part because you know, 10 or 15 years ago, gender issues, it's not like they didn't exist or they weren't talked about —  it's simply that in the kind of #MeToo generation, there's just far more openness and attention paid to gender issues. And gender inequality and overall inequality are linked in many ways. The attention, the growing understanding, of how much inequality has increased over the past decade or so has also shed light on gender inequality. So it's more attention to overall societal divisions and lack of equality in society broadly, whether that's racial lines or gender lines or income, you know, all of these things are parts of inequality.

Molly Mintz: What are member institutions of the IIF saying about inequality overall?

Sonja Gibbs: You know, I think in the past you would not find it to be such a frequent topic of discussion, whether that's in the level of a panel discussion at a conference or a board discussion or an internal management strategy discussion. The way in which issues around inequality has come to the fore is pretty remarkable. You know, if, say, you're having a discussion of the macro economic outlook in a way that you wouldn't have done 20 years ago, people are now thinking about the consequences of rising inequality,  modeling how that is likely to play out, and thinking about the policy solutions that are going to be necessary to address these questions. The concept of inequality is much more prominent in very broad discussions,  whether that's about macroeconomics, you know, the impact of inequality on the global economy, even on financial stability. Because you can imagine any world where you have significant social unrest that's associated with inequality, that's going to reverberate into, feed into, systemic instability in some instances. So you could say is that inequality factors into these broader discussions and discussions of policy solutions for inequality, but also I think within individual firms, there's much more discussion being paid to or there's much more consideration of things like transparency and pay scales in trying to address gender pay discrepancies. And in ensuring that you have adequate representation of women in senior management and boards,  those are not necessarily easy tasks. I mean, in the financial services industry in particular, if your board is comprised of CEOs of global financial institutions, you don't have a big pool to draw from. And yet we see across our member firms very determined efforts being made to recruit women for these roles. In fact, you often hear the concern that there just simply aren't enough qualified women, that the pools are not large enough. Another thing you see any firms doing is putting in place talent development programs that are focused on making sure the pool of women who have the kind of skills you need to be successful in leadership of financial firms is there.

Molly Mintz: When will we know that we've reached gender equality?

Sonja Gibbs: One other thing that's changed in the past 10 or 20 years is the tools that there are to measure and to make these comparisons. If you were to want to go out and calculate precisely what the gender pay gap is across every industry or for every individual firms, you can do that now in a way that wouldn't have been possible, you know, 20 or 30 years ago. So in a very strict definition of the word, you will know when the metrics improve. When we don't have a gender parity gap of 30-plus percent, when it's measurably demonstrably smaller. So that's one way. The other way might be more straight forward. The other ways, you know, maybe in five, 10 years, you and I won't be having this conversation because we won't need to have it. And again, I might relate this back to broader ESG issues. If you talk to the leadership of the Central Banks and Supervisors Network for Greening the Financial System, they will say that they are here and now a coalition of the willing wanting to take this climate agenda forward, but the hope is that in 10 or 20 years, there won't need to be a network for greening the financial system because the financial system will be green. You know, when we don't need to do podcasts about gender parity anymore, then we'll know we're up there. 

Molly Mintz: I think it's interesting you've said that. We're talking about these topics more than ever before, and then we'll know that we've accomplished what we've set out to do when we stop talking about it.

Sonja Gibbs: To get there at all, the talking must be done and the talking has to translate to concrete and meaningful action, right? It's not enough simply to talk about it, but, you know, bit by bit, with a great deal of effort and thought and care and I'd say maybe even collaboration, right? Because to address gender parity, you need really the whole of society on board. You need the educational system. You need, you know, universities to be researching the question. You need policy makers to design good policies. You need think tanks to come up with white papers. You need companies to see an economic incentive to focus on gender parity. And you need, you know, individual firm level, city level, regional level initiatives. So it's only by all this talk and all this action that you're going to make a difference, and you can't really expect perfection, right? We are never going to live in an absolutely perfect world, but there's an awful lot of room to improve.

Molly Mintz: As Sonia sees gender as both a social and governance factor of ESG, Mona Naqvi, Senior Director of ESG Product Management at S&P Dow Jones Indices, explains gender's role in ESG as a value driver for both investors and companies.

This episode is exploring the importance of gender and ESG. From the perspective of S&P Dow Jones Indices, how does gender fit into ESG?

Mona Naqvi: Great question, and maybe I can spare the S&P mention and just talk about gender and ESG in general. Because I think it's a major topic of interest to investors these days and quite frankly, has been to many investors for a long time. I mean, sustainable investing and ESG is really something that's been around for a very long time, as what started off as being something that was primarily values-driven where a lot of investors wanted to align their money with their beliefs. And many investors seem to believe that gender equality is an important value and something that they should invest in. So we have seen some interest in gender-lens investing for some time, but I think it's been over the past sort of five to 10 years that there've been a lot of studies that have come out to show the link between gender and financial performance. So this has grown into, kind of alongside with the broader mainstreaming of ESG, it's grown into a new, call it asset class or investment approach or strategy, where a lot of investors see gender and other ESG criteria as a value driver, where the more diverse and more females are represented within a company, the better performance, whether it be in terms of stock market performance or broader decision making, return on investment and other sort of valuation metrics that companies tend to benefit from when they have more women in the workplace.

Molly Mintz: What do you think is spurring this change, if in the last five to 10 years, now gender and gender equality is seen as a value driver? What drove that shift?

Mona Naqvi: I would argue that having more women in the workplace has always been a driver of value. It's just that it's been hard to measure. We haven't always had the right metrics and the right sort of vernacular around this type of investing. So one of the big changes in ESG in general over the last, I would say, 10 years has been the greater availability of corporate sustainability information. So, disclosure — we now have way more ESG scoring systems out there that are looking at issues including gender, so we now have just so much more data and information to do the analysis that tell us that these types of companies tend to perform better financially.

Molly Mintz: Give me one example of how S&P Dow Jones Indices addresses gender. Is that included in the S&P ESG 500 or in another index that you offer?

Mona Naqvi: Our ESG rating methodology in general looks at a whole bunch of different ESG issues, and what we take is a sort of materiality weighted approach with any issue. There's kind of two schools of thought around this. You can have equal weighted ESG scores where you take a kind of equal weight across environmental, social, and governance issues, or you can focus on the most financially material issues depending on the sector that you're looking at based on what's most relevant. So when you think about an issue like gender, whilst from an ethical standpoint it might be the type of thing that an investor thinks is equally important for all companies, if you're looking at it from a return on the investment standpoint, it may be that there are certain industries where you see the benefits of that more so than others. When I think about gender in particular, I think about it in quite scientific terms, just kind of taking the emotion out of the discussion for a moment, when you have a more diverse workforce, it leads to better brainstorming, better decision making, more diverse opinions. It amounts to thinking through more alternative scenarios in a way that you might not otherwise. So when it comes to risk management and planning, you just have a more holistic, well-rounded understanding of all the possible permutations that could arise. And that also applies to when you're developing products and other kinds of R&D intensive business operations. So we can see that R&D is a channel through which gender is quite important. There are companies where R&D is more important than others. If you think about financial services or technology or pharmaceuticals, these are all the types of industries where R&D is a really key business driver, and so we can start to see how gender plays out as being a very important metric for better success in those particular areas. But if I think about a construction company or a mining one, even something like utilities, for example, where R&D is important, but perhaps not as important as for some of those other areas where creativity is much more important. Then perhaps gender doesn't play as big of a role in terms of the share of revenue it can be accounted to.

Molly Mintz: Do you think companies, like construction companies or utilities companies, do you think that they see gender as value driving for them as well, or is it something that's not as important to them as other ESG factors?

Mona Naqvi: I'm sure if you ask any company in today's age, they would all respond and say, yes, it's very important. But what's more interesting for me is whether or not an investor finds its importance in terms of how they choose the companies they want to put their money in. I think when you're looking at, you know, you have a lot of sector specialists that will be very familiar with their particular industries, and they'll start to develop an understanding of the types of issues that are financially material and that drive value. I would say that gender is probably important for all industries. It's just that when you're focusing on, let's say, the top four or five issues that matter the most to a particular industry, and you're deriving an ESG score based on this financial materiality framework as we do with our ESG scoring within S&P Dow Jones Indices, then you start to see how gender may not make it into the top five necessarily for all industries, but there are some certainly where we're huge portion of the weight would be a portion, too.

Molly Mintz: So by and large, what I'm hearing you say is that when investors think of ESG, maybe all of them are thinking about gender as a social factor but maybe that's not the most important factor in their top five list of things that they are concerned about.

Mona Naqvi: Yeah, and you know what? There's different types of investors that invest in ESG for different reasons. For some, it's very much values oriented or ethically motivated, where they do care about gender and it is one of the top concerns and so those types of investors will probably seek to put their money in those types of gender-aligned products. But there are others for whom ESG is simply a tool to encompassing a broader information set that is traditionally incorporated in investment decision making, using alternative sources of data and information, and for these types of investors where they're looking at simply what is the most material or relevant based on the outcomes, financial outcomes, those are the types of investors that may focus more on this materiality standpoint. And I think gender is one of those issues with which we can make a really strong case. You know, there are lots of issues that ESG incorporates, but gender is one where there is a direct link that countless studies have shown the more gender diverse a company is, particularly in not just the board, but in all levels of senior management, the better decisions are made and potentially the better stock market performance that you get out of that.

Molly Mintz: I want to pivot back to what you were saying earlier. Your explanation of how diversity really is just a diversity of opinions, I think is really interesting. From your personal perspective, how do you define gender equality and diversity?

Mona Naqvi: First let me answer how I professionally think of it and then how I personally think of it because I, you know, I think they differ a little. It's interesting when you think about an issue like diversity in particularly as an index provider, we are very reliant on data, particularly public data that's available and widely available, covering a whole universe of companies so that we can create indices reliably. But when it comes to gender, there isn't necessarily the full spectrum of information that one might hope for. For example, we know a lot about, particularly in the public equity space, which is what most of our indices focus on, we can see board representation quite easily. That's typically widely known. All members of publicly traded companies are kind of out there in the public domain. We can see very easily based on just someone's name, whether they're female or male. It gets a little bit harder when you start thinking about other types of diversity such as race, for example. That's not necessarily something that's easily disclosed. And when you go further down the totem pole and you start thinking about executive leadership and then senior management and all the different levels of the organization, which levels are the most gender diverse? Is it important. You know, is it enough to just have enough women on the board? If you look at the data or if when you think about gender as a channel through which better R&D emerges, better decision making, more diversity of opinion, then you can start to see how it's not enough just to have it at a particular level of management but to have it permeate through every level of the organization. But from an index construction standpoint, that data and information isn't always readily available, so we have to just kind of base it on what we do know and what's out there and what we can work with. But I also think the numbers sometimes conceal a lot, because it's not enough just to know the proportion of female leadership within a company, particularly if you're making the case that gender is a financially material channel through which companies can be more profitable. Because if you buy into this argument that gender creates better decision making when it's a diverse perspective, but then all the senior female leadership positions are in areas that are dominated by women already — for example, marketing or HR, which is where we typically find a lot of concentration of females in the workplace — then you're not necessarily reaping the benefits of that diversity if they're just making decisions amongst likeminded people. So, how do you get to understanding how gender diversity plays out across the organization, not just in terms of the numbers but in terms of the culture of a place? Do you have female leadership in various different areas of the business that are contributing to a diversity of opinion and discussion at all levels of decision making, from strategy and operations to having various different business lines and PNL's as well as the typical areas where we tend to find greater female participation? That's what I'm really interested in. And then another type of question that I would love to know, but unfortunately as an index provider and, you know, using data that we have, it's very difficult, perhaps sensitive, and this isn't the opinion of S&P at all but just mine personally, is do we see that women certain types of women embody certain types of characteristics? I don't want to gender stereotype, but if all the women in senior leadership positions are embodying characteristics that we might typically think of as male, are they necessarily contributing to that same level of diversity of thought and leadership than if they are just perhaps — rather than saying male I could say embodying the characteristics that leadership typically does? So there's all these layers of complexity when you think about diversity that you can't necessarily see them that easily in the metrics and in the data alone. Sometimes the data isn't enough, but it's what we have and it's important that we work with the information that we have.

Molly Mintz: Touching on what you said about having women in positions across the board, and not the board of directors but across all different types of positions, I always say to my friends I think that there should be more women arms dealers. I mean, some people laugh at that but when you think about it, it is really that all surprising that you would not think of a woman having whatever traits a female or woman leader is supposed to have in such a intense however you perceive an arms dealer being, role? But I think as a metaphor it fits for a lot of different things. It's interesting to see how each, perhaps, investor or any kind of market participant or just individual defines diversity personally and professionally as you have, because obviously there is a difference. How you embody these ideals in everyday life is different from the access and the information that you have in the place that you work. In my perspective it would appear that social factors are heavily dependent on environmental factors and governance factors. Obviously across ESG, you have gender problems but in some regions of the world where climate risk is extremely high, environmental concerns would also impact populations that may be disadvantaged because of their gender or socioeconomic status How do you see the interconnectedness of different ESG factors?

Mona Naqvi: It’s a great question. You know, there's definitely a lot of overlap with some of these metrics. It gets very difficult, particularly in ESG which is multi-thematic in terms of E, S, and G all being rolled into one, it can be tricky to kind of disintegrate the impact of any one metric on another. So it is tricky to know, but you raised a really good point about certain economies that particularly at risk of climate change and the impacts of it, and if you look at developing economies in particular where the economic opportunities afforded to women are very closely tied to their environment and their surroundings, and the impact that environmental protection, environmental action, could have on their opportunities is not necessarily always accounted for in every decision. And so it's really important that you take a holistic view, and I think that's why ESG is such a helpful framework for thinking through the relative materiality and importance of all the underlying issues, trying to explore the interconnectedness of them all, to come up with a holistic and well-thought-out and sustainable framework or approach for investing that takes all of these issues into consideration. But there are some asset classes more so than others where we see this relation play out. So, for example, if we think about gender equality and governance, as I mentioned earlier, you know, if you have a more diverse workforce, you're better equipped to think through all possible alternative scenarios. You can see how from a risk management standpoint that clearly becomes a sure way to make sure that you've checked all your boxes and thought of everything. So in the public equity space, that's key, also in private equity, but if you think about fixed income, for example, you think about the sovereign space, you think about the link between a country that has strong levels of female participation, that has a small gender pay gap, that is generally more equal in terms of gender, you do see a very strong correlation in those types of economies with good democratic governance and good governance in general. But again, it poses this question of, To what extent is that indicative or the cause or factor in all of this, or simply a byproduct of the fact that these issues are also interconnected, and it just happens to be the case that countries that perform well on gender equality are also those that are better governed and democratically positioned? It's all interconnected. At the end of the day, it's very difficult to tease out the individual thematic issues, but I think ESG as an investment approach does a pretty good job of giving investors the opportunity to put lots of ingredients in the pie and still get a piece of everything, whilst not having to give up too many of those tradeoffs.

Molly Mintz: What do you think would have to change to be able to create this more level playing field across the board? Obviously, different countries and different companies are in different starting places. You've talked about how ESG has changed and this approach to sustainable investing has evolved over the past five to 10 years. If you're looking forward through the next five or the next 10, what do you think will be really driving factors in promoting gender equality within this ESG framework?

Mona Naqvi: So I think there are a lot of international organizations that are doing a terrific job at raising the profile of gender as an important issue. Particularly, you know, the U.N. springs to mind. But more often than not, these projects have been geared towards the corporate sector or towards businesses in general or even more so, actually, directed at governments. And actually, this raises an interesting question around how ESG plays out from a top-down standpoint. You know, we have these U.N. Sustainable Development Goals, of which gender equality is a big one, but these goals were designed for governments and countries; they weren't necessarily thought of as a framework for businesses and corporations and, in turn, investors Yet there was a huge amount of interest and appetite from the investment community, particularly within ESG, for aligning their investments with these SDGs. But it's proven problematic because it comes back to this question of the available data. We don't have the metrics, we don't know the information, it doesn't lend itself to reliable index or portfolio construction, and they weren't really thought of as a set of goals necessarily for businesses. So, it's a helpful framework and there are a lot of activities going on in the international arena that are geared towards making gender equality a bigger priority for governments. It's just about how we can translate some of those into an investable metrics to create real investment strategies and benchmark indices based on that information.

Molly Mintz: When we talk about investing in women, no matter where the conversations happen, what that actually means depends on who you're talking to. How do you see investing in women actualize and what do we need to do as investors, individuals, companies, countries to actually make this kind of societal impact?

Mona Naqvi: Good question. I think this comes down to how one sees diversity in general. You know there are a lot of people that think it shouldn't matter whether somebody is female, male, one race, or another — that it should be solely based on their merit, and there's a lot of rationale to that. That makes sense. Blind job screenings and that type of thing is one way of dealing with that, but then at the same time there's another school of thought, which is that if you're of a particular social cleavage and you have been given fewer opportunities throughout your career because of it, then are you more deserving of positive discrimination to be brought on the same level, to level the playing field, so to speak? And I don't know where I personally sit on that. I mean, in some cases I do believe that there are fewer opportunities afforded to women and that somehow does need to be corrected; I really do believe that. It gets tricky when you start thinking about financial product creation and index creation — you know, so this isn't necessarily what I would say make sense for an index, but certainly within a company, and I do wonder whether that would be a welcome addition, then again it gets really complicated because it's a bit of a sliding scale — gender, as I said, is a proxy for diversity, but there are so many other notches on that scale. You know, what your educational background is,  what your income status is, whether you're from a rural area or a city center, you know, all of this has an impact, a profound impact, on one's opportunities throughout their life and their career. Gender is barely scratching the surface, and it's a much easier discussion to have because it's more visible, it's morally arbitrary, and it's something that we have data on. So it's a great place to start the conversation but it's by no means painting a full picture of how we can get more diversity into the workplace and why we should.

Molly Mintz: Like both Sonia and Mona, Audrey Choi, the Chief Marketing Officer and Chief Sustainability Officer at Morgan Stanley, sees gender as a social factor that overlaps and intersects with other ESG issues like climate risk.

We're talking about the importance of gender and ESG and I have three different terms that mean a lot of different things to different people: Sustainability, gender equality, diversity. What do these different things mean to you?

Audrey Choi: That's a great question because those terms are used a lot, and they often have sort of overlapping meanings, and aren't necessarily used as discreetly as might be helpful. Let's start with the broadest. In terms of sustainability, I often talk about sustainability with a capital S, which is really, you know, quite an expansive view — which says, look, if we want a business or an activity or an initiative to be truly sustainable, we need it to be truly financially sustainable and economically sustainable, right, so that it can actually be a flywheel, that you can continue having go and repeat and really expand its impact. Obviously, you want that impact to be environmentally sustainable as well as socially sustainable. So I think that the sustainability can really encompass a broad universe of things. And then different investors, different people, different groups often will focus on one area in particular or several areas that they're most interested in. When you think about gender, obviously I think that's probably the most straightforward of the terms, it is really thinking about, are we truly being focused on gender diversity, on gender equity? And so within the context, for example, of an investment or a company, is that company really practicing best practices in terms of gender equality? That could mean everything from more representation of women on boards but also more representation of women in the executive suite, in management positions, and all the way down the line, as well as all of the policies and practices that would go into making that a more, you know, high-gender equity kind of place. When you talk about diversity and inclusion, you know, it is looking at a variety of different kinds of diversity. Obviously, in an international context, that's going to mean something different in each country, from an ethnic and racial background, obviously gender diversity is a part of that, but there's also really thinking about diversity of thought and diversity of backgrounds. I mean, at Morgan Stanley, one of the things that we think is very helpful for our culture but also really for the insights that we're able to produce is having that diversity of thought. That not everybody is a finance and economics major, that you can have, you know, math and anthropology and art history and English and liberal arts, particle physics —  all of those backgrounds can really come into, how do we understand the problems that we're facing today and the challenges, and how do we develop solutions? So I think each of those areas clearly overlap and have some, you know, some sort of potential synergies between them, but they can also describe distinct areas of interest.

Molly Mintz: Do your personal definitions of these concepts differ in any way from your professional perspectives?

Audrey Choi: Well, you know, I think that in the personal realm, I think there is a vast array of social justice issues and other issues that may be personally very interesting to me or to you or to individuals that may or may not necessarily be an investor-relevant for the purposes of a company or an investment fund. And so within the professional context,  within the work that we're doing at Morgan Stanley to help advise investors and corporations, what we really focus on is what are the sustainability factors that are material to the business and therefore are truly relevant for investors and that can really help embody and demonstrate how sustainability factors and good long-term sustainable business that thinks that all that stakeholders can go hand in hand. And look, there are certainly some issues that are critically important in my personal view from a social justice, equity, inclusion, or development perspective that may or may not be the right thing for investors to think about but look that's why we have government and philanthropy and nonprofits. I've always said certainly there's more than enough work and challenges to go around, and we desperately need a really thoughtful and fulsome partnership between NGOs and nonprofits on the ground doing direct service work, inspired philanthropy, that can actually help seed and capitalize and invest in things that aren't commercial in government and relief agencies and development agencies to really play their critical role, and that business can be a critical partner in that. That as ideas or business practices or business models are developed, that can really start to scale and to spread more quickly with the benefit of the business engine behind it, that's I think where business can really come in and be the instrumental in driving change at the speed and scale we need to meet some of the biggest challenges ahead.

Molly Mintz: So what do you think investors think of when they think of ESG? Do you think they immediately think of gender, or are they more preoccupied with environmental risks or governmental opportunities?

Audrey Choi: There certainly is a span and a variety of different things that investors are focused on, yet at the Morgan Stanley Institute for Sustainable Investing, we actually periodically do investor polls so we can really have a pulse of what are investors focusing on, what are they looking for. What's interesting is we found that the last time when we did our Sustainable Signals Poll of individual investors, we found that the two issues that really rose to the top for investors were climate change and plastic waste. Gender was also right up there, but those were the top two. Others were gender equity, poverty and income inequality, a whole range of other things, but I would say climate change, plastic waste, gender, and income inequality seem to be the top ones that we're seeing.

Molly Mintz: In what ways are those kinds of factors, those environmental factors, interrelated with more social aspects like gender? Are there areas where they overlap?

Audrey Choi: Climate change is obviously quite unique just  given the scale and the scope of it. Actually, the Sustainable Accounting Standards Board did a study and showed that something like 93% of the U.S. equity market is actually exposed to climate risk. Whether or not the corporations or investors in those companies actually are focusing on that, climate risk is quite all pervasive, right, because it affects everything from water supply to natural resource supply to weather patterns and business continuity. But I think that one of the things that is less focused on today by investors, but it is quite important is the issue of climate justice. We definitely know that poor communities, both geographically but also even within societies, that poorer communities are more exposed to many of the threats posed by climate change, as well as many of the threats posed by other environmental issues, whether that be pollution —  air pollution, water pollution, et cetera. So there certainly is a sort of social justice component that is very interrelated with a lot of the environmental protection issues that we've seen from a gender perspective, as well. Also, we see that women in many cases, especially around the world, are often going to be among those most heavily impacted by climate change's adverse impact. There is definitely a large amount of sort of Venn diagram overlap between the issues.

Molly Mintz: And taking a step back, from Morgan Stanley's perspective, how does gender fit into ESG?

Audrey Choi: As you said, there's been a tremendous amount of interest especially over the past years and really seeming to increase each year, around gender diversity as an investment theme. And yet, there hasn't been an overwhelming amount of data proving the impact of gender diversity as an investment theme. What was really exciting is that my colleagues in Global Research recently did an in-depth study where the quantitative team together with the sustainability team looked at equities and really looked at a broad definition of gender equity —  again, so not just women on boards but really women on boards, women on management, women in executive positions, overall practices throughout a corporation — and they found that leading firms, in terms of gender diversity, actually outperforms and not only a little bit. We found a consistent material outperformance and that the high gender equity firms, when you compare those to the low gender equity firms, there was actually a 3.1% outperformance per year over the last eigh years. So we're really seeing more and more evidence, and, look, there's been a lot of terrific academic evidence and social science evidence over the years that shows that diverse teams actually do better. Right, diverse teams end up solving problems better. Diverse teams often end up having better instincts around risk because they bring different perspectives and are seeing different opportunities and risk factors out there. I'm personally quite excited about gender diversity and also broader definitions of diversity increasingly being understood  as a real marker of good management but also of superior ability to innovate, to perform, and really to deliver the right impacts both financially as well as socially.

Molly Mintz: What do you think that companies and countries need to do to take it a step further? Because as you're saying there's all of this research to back up the fact that diversity really makes a massive difference on financial returns and on the performance of basically anyone in a community. But how do we get companies and countries and individuals to actually act on making it a reality?

Audrey Choi: I do think that the importance of policy can't be understated. I'm not in a policy making position or a policy advocacy position in my role, but I do think that obviously policy around gender equity is very important I think what's in the span of control of investors and of corporate leaders is to really give those signals from the top that they are going to increasingly prioritize gender equity and really diverse and inclusive workforces. It really is a combination of, kind of, a cultural impact that enables you to get those kinds of performance premiums. When we see these companies that are outperforming and that are highly gender diverse, it's not that they just decided, Okay, I want to meet a gender diversity target so that I'm going to get this outperformance, right. It's really the result of a much more holistic kind of management strategy and also a sort of cultural orientation that they value the input of diverse teams and that from a recruiting or retention, promotion, stretch assignment, mentoring perspective, that gender diversity is important to them. So I think it really has to be a combination of the appropriate policies, so that there is as level of a playing field as possible, strong leadership from corporate boards, corporate leadership, and also from investors, saying, Look, if we're seeing more evidence that diverse teams perform better and that highly diverse companies are actually more successful, then I as an investor want to start seeing that in the companies that I'm investing in and, you know, perhaps even the investment teams that I'm choosing to manage my investments.

Molly Mintz: So let's pretend that I'm a leader or an investor that's a bit hesitant. I'm interested in ESG, I care very strongly about environmental factors, perhaps I'm high risk on some governance factors along those lines —  but I'm really interested in gender. I just don't know how to take the leap. What would be your sales pitch or your elevator pitch to really bring me on board to this aspect of ESG?

Audrey Choi: Especially if you're an investor who is a bit hesitant or skeptical about ESG altogether, I think first of all, it's really important to just sort of take that head on and first say, Okay, so why is it that you're hesitant about ESG? If you're like many investors, in fact, they are the majority of investors, you're probably going to say, 'Look, I agree with all the great goals of environmental protection and social justice and good governance. Of course, all of that's great, but somehow I think that that's going to restrict my returns.' When we've polled people, we found this really funny thing; we found that 86% of investors believe ESG companies to be more profitable and might be better investments, and yet 64% of people believe that if they became an ESG investor, that they would have to deal with a financial trade-off. Which actually makes no sense, right, because why would it be that you think that the companies that are well run-companies that focus on diversity and inclusion and good governance are actually good investments and do better, but  somehow being an ESG investor means you have to have a financial trade-off? So I think it's important to just address that preconception in people's minds. And then we said, 'Well, look, is there some sort of fundamental truth to that, or is it just a myth that we need to start to debunk?' And then with respect to gender specifically, I would cite factors, you know, like the study that I just mentioned before, where we really have seen that the high gender equity  companies just do better. So again, it comes back to: Why would you not want to do something that is, as you've agreed, a positive contribution from a social justice perspective, reflects the values of your family or your institution or your board, who has directed you to look at gender equity or other kinds of ESG? Why would you not do that, when it actually shows that there's not a discount to returns and studies are showing lower volatility and lower downside and then, we believe in some cases, superior returns as well?

Molly Mintz: In your perspective, what does investing in women actually look like?

Audrey Choi: The lot of it really depends on the investor and sort of where and how they want to focus. Certainly, I think that looking at large capital markets and large investment strategies and whatnot, I think putting sort of a gender lens on investing and choosing the companies that are being most proactive about gender equity. One of the other things that Morgan Stanley has done, really looking at both female entrepreneurs and entrepreneurs of color, and in the studies that we've done, Morgan Stanley has found that there is a vast underinvestment in enterprises, small enterprises, or startups that are led by women and people of color. And that's a huge opportunity for seed venture, you know, and private equity investors to be focusing on. These companies have pretty phenomenal ideas phenomenal teams and aren't getting the same attention from investors. But it is also about, for investors who may be also on boards or in leadership teams, it is really raising that flag of talking about why gender equity can really be such a win-win.

Molly Mintz: I was so struck by your Ted Talk, not only about the story you shared of your mother leaving North Korea but also by your assertion that individuals are the institution that really owns capital markets. If individuals —  you, me, anyone, any investor — were to make one change tomorrow, what would you recommend that they do to really put gender on the forefront so that, collectively, as an institution, individuals could use capital to to advocate for gender equality on a global scale?

Audrey Choi: I think the first and probably most important thing that I would say that every single one of us to do is really frankly what you're doing here, which is starting to ask the questions. Because you know regardless of the issue, what we've seen time and time again is that change doesn't happen if people don't have the information and the knowledge of what are the consequences. And you don't have that unless people start asking the questions. And so for so many investors for so long, there was a sense that professionals should do it, that you as an individual, your job is to manage your career and to count your investments but that at some point, right, you didn't necessarily need to know everything about every single investment and underlining and whatnot. And I think that right now, we're in this incredible moment of the ability for empowerment, where if we as investors even just said, whether it's to our financial advisor or to a portfolio manager we work with or the companies that we lead or the companies we're going invest in, Where do you stand on gender? What's the data? Show me the data? That's the first most important thing, I think, it's just to even open the door. Because once you start that conversation, they're supposed to come up with answers, then you actually start having that gateway to, Well what is the data and what are the implications of that? You know, is this company being low or high on gender equity? So I really do feel like, again, as whether it's the first time you're making investments or the largest sovereign wealth funds in the world, the largest asset owners in the world, the whole journey always starts by just asking the question.

Molly Mintz: Thank you for listening to this episode of S&P Global's Change Pays podcast. Thank you to Sonia, Mona, and Audrey for talking with me. Subscribe to this show on Apple Podcasts and Spotify, share your feedback on social media with the hashtag #ChangePays, and listen to new episodes at the beginning of every month everywhere podcasts are played. To read the research we discussed in this episode, visit Talk to you next time.