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24 Feb, 2020

How Gender Fits into ESG?

Public companies are facing growing investor pressure to improve diversity among their director ranks, underscoring a greater awareness of the need to address environmental, social, and governance (ESG) issues. Investors are increasingly incorporating assessments of companies’ gender diversity and equity to determine how they might respond to ESG risks and opportunities. Companies are facing external pressures from institutional investors, activist shareholders, and potential employees and customers to increase the representation of women on corporate boards, in C-suite positions, and across executive leadership, as well as equal compensation and mobility for women and people of color. This can affect if and how companies worldwide address diversity, inclusion, and the gender gap.

S&P Global Market Intelligence’s groundbreaking study, When Women Lead, Firms Win, found that firms with female CFOs are more profitable and have produced superior stock price performance compared to the market average. The research also showed that firms with  high gender diversity  on their board of directors have been more profitable and larger than firms with less gender diversity. Overall, S&P Global’s #ChangePays initiative, which explores the importance of gender equality and inclusive economies, showcases the financial advantages that gender-diverse companies have over their peers. As gender diversity plays a larger role in corporate strategy and performance, companies that struggle to make strides in inclusivity may pose risks for investors. The issue is gaining momentum and publicity, but experts interviewed on the S&P Global Market Intelligence ESG Insider podcast  say closing the gap will take years.

S&P Global found women to be the most underutilized source of growth that could send global market valuations soaring. Acceleration in U.S. GDP growth under increased female labor force participation could add a whopping $5.87 trillion to global market capitalization in 10 years. For every 1% of GDP growth, the S&P 500 returns 3.4% on average annually. An additional 0.2 percentage point of GDP growth would therefore boost the S&P 500 another 0.7%—and could increase U.S. market capitalization by $2.87 trillion in a decade. Around the world, each additional percentage point of U.S. GDP growth has also translated into a 4% jump in equities in Germany, 6.2% in China, and a staggering 9.3% in Korea—even more than the gains we can expect in the U.S. An increase in women’s participation to that of other advanced countries would add an average of 0.2 percentage points annually to U.S. GDP in the coming decade—or a cumulative $455 billion in output above S&P Global’s baseline forecast.

Greater attention on gender diversity has also had regulatory effects. Governments and regulators have become increasingly watchful of companies’ female representation; depending on where they operate, corporations may face even greater regulatory pressure to address gender parity at the board level and beyond. The U.K.’s law requiring organizations with more than 250 employees to report on their gender pay gaps has dramatically disclosed information about pay discrepancies, eliciting cries for further action and adding to a growing debate about how to best to define and  measure the gender pay gap. Elsewhere, Australia's biggest banks have made great strides in improving workplace gender equality but still have a way to go in appointing female leaders. California's law requiring certain publicly traded companies  to include women on their boards will more than double the total number of female-held board seats in the state. Other U.S. state governments, including New Jersey, Illinois, and Massachusetts, have taken efforts to introduce similar legislation related to gender diversity on boards of directors.

Despite notable progress over recent years — particularly in Europe, where the region leads the U.S. in closing the CEO gender gap at blue chip companies — female executives remain grossly underrepresented in the C-suite and discrimination and misconduct remain pervasive. As the benefits of gender-diverse leadership grow more apparent, the oil and gas sector, for example, continues to struggle to boost the number of women in leadership positions. Women now occupy less than one-fifth of senior leadership spots at energy companies around the world, but trends this decade show growth for women on boards of directors, in career paths leading to the executive suite, and at the C-suite level.

As the benefits of gender-diverse leadership become ignorable, public companies will continue to face pressure from investors to act accordingly. The first episode of our Change Pays podcast explores how S&P Global’s Women’s Research Council assigned gender to data through a proprietary algorithm that is now in the process of being developed into a potential product by Kensho. Additionally, S&P Global’s ESG Solutions evaluate gender diversity and equity among other ESG factors. Our portfolio includes comprehensive company-level ESG metrics, vital data, market benchmarks, analytical tools, and standards to help customers create resilient strategies to maximize financial performance, build a sustainable future, and meet the expectations of an evolving market. Our comprehensive view of ESG throughout global markets provides companies, financial institutions, and governments with everything from ESG indices to in-depth evaluations, energy scenario planning, and company-specific ESG data to help them make more informed, sustainable decisions.

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