Do women hold the key to companies' environmental leadership?

Analysis hints at possible link between female representation and strong environmental records

Do women hold the key to companies' environmental leadership?

With social issues taking a bigger share of the spotlight among ESG investors, female representation on corporate boards is likely to become a bigger issue for proxy seasons ahead. As of now, companies are showing mixed progress on that front.

According to a new analysis from MSCI, growth in gender diversity on boards is slowing down overall. But within that aggregate number are encouraging cases of companies that have appointed three women to their boards, and have managed to maintain that diversity for at least three years. As small as that win might sound, it’s magnified within the context of the COVID-19 pandemic, during which a disproportionate number of women compared to men considered downshifting their careers or leaving the workforce.

“Among the 1,290 (44.8%) MSCI ACWI Index constituents that had at least three female directors, only 547 (19.0%) have sustained this level of board diversity for at least three years,” reported Christina Milhomem, senior associate at MSCI Research, in a blog post.

Focusing on the companies that have sustained a critical mass of female directors – specifically, three appointed female board members for at least three years – MSCI found that 33.3% had achieved leader status with their MSCI ESG ratings, and 9.7% were ESG laggards. In contrast, companies whose boards didn’t have the same magnitude or staying power of female representation had just 16.2% ESG leaders, and 23.8% ESG laggards.

“As the contribution of gender diversity to the rating is less than 0.3% on average, the difference in the ESG ratings of these two groups was surprisingly large,” Milhomem said.

The primary contributor to the rating differences, she said, was the environmental practices adopted by the companies. Those with sustained board diversity did not necessarily have the best records in three-year average carbon-emissions intensities. But looking across all sectors, such companies did have stronger three-year reductions in carbon-emissions intensity than their sector peers.

“In addition, our preliminary analysis indicates that companies with sustained board diversity were more likely (16% versus 6.3%) to have environmental targets linked to executive compensation,” Milhomem said, citing a sample size of 525 company disclosures.

The next question, she said, is whether the correlation represents causation. It’s possible that sustained board diversity creates an active force that drives differences in environmental performance; on the other hand, women may also be more inclined to join boards of companies that have stronger practices with respect to environmental preservation.

 

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