What is the main impediment to enhancing women’s empowerment strategies? Men. Sharing power is never easy. For business, the incentive to enhance women’s empowerment is made even weaker by the specter of short-term impacts to the bottom line. For example, achieving gender pay parity, improving childcare and parental leave policies, or setting a living wage for female-dominated sectors in hospitality, agriculture, and textile production all increase wage costs.
Investors who are solely focused on short-term results likewise won’t be very approving of enhanced women’s empowerment in the workplace. But thankfully, investors are a heterogeneous bunch. Long-term investors such as pension funds recognize the sustainable benefits of a diverse, equitable and inclusive workplace. Well-diversified investors who are exposed to the entire market also recognize that when all workers are empowered to be their most productive, and all consumers can better afford to buy and invest, the whole economy, and thus the whole market, benefits. Observers have noted investors’ “unparalleled ability” to influence firms to better manage their human rights impacts, including impacts on gender equality. When duties to their clients, customers, and beneficiaries include maximizing long-term returns, investors have a key role to play in reducing inequality.
It is generally acknowledged that diverse companies reap positive long-term financial performance. The investor-backed Sustainability Accounting Standards Board (SASB), the producer of industry-specific disclosure standards that are poised to be the basis of mandatory financial sustainability reporting globally, holds that diversity, equity and inclusion (DEI) “can create a more inclusive environment and reduce the risk of discrimination and harassment, [and] help teams within a company develop products or services that reflect the needs of a diverse consumer base.” Academic studies have documented immediate positive effects of certain DEI policies on financial performance. In one example, U.S. businesses which adopted same-sex domestic partnership benefits (SSDPB) saw substantive and permanent improvements in firm value and operations. Studies have been able to demonstrate the positive relationship between paid family leave, paid sick leave, and firm productivity, as well as stock price declines associated with low-level perceptions of sexual harassment or employment discrimination settlements.*
Even in the absence of data on short-term impacts to an individual company, there is mounting evidence that DEI has positive effects on the economy and market system as a whole: a study by the San Francisco Federal Reserve, for example, found that equalizing labor market opportunities and returns from labor productivity by ethnicity, race and gender would have produced gains to the U.S. economy, between 1990 and 2019, of $70.8 trillion in 2019 dollars.
That is why long-term, diversified investors act to advance DEI. Over the last 10 years, at least 93 companies have faced 175 shareholder resolutions regarding their racial and gender pay gaps, including 15 filed for the 2024 Annual Meeting season. In 2020 New York City Comptroller Scott Stringer and the New York City Retirement Systems negotiated Board and CEO diversity search policies with 14 companies, including 13 in response to shareholder proposals. The largest U.S. investors have also successfully promoted board diversity as an engagement priority. The NASDAQ stock exchange has proposed a regulation for all listed companies to have a certain number of diverse directors or disclose the reasons for non-compliance. Companies have begun issuing sustainability-linked bonds, vehicles which until recently were predominately used to incentivize issuers to reduce climate risk, with KPIs connected to gender equality.**
Regulators also see the value in investor support for DEI. In March 2023, Mexico became one of the first countries in the world to insert gender equality into its “green taxonomy.” Green taxonomies classify activities that contribute to climate mitigation or social improvement, so that these can be financed through green bonds or ESG funds that stimulate investor demand. To qualify as sustainable, each investable project receives a weighted score for factors such as equal pay, equal access to opportunities, access to care and gender-focused health. More recently Brazil issued a consultation on its own green taxonomy that follows the Mexican model in its consideration of inequality issues.
Investor progress in promoting DEI is not unstoppable, however. The NASDAQ rule is currently enmeshed in a court battle, and U.S. investors who promote gender equity are now finding that they are also the targets of lawsuits. The ultimate outcome of these suits is unclear, but one thing is certain: there is no going back on women’s empowerment, and the providers of capital are aware that there will be money on the table if they turn their backs on the trend.
*Benjamin Bennett et al., “Paid Leave Pays Off: The Effects of Paid Family Leave on Firm Performance” NBER Working Paper No. w27788, (September 2020); Liangrong Chunyu, Paolo F. Volpin, and Xingchen Zhu, “Do Paid Sick Leave Mandates Increase Productivity?” SSRN, (December 2, 2022) Shiu-Yik Au, Ming Dong, and Andréanne Tremblay, “How Much Does Workplace Sexual Harassment Hurt Firm Value?” Journal of Business Ethics, (February 2, 2023); C. Elizabeth Hirsh and Youngjoo Cha, “Employment Discrimination Lawsuits and Corporate Stock Prices,” Social Currents 2, no. 1 (March 1, 2015): 40–57 ; Julie Gorte, “The financial impact of diversity and culture,” IMPAX Asset Management, August 2023.
**Josephine Richardson and Ulf Erlandsson, “SLBs: complementary, my dear Investor,” Anthropocene Fixed Income Institute, April 13, 2023; David Uzsoki and Safa Rahim, “Policy Brief – Integrating Gender in Sustainability-Linked Bonds: Innovations in multi-KPI sustainability-linked structures,” IISD, October 2021
