Why ESG can only benefit from more women at board level

Research shows investors favour companies with boards that are both gender diverse and have ESG expertise. Since women directors have the edge in sustainability, why are they still underrepresented at the top level?

Women’s interest in the environment can be seen at least as far back as the Greenham Common anti-nuclear protests of the 1980s. These days, women are not only well informed and making their voices heard – witness activists such as Greta Thunberg – they are also driving change within business and finance. Reports claiming this abound.

An RBC Wealth Management report says that women are now “leading the charge for ESG investing”. While, consultancy Oliver Wyman’s “Climate Action Gender Gap” 2021 report says research shows “women are the most likely change‑makers for climate in economic areas from corporate leadership to product development”.

The same report, however, says women’s underrepresentation is prevalent across the corporate sector. And while more than a fifth of major corporations have pledged to reach net zero emissions by 2050, few actively include or consider women in their climate action decisions and plans, according to the study.

This failure is a “mistake”, Oliver Wyman concludes. “Women are growing in importance as investors who have a stronger preference than men for investing that prioritises ESG factors,” it says. The report cites evidence that female investors are more than twice as likely as their male counterparts to prefer to invest in companies that integrate ESG factors into their policies and decisions, as presented by the RBC study; and that, based on a Kleinwort Hambros research, 65 per cent of women believe ethical investments are of high priority.

Progress in the corporate sector on both diversity and climate action is “glacial”, says Oliver Wyman.

Men vs women

While the UK female to male ratio is relatively even – 33.94mn compared to 33.15mn, respectively, in 2020 – this gender parity is not reflected by business, especially at board level. As of November 30 2022, in the FTSE100, 39.6 per cent of companies had a woman on their board. In only six of these companies did women make up more than 30 per cent of the board, while out of 100, only 10 had a female CEO.

The situation appears to be slowly changing, in the UK at least. Fifty-eight per cent of UK financial services board appointments in the last year were female, compared to 50 per cent across the whole of Europe, according to the latest EY Financial Services European Boardroom Monitor, published in January 2023.

In the UK, gender diversity is highest across wealth and asset managers’ boards, where 45 per cent of directors are female and 55 per cent are male; in mainland Europe the split is 40 per cent female and 60 per cent male. The gender split is lowest among UK bank boards, where 41 per cent of directors are female and 59 per cent are male, shows EY’s research.

Across Europe, gender diversity is most balanced on boards in the banking and insurance sectors, where 43 per cent of board members are female and 57 per cent male.

The EY report also highlights the importance to investors of gender parity, showing 44 per cent said gender diversity in the boardroom significantly influences their decision to invest in a financial services company, compared to just 16 per cent who said it does not influence their decision at all.

It also showed that 51 per cent of investors believed boardroom experience in sustainability has a “significant” impact in making a company attractive for investment, with 22 per cent rating it “highly significant”.

Sustainability experience is most prevalent among female board members, says EY. The gender split across financial services boardrooms in Europe is 58 per cent male and 42 per cent female, yet 72 per cent of board directors with experience in sustainability are female. In the UK, the split is 57 per cent male and 43 per cent female, with women accounting for 64 per cent of board directors with experience in sustainability.

Legal risks

Fewer women and a limited ESG focus are not simply investment questions: boards failing to engage fully with sustainability and properly manage climate risk also increasingly risk legal action.

In March 2022, ClientEarth, an environmental law non-profit, began legal action against Shell’s board of directors, arguing that their failure to properly prepare the company for net zero puts them in breach of their legal duties. Likewise, in February 2020, ClientEarth’s then CEO James Thornton wrote to the board members of Barclays urging them to support a phasing-out of fossil fuel funding, saying “board members are required by law to consider and manage material risks to their business, including climate change”.

Ignoring ESG holds reputational risk too. The Banking on Climate Chaos report published last year by a group of environmental groups concluded that Barclays was the seventh largest banker of fossil fuels in the world, having provided a total of $167bn to coal, oil, and gas companies since the signing of the Paris Agreement in 2015. In a separate study from 2022, UK NGO ShareAction found Barclays was one of the top European banks providing the most funding to expanding oil and gas companies.

Data published by Statista in October 2022 also suggests Barclays is the UK’s least gender diverse bank, with women accounting for only 28 per cent of its managing directors. Meanwhile, it found that, in 2021, just 33 per cent of directors and 25 per cent of the bank’s executive committee and executive committee direct reports on its board were female.

Barclays questions the methodology and comparability of this data, given the differences in the way different UK banks are structured. It says that at the end of 2022, its board gender diversity was at 38 per cent, a figure still way off parity.

“We cannot expect an industry to shift if it is led by the same people who built it,” Bianca Pitt, co-founder of the campaign She Changes Climate told Sustainable Views.

“To see a shift in the banking industry, we need to be serious about letting women lead the sector. It is up to shareholders to bring diverse experience onto boards, make space for new thinking and decisive action.”

Pressure from inside a company may be more fruitful than that from protests outside office buildings, including those that break the law. It is sadly ironic to see that among the seven women found guilty of smashing windows at Barclays’ headquarters in 2021 in protest against its fossil fuel financing, and which received suspended sentences on Friday, is the founder of an ethical banking company.

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