What is the main obstacle to strengthening women’s empowerment strategies? Men. Power sharing is never easy. For companies, the incentive to strengthen women’s empowerment is further weakened by the fear of short-term impacts on profits. For example, gender pay equalization, improving parental and parental leave policies, or setting minimum wages in female-dominated sectors such as hospitality, agriculture, and textile production all increase wage costs.
Similarly, investors who focus only on short-term results will also be less supportive of greater female empowerment in the workplace. Thankfully, however, investors are a diverse group. Long-term investors, such as pension funds, recognize the sustainable benefits that a diverse, equitable, and inclusive workplace brings. Well-diversified investors with exposure across markets also recognize that the entire economy, and therefore the entire market, benefits when all workers are empowered to be at their fullest productivity and all consumers are freer to buy and invest. Observers have noted investors’ “unparalleled ability” to influence companies to better manage their human rights impacts, including those on gender equality. When their obligations to clients, customers, and beneficiaries include maximizing long-term returns, investors have a key role to play in reducing inequality.
It’s generally accepted that diverse companies perform better in the long term. The Sustainability Accounting Standards Board (SASB), an investor-backed organization that develops industry-specific disclosure standards that form the basis of mandatory financial sustainability reporting globally, argues 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 and services that reflect the needs of a diverse consumer base.” Academic studies have demonstrated that specific DEI policies have had an immediate positive effect on financial performance. In one example, U.S. companies that implemented same-sex domestic partner benefits (SSDPB) saw substantial and lasting improvements in company value and operations. Studies have demonstrated a positive relationship between paid family leave, paid sick leave, and company productivity, as well as lower stock prices associated with lower perceptions of sexual harassment and employment discrimination settlements.*
Even in the absence of data on the short-term impact on individual companies, there is growing evidence that DEI has a positive impact on the economy and market systems as a whole. For example, a study by the Federal Reserve Bank of San Francisco found that equalizing labor market opportunities and returns to labor productivity by ethnicity, race, and gender would benefit the U.S. economy by $70.8 trillion in 2019 dollars between 1990 and 2019.
That’s why long-term, diversified investors are taking action to advance DEI. Over the past decade, at least 93 companies have faced 175 shareholder proposals on racial and gender pay disparities, with 15 of those filed for the 2024 annual meeting season. In 2020, New York City Comptroller Scott Stringer and the New York City Retirement System negotiated board and CEO diversity search policies with 14 companies, including 13 in response to shareholder proposals. Large U.S. investors have also successfully promoted board diversity as an engagement priority. The NASDAQ stock exchange proposed regulations that would require all listed companies to have a certain number of diverse directors or disclose reasons for non-compliance. Companies have begun issuing sustainability-linked bonds, which until recently were primarily used to incentivize issuers to reduce climate risks, with KPIs tied to gender equality.**
Regulators are also recognizing the value of investor support for DEI. In March 2023, Mexico became one of the first countries in the world to incorporate gender equality into its “Green Taxonomy.” The Green Taxonomy classifies activities that contribute to mitigating climate change or improving society, making them eligible for financing through green bonds and ESG funds that stimulate investor demand. To be considered sustainable, each investable project is given a weighted score on factors such as equal pay, equal access to opportunities, access to healthcare, and gender-focused health. More recently, Brazil announced a consultation on its own Green Taxonomy that follows Mexico’s model in taking inequality issues into account.
But progress for investors promoting DEI is not unstoppable. Nasdaq’s rules are currently embroiled in a legal battle, and U.S. investors promoting gender equality are beginning to find themselves the target of litigation. While the ultimate outcome of these lawsuits is unclear, one thing is certain: women’s empowerment is irreversible, and capital providers realize that there is money to be made by bucking this trend.
*Benjamin Bennett et al., “Paid Leave Pays: The Impact of Paid Family Leave on Corporate Performance,” NBER Working Paper No. w27788, (September 2020); Liangrong Chunyu, Paolo F. Volpin, and Xingchen Zhu, “Does Mandatory Paid Sick Leave Increase Productivity?” SSRN (December 2, 2022); Shiu-Yik Au, Ming Dong, and Andréanne Tremblay, “To What Extent Does Sexual Harassment in the Workplace 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): pp. 40-57. Julie Gothe, “The Financial Impact of Diversity and Culture,” IMPAX Asset Management, August 2023.
**Josephine Richardson and Ulf Erlandsson, “SLBs: Complementary, My Dear Investors”, Anthropocene Fixed Income Institute, April 13, 2023; David Uzusoki and Safa Rahim, “Policy Brief – Integrating Gender into Sustainability-Linked Bonds: Innovating Multi-KPI Sustainability-Linked Structures”, IISD, October 2021
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