How Gender Equality Drives ESG Funds in 2023

Published on:
by Eric Burdon
Image of letters for equality surrounded by cutouts of men and women
Image by Freepik.

ESG and sustainable investing have only grown over the years as social and environmental concerns are on the rise. One particular social aspect investors are keen to consider is gender equality, a metric that companies have no issue touting these days. Whether it’s showing how many women are in executive or board positions (or lack thereof), there is no doubt gender equality forms a big part of ESG’s identity.

This is to be expected, as companies that embraced gender diversity earlier have been enjoying various benefits. When it comes to ESG funds, gender equality plays a crucial role in several ways. Here is how this social aspect drives ESG funds currently.

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It’s A Huge Incentive

To start, gender equality is part of the ESG fund's identity. That is, many include gender equality as a criterion when they are including companies in their portfolios. Beyond that, rating agencies also consider gender equality as a means of determining their “S” score.

Overall, when a business has high scores in all three areas, it has a much higher chance of being included in ESG-focused investment strategies.

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Investors Want It

Part of the reason anti-ESG funds are floundering is that the average investor, as well as the public, has some level or a lot of awareness of social issues. Gender equality is one of those issues, and so people do pay attention to gender issues to some extent, whether that’s displaying a lack of diversity in a start-up or a company touting its diversity.

In terms of investors, they pay particularly close attention to this and ensure that the companies they invest in make gender equality a priority.

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Disclosures Drive Gender Equality

Even though government regulation is heavily focused on environmental impact right now, reporting on social aspects will eventually arrive. This adjustment shouldn’t be as much of an issue as many companies disclose gender equality in their ESG reports.

Even though some companies are already doing this, having governments step in to either encourage or require companies to report these numbers will add further incentive.

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Shareholder Activism

Both disclosure and investor demand continue to further impact gender equality in ESG because they're reinforced by shareholder activism. Not only do shareholders invest in these companies, but they continue to insist this issue be addressed through shareholder proposals and engagement efforts.

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Performance Ratings

Going back to studies, there is a steady trickle of studies that make a positive connection between gender diversity and financial performance. Those studies are reinforced by other benefits as well, which continue to reinforce the message that the more gender diverse a company is, the better.

As more studies and research support this connection, more ESG investors, as well as companies, will understand how important gender equality is. These studies ultimately serve as a way to reinforce and incentivize investing in gender equality and the companies that make an effort to do so.

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Gender Equality And Diversity Are The Mark Of Good Business

Of course, there are many other factors that affect financial markets and ESG investing. As humanity progresses and our societal attitudes change, these particular issues will change as well.

But what’s important to know now is that out of the many factors for growth in a business, gender diversity and equality are one piece of the big puzzle that marks a business as a good one to invest in.

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