#IWD: Seeking gender balance inside and outside of the boardroom

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The World Economic Forum Global Gender Gap Report 2020 forecast that it will take 257 years at the current rate to close the gender gap for Economic Participation and Opportunity. It also states that only "36% of women are in senior positions", demonstrating slow change in gender equality, a fact supported by this research from RobecoSAM. Gender diversity is a key element of good corporate governance and is more representative of companies' client and customer markets. The IMF in 2017 stated that gender inequality is linked to "sub-optimal economic growth" as our research indicates.

RobecoSAM considers gender "equality" to be a broader issue than "diversity". Equality in the workplace encompasses equal pay, equal access to career advancement opportunities for men and women at all levels of the organization, employee well-being programs, as well as levelling the proportion of men and women in the workforce.

Slow progress - globally and across sectors

RobecoSAM researchers analyzed a unique dataset of over 20,720 firm-year observations collected through the SAM Corporate Sustainability Assessment (CSA) from 2013-2018, an ESG scoring methodology analyzing the impact of sustainability.

An increase in gender diversity on corporate boards was a positive finding from the global research, but at the management level, the increase has been minimal rising from 24% in 2013 to 26% in 2018. Furthermore data for the total workforce over the same time period shows little change.

Across industry sectors in 2018, the data shows a considerable gap between the proportion of women on corporate boards, compared to the greater proportion of women in the total workforce, with a similar pattern comparing women in management to women in the total workforce. This confirms that rising corporate rank equates with a greater gender imbalance.

Using regression analysis the research then looked at the presence of women at different corporate levels and the link with firm fundamentals. Dividing the data into quantiles enabled confirmation of the link between financial performance at each level: corporate board, management, and total workforce.

Significantly the results showed that more than 20% of women on the board, more than 30.2% of women in management, and more than 44.7% of women in the total workforce has a positive relationship with firms' returns, and EBIT margin, and a negative relationship with leverage ratio. Hence, firms' profitability and risk improve with gender diversity. This suggests a critical mass of women at each level would have a positive effect on organizational dynamics.

Often, improving gender balance in corporates is focused upon the lack of women holding board seats. However, the regression analysis also illustrated a positive link between a higher percentage of women in management positions and firms' profitability, returns, and earnings volatility - all characteristics of a firm's quality and the health of its operations. This highlights the importance of promoting gender diversity, and with particular attention to the composition of management teams.

Earnings stability is a characteristic of defensive and well-managed companies. As earnings are reflective of a firm's fundamentals and a driver of stock performance, volatile earnings may imply higher risk. RobecoSAM's research found that "top-tier" companies, with more than 30.2% of women managers, have exhibited lower earnings volatility than "bottom-tier" companies, (after controlling for industry bias), across all regions.

Where the glass ceiling prevails, there are opportunities for investors

The data also confirmed that a higher percentage of women on the board additionally contributes to improving financials, although to a lesser extent than at the management level.

But less positive is the correlation between the proportion of women in the workforce and the proportion of women at management level, at top management level, and at board level. The presence of women falls with corporate rank indicating that the glass ceiling may remain an obstacle for female career progression, while also limiting companies' capacity for future success.

As gender issues become more material to companies, they become a potentially valuable indicator for investors. RobecoSAM looks beyond women at board level to a more holistic assessment of workplace equality, including fair and transparent remuneration practices to reduce the salary gap, flexible workplace practices, childcare support, parental leave in excess of regulatory requirement, talent retention, various levels of workforce diversity and employee engagement trends.

Additionally, our proprietary ‘Gender Score' ranks companies based on their performance across such key criteria. To evaluate the Gender Score as a predictor of investment performance all companies in the universe are ranked and then divided into the top 33% (high score) and the bottom 68% (low score). Backtests show the high Gender Score portfolio outperformed the low Gender Score portfolio by 0.5% annualized per year, over the period June 2004 to June 2019 and with slightly lower volatility. Thus, creating a diverse and inclusive workplace environment, with equal opportunities and programs for all should be a strategic priority for all companies and presents a strong case for investors.

The RobecoSAM Global Gender Equality Strategy invests in companies with high degrees of gender equality combined with strong business fundamentals. It aims to achieve both attractive financial and social returns, while contributing towards UN Sustainable Development Goal 5, Gender Equality. Investors seeking competitive returns who take gender equality into account can play a role in driving positive change for one of the greatest global social challenges of our time.


Junwei Hafner-Cai is a portfolio manager at RobecoSAM