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Banking on gender diversity

What’s happening? Increasing the proportion of female directors improves the financial and environmental performance of banks, a study from the University of Messina in Italy has found. The researchers also found that having a greater proportion of female managers improves social performance. (Willey Online Library)

Why does this matter? Gender equality represents Goal 5 of the UN’s Sustainable Developed Goals (SDGs). Although great global strides have been made towards improving women’s rights, full gender equality today is still something that is far away from being achieved.

Covid-19 has also made it more difficult to achieve this objective – according to the UN the pandemic and associated lockdowns have widened economic and social inequalities for women, and it’s been estimated that women around the world have lost at least $880m in income due to the coronavirus.

The above study is particularly vital considering existing inequalities in the banking sector, but it is not the only one that argues how improving gender diversity can improve financial and environmental performance.

Multiple pieces of evidence – Other research has come to similar conclusions – a BloombergNEF analysis of around 2,800 companies found that emissions growth between 2016 and 2018 for companies with over 30% female boards was 0.6%, in comparison to companies with no women on the board which had a 3.5% rise in their emissions. A recent Canadian study also found a positive link between gender diversity and firms’ environmental performance.

Other research, meanwhile, has confirmed that gender diversity tends to improve financial performance. Credit Suisse, for instance, analysed 30,000 senior executives at around 3,000 companies globally, and found that firms where women held more than 20% of management roles generated 2.04% higher cash flow returns on investment than firms where women held 15% or less of management positions.

It should be noted conflicting research also exists. Alex Edmans, professor of finance at the London Business School, has argued that the evidence greater diversity leads to improved financial performance is lacking. He does add in his argument, however, that diversity is desirable in its own right.

So, why improved environmental performance? Women in senior management positions may express a greater concern for stakeholder engagement – meaning they more thoroughly consider the effects business activities may have on communities, customers and wider society.

Some research has also suggested that contrasting views on the environment between men and women can be beneficial. For instance, women tend to care more about environmental issues, whereas men are more concerned about the financial impact of considering environmental issues. These contrasting viewpoints can result in decisions that create value for both the environment and the company.

And why improved financial performance? Women have been shown to express a greater concern for social relationships, so they may be able to relate to their colleagues better and have a good understanding of their needs. This gives women in senior management the ability to motivate higher levels of productivity.

Another point to consider is that, unfortunately, women often have to be twice-as-good as their male colleagues to reach the same level of seniority at some firms.

More gender diversity at a company also means more cognitive diversity, meaning a greater variety in the way people approach and solve problems. Cognitive diversity may help improve financial performance.

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Mubaasil Hassan

Sustainable Finance Curator

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