The global pandemic has increased the emphasis on sustainability, and thus on how businesses address the challenges posed by various environmental, social, and governance factors (ESG). This is due, in part, to increased shareholder pressure. It appears that women can play a significant role in driving change.

A company's approach to sustainability carries significant financial, reputational, and regulatory implications. Social and sustainability bonds are increasingly becoming an even greater part of financing. Finding new ways to evaluate a company's likely performance on sustainability is therefore growing in importance.

Women lead the way on sustainability efforts

In order to highlight their commitment towards causes that have greater impact on the global ecosystem, an increasing number of companies are now appointing a "head of sustainability." This is part of efforts to embed such factors into their business model.

We find that companies are more likely to choose women than men to head their sustainability portfolio. The proportion of female "Sustainability Heads" stands at almost 45% in our global dataset, more than double their percentage in management as a whole and above that for shared services roles. Many of the executives who head the sustainability initiatives for companies combine them with other executive functions.

Company gender diversity vs its ESG scores

A company's ESG rating can have a direct impact on its access to capital or indeed capital requirements. In that respect, a company's ESG rating affects its cost of capital and ultimately its share price, making the role of growing significance. However, it is not only its sustainable investing approach that makes a company score highly on ESG criteria.

Considering that gender equality is highly relevant from an ESG perspective and given the observation made about the growing relevance of good ESG, we are not surprised to find that companies with above-average representation of women in management or on the board outperformed those that don't have that characteristic.

However, it turns out that companies with a higher share of women in management tend to score substantially better across all three areas of ESG. It is natural that these companies score better on social-related issues given the fact that gender forms part of it, but it appears that companies with a greater share of women in management tend to also have a greater focus on more sustainable environmental and governance policies.

Female-led startups tend to care about social impact

What is more, in the entrepreneurial field it seems like women are more attuned to social matters than men.

Making money is a key driver for aspiring entrepreneurs. While we find evidence that the pursuit of profitability is the top priority for both men and women, it is not the only consideration. Many also launch businesses with social impact as the primary objective (often known as social enterprises).

Why should ESG scores matter to investors?

Companies with a greater share of women in management tend to score better in terms of overall ESG rankings than companies that do not. Also, levels of company diversity display a correlation with the prevalence of ESG investing.

The rising importance of ESG-related investments suggest that companies that score better in terms of ESG should, all else being equal, be more likely to outperform their peers that score below average on ESG.

Source: Credit Suisse news