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How Can ESG Support Female Leadership?

A stock image of a group of women in a boardroom
Credit: Christina @wocintechchat.com, Unsplash

ESG adoption has been on a sharp rise, and so has criticism of it. ESG—which stands for environment, social and governance—is a framework used to assess a company’s impact on society and the environment, helping investors and stakeholders evaluate its sustainability and ethical practices.

As global awareness of sustainability and responsible business practices continues to grow, ESG has become a pivotal tool for assessing how well companies align with ethical, human capital and environmental considerations, while also laying the foundation for businesses to take sustainability beyond marketing.

As of Feb 2024, more than 90% of S&P 500 companies reported on ESG, indicating that adoption of its precepts is more than just a trend. Investors, ranging from institutional funds to individual shareholders, are increasingly considering ESG criteria when making investment choices. While the years 2021 and 2022 have seen a huge uptick in ESG investments, 2023 saw a downward trend as criticism of the framework continues to rise. Critics say the lack of standards, regulatory requirements and incomplete data collection prevents companies from getting closer to measuring and achieving gender equality.

ESG’s potential to effectively support women

Numerous studies have shown that having women in C-suite positions and enhancing overall diversity makes organizations more profitable (S&P’s When Women Lead, Firms Win and McKinsey’s Diversity Wins, etc.). According to Luisa Palacios, senior research scholar at Columbia’s Center on Global Energy Policy, gender-diverse corporate boards are a low-cost solution to achieve global standards. Yet businesses continue to overlook the opportunity to drive gender-transformative actions that could be harnessed through ESG metrics.

Investors are becoming more aware of the importance of gender diversity and equity in determining risks and opportunities. Still, women continue to be underrepresented in many sectors. For instance, they account for less than 20% of senior leadership positions in energy companies and 17% of chief information security officer roles in cybersecurity, among other examples that demonstrate the need to consider gender imbalances in hiring, training and promotions.

With growing ESG requirements, private companies stand to benefit from leading measures that support women’s entry, retainment and leadership in the workplace. Women are continuously undervalued in the private sector, as evinced by a UK gender pay gap report, where it currently stands at 7.3%; thus offering equal pay, training opportunities, mentorship, sexual harassment prevention workshops and investing in scholarships or funding opportunities to access STEM education are impactful measures to help women thrive in male-dominated sectors.

Governments are becoming more responsive to gender diversity requirements: The UK requires organizations to report on their gender pay gaps while California law mandates certain publicly traded companies include women on their boards. Openly reporting on gender pay allows investors, governments and civil society to hold companies accountable to their ESG standards and encourages equal pay. There are also initiatives helping to bridge the private and public sectors in achieving gender parity, such as the Gender Parity Accelerators. This national collaborative platform brings together ministers and CEOs to advance women’s labor force participation, pay equity and leadership. Nine countries in Latin America have committed to this initiative by creating gender certification programs for companies.

Regulators and policy makers should encourage the private sector to commit with both voluntary and mandatory ESG metrics on gender-related issues. There already are examples used to help companies measure gender equality undertakings. The Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the United Nations through the UN Global Compact and UN Women, and Bloomberg have recommended metrics to evaluate a company’s performance specific to women in the workforce.

Lacking a unified methodology

Despite the metrics available to improve gender equality in the workforce, such standards are not widely deployed and used more often by investors to make decisions. While there are regulations to report on Equal Employment Opportunity (EEO) data in the US and gender pay-gap data in the UK, human capital regulatory requirements are limited in terms of both number of requirements and definition in comparison with environmental disclosure requirements. This reinforces the need for policymaking and targeted government interventions to adapt standards into regulatory frameworks and laws as a commitment to gender equality. No one country has achieved full gender parity, but some of the ones leading this race had government incentives to bring metrics into regulation.

Furthermore, the vast interpretation of standards and lack of a unified methodology is drawing huge criticism of ESG. When investigating reasons for a downward trend in ESG investing, it can be observed it was not due to lack of importance—rather it’s due to the vast interpretation of standards and the overall number of standards. Unless a more detailed guidance is given on these metrics, it will be challenging for widespread adoption and comparability. 

Despite progress in human capital systems and data collection, many companies lack robustness in gathering human capital data compared to financial data. While most S&P 500 companies report on both “environment” and “human capital” metrics, only a few ensure the same level of reliability and accuracy. Gender-related data collection inadequacies within organizations hinder disclosure of gender-related metrics. Robust data collection mechanisms are crucial for accurate gender-related information.

Implementation remains challenging and organizations’ leadership must recognize gender equality is key to operations as part of the UN 2030 Agenda, through Sustainable Development Goal 5. At the current rate, it will take 286 years to close the gender gap and 140 years to achieve equal representation in leadership at the workplace. Business leaders will have to choose between the status quo or leading transformative efforts to make our planet more just and inclusive. This begins by robust data collection and reporting along with actions to increase gender parity.

Eduarda Zoghbi is a SIPA MPA-EE graduate (’22) and currently works as a climate and energy specialist for Climate Investment Funds. Sindhuja Kanteti is an emissions technical advisor at Baker Hughes, an energy and technology company. The views and opinions expressed here are those of the authors and do not necessarily reflect the official policy or position of their employers.

Views and opinions expressed here are those of the authors, and do not necessarily reflect the official position of the Columbia Climate School, Earth Institute or Columbia University.

Columbia campus skyline with text Columbia Climate School Class Day 2024 - Congratulations Graduates

Congratulations to our Columbia Climate School MA in Climate & Society Class of 2024! Learn about our May 10 Class Day celebration. #ColumbiaClimate2024

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