Climate change: the need for more diversity in boardrooms

Despite improvements in gender equality, numbers are still lagging. The link between gender diversity and carbon footprint may not be obvious. Of five groups of businesses, the least diverse were twice as likely to fail to disclose the bare minimum of GHG data as the most diverse. A 2019 Credit Suisse study found that companies with a high percentage of women on the board, and within management, outperformed their less diverse counterparts. It makes sense that a diverse and inclusive team is more competitive in today’s globalized economy. Barbara Krumsiek, former chief executive of Calvert Investments, and a board member of asset management firm Arabesque, discusses the need for more diversity in an article on the inews website.

 

We need more diverse boardrooms to address the climate crisis

In recent years, national governments have strengthened their commitment to addressing the climate crisis.

The UK has said it will reach net-zero emissions by 2050. President Xi Jinping has pledged China will do the same by 2060. And Joe Biden is expected to prioritize climate goals, having already pledged to rejoin the Paris Agreement on climate change.

Countries will be looking at their supply chains to see where emissions can be reduced. International co-operation will be stepped up, too, especially with flagship events such as COP26 happening later this year. But while national governments increase efforts to combat climate change, the private sector has its part to play too.

It could start by improving its gender diversity.

In 2021, leading on corporate diversity is no longer a good press exercise, but something which can boost both financial performance and environmental impact.

The private sector should step up

The link between gender diversity and carbon footprint may not be obvious. After all, while companies around the world have been switched on to the fact that greater diversity equals better performance for many years now, that performance has usually been viewed through a financial lens alone.

Perhaps understandably so. A 2019 Credit Suisse study found that companies with a high percentage of women on the board, and within management, outperformed their less diverse counterparts. It makes sense that a diverse and inclusive team is more competitive in today’s globalized economy.

Diversity delivers

In fact, diversity across a business has wider implications, including – most significantly – for that business’ carbon footprint. Recently, Arabesque looked at the data from more than 2000 companies around the world, and found that as diversity increased, so did corporate transparency, which included how likely it was that a company would make its volume of greenhouse gas emissions public.

Companies that are doing better on managing and reducing their greenhouse gas emissions are more likely to disclose adequately, since they will gain from that disclosure.

Of five groups of businesses, the least diverse were twice as likely to fail to disclose the bare minimum of greenhouse gas data (and thus earn themselves the highest ‘temperature score’) as the most diverse.

With this in mind, you would think that the diversity drive across global corporates would have gathered pace. Instead, it’s still stop-start. Many governmental bodies at the national level and below have implemented laws requiring firms to improve gender equality. But numbers are still lagging.

According to an analysis by Arabesque, as of the end of 2020 the median board of directors of S&P 500 constituent companies was only 25 per cent female, while the median percentage of female managers was barely higher, at 32 per cent.

Doing well by doing good

To truly achieve lasting change, we will need to move towards a place where the corporate world sets high standards for itself with respect to diversity and makes sure those standards are upheld. This can take the shape of external pressure. Goldman Sachs will no longer underwrite IPOs for companies with fewer than two board members from diverse backgrounds, and Nasdaq has proposed requiring that a business has at least one female director to list on their exchanges.

But self-enforcement becomes a lot easier when it can be seen instead as self-improvement. Increasing diversity across the business doesn’t just fulfil a company’s legal obligations, nor just improve the performance of their bottom line – though for many that might be enough. Instead, in a world which is more demanding than ever when it comes to doing business ethically, a more diverse company is better for the planet.

Winds of change

We still have a long way to go. Of some of the most heavily funded private companies, 60 per cent do not have any women on the board. There will need to be a major change to the long-standing, male-driven executive culture, but wise companies will look to the research and embrace it.

Companies who take the lead on climate change will also enjoy an improved image which extends beyond their employees to their customers, supply chain, local communities, and wider society.

This starts in the boardroom.

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