Companies perform better on environmental and social (E&S) measures after their boards appoint female directors. So says new research from the Université Paris-Dauphiné.
After looking at French companies following the introduction of mandatory French gender quotas in 2011, researchers Edith Ginglinger and Caroline Raskopf conclude that female board directors do indeed bring about an improvement in a company’s performance on E&S measures. The pair compared the performance of French companies applying the quota law to control groups that did not, and with US companies. On both comparisons, E&S at companies with female directors was better.
“We find that after the introduction of the quota law, the E&S performance of French firms is enhanced,” the researchers conclude.
The research suggests female directors play a significant role in the drive towards ESG factors as investors and regulators pile pressure on business to help in combatting climate change. As the researchers point out, there are now more than 3,000 investment firms signed up to the Principles for Responsible Investment with around $103trn in assets under management, up significantly on the $21trn and 203 investors in 2010.
What’s interesting are Ginglinger and Raskopf’s conclusions about why women appear to make the difference. Firstly, they find that there are more ESG committees around in companies after introduction of the quota law. Secondly, those committees are more likely to be chaired by women.
However, even when companies choose not to create a specialist committee of their board, E&S performance is boosted because women exert influence elsewhere, especially through audit and nomination committees where they often become the chairs. The findings suggest leadership of committees is also a key factor in pursuing ESG policies and projects.
“These committees play a key role in terms of E&S,” Ginglinger and Raskopf write. “In particular the audit committee monitors the E&S disclosures and control, and the nomination committee oversees the screening in terms of expertise and skills related to E&S.
“If female directors are more orientated toward E&S policies, their increased power in board committees enables them to promote these policies.”
‘Benevolent and non-conformist’
But the writers do not only look at the role of women in boardroom structures; they also ask why women make a difference. What characteristics do they have that switch a company on to E&S?
They decided to measure for key characteristics. Using roles in government, charities and universities as a proxy for “universalism”, an experience of HR, the health and education sectors as a proxy for benevolence, and coming from outside “traditional networks” as a stand-in for non-conformism, Ginglinger and Raskopf found that female directors are likely to be “more benevolent and non-conformist”.
However, they also found that whether female directors have these characteristics or not, the results remain largely the same: E&S performance is better with women on the board. It is therefore the “intrinsic qualities” of women that appear to make a difference.
“Our findings suggest that female directors have unique qualities, experience and social preferences that enable them to steer firms toward more E&S orientated policies. Board gender quotas allow women to act with more authority, allowing them to assert their priorities,” the authors write.
The findings come as a focus on ESG and boardroom diversity intensifies. Companies increasingly use ESG measures as a component of pay incentives while in the UK the Hampton-Alexander Review has expressed concern about the lack of women in executive teams. At the same time fresh research appears to show that firms with high gender diversity are more profitable. In the US the Biden administration is pushing for more mandatory ESG disclosures.
Ginglinger and Raskpf offer a fascinating angle on the relationship between companies and environmental and social concerns. Perhaps it may also leave readers wondering why men appear to be laggards on these issues. Regardless, as the climate crisis intensifies there will be an increasing focus on boardroom policy-making and personnel. This research will help ensure it remains there.