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Gender Equality and Climate: Synergies

Written by: Julie Gorte, Ph.D.Impax Asset Management

Climate change is a story that encompasses everyone — believer, denier, rich, poor, black, brown, white, majority, minority, male, transgender, female, bi. It’s an equal opportunity wolf at the door. But, as is the case with diversity in almost every pursuit, more diverse groups bring more to the table, and considering that climate change is the most important problem humans must solve, diversity has a contribution to make to climate change.

Specifically, there’s an emerging story about women and climate change. The usual narrative on this topic goes something like this: Climate change will take a greater toll on the poor than on the rich. Women are more likely to be poor. Women will suffer more as the globe warms than will men. That’s all true. But there’s a more hopeful, useful narrative: More gender diversity in climate decision-making gives us a better toolkit to address climate change, a problem that threatens us like none we’ve ever confronted before.

We know from many years’ worth of academic and business literature, including the results of our own gender-focused investment strategy,[1] that diverse groups tend to make better decisions than homogeneous groups. Companies, organizations and governments that invest in women are better positioned for success but also contribute to a more harmonious and resilient society by applying a broader, more diverse perspective to big problems, essentially giving us a better shot at making smarter decisions about the threats we face.[2]

Investors who steer their dollars toward companies that understand this contribute to solutions.

Consider the literature. Research has shown that more diverse teams make decisions faster, with fewer meetings, and deliver superior results.[3] McKinsey research showed that companies in the top quartile for racial and ethnic diversity in management were 25 percent more likely to have financial returns above industry means, and companies in the top gender diversity quartile were 15 percent more likely to have above-industry-average performance.[4] These are not unusual results. Why do diverse groups do better? Diversity helps teams avoid groupthink and focus more on facts and less on assumptions or memory, and diverse groups are more likely to remain objective.

These attributes of diverse-group decision-making help us to understand why boards and executive suites with more gender balance might tend to be better about acknowledging and dealing with climate change. But do they? There is some evidence that this is happening. Two studies have shown that more gender-diverse boards are significantly more likely to respond to the annual Carbon Disclosure Project (CDP) questionnaire that asks companies to report their emissions, climate risks and opportunities, and the degree to which they are managing those risks and investing in decarbonization or resilience opportunities. One of those studies looked at all CDP responders, across 33 countries,[5] and one[6] looked only at India; both found that companies with more gender-diverse boards were more likely to report to the CDP. Both of these studies comport with another[7] that found a positive association between the gender diversity of company audit committees and ESG reporting generally.

A company that reports on its risks and opportunities with respect to climate change is simply better prepared to manage those risks and opportunities than a company that doesn’t understand the impact of climate on its operations.

Of course, reporting is not the same as solving the climate problem, but it is, for companies, step one. A company that reports on its risks and opportunities with respect to climate change is simply better prepared to manage those risks and opportunities than a company that doesn’t understand the impact of climate on its operations. But to address the real problems that climate poses, it’s crucial that companies move beyond reporting and on to the things that must be done to prevent a climate crisis. Here, too, there is some evidence of a gender diversity link.

A study[8] published last year found that firms with female CEOs have lower air, water and greenhouse gas (GHG) emissions than their peers and receive fewer environmental penalties. That study also helped reinforce the initial correlation by noting that toxic emissions were reduced when the CEO transitioned from male to female. That reinforces an earlier paper[9] from UC Berkeley that found companies with more women in the upper echelons of decision-making were more likely to invest in renewable power generation; integrate climate change effects into developing products designed to help customers manage climate risks; measure and manage GHG emissions in the company and its value chain; and otherwise create solutions to manage and reduce environmental risks.

Climate change presents us with the kind of problem that humanity has proven, over millennia, to be incapable of solving. Read Jared Diamond’s book “Collapse,” or Richard Conniff’s article “When Civilizations Collapse,” or Naomi Oreskes and Erik M. Conway’s “The Collapse of Western Civilization: A View From the Future,” and it is instantly apparent that solving problems that require discernment of threatening long-term trends or present-day actions to avoid impacts generations into the future, or those that present obstacles that living people have never experienced, is something humans absolutely have not mastered. Hedonism is far more gratifying, in the present, than altruism for generations not yet born.

To solve this problem requires us to be not only forward-thinking but innovative — and that is something humans are good at. Here, too, there is evidence that gender diversity can provide a useful assist to innovation. Companies with more gender-diverse boards have been shown to have more patents, and more novel patents.[10] Moreover, companies with more gender-diverse boards also tend to have cultures that are more tolerant of failure and tend to provide long‑term performance incentives. Both of those are essential to the business of innovating in the private sector. While it may sound odd to extol failure tolerance as a virtue, it is useful to remember that innovation is something we don’t know how to do if the only thing that is tolerated is success. Thomas Edison is reputed to have said, “I have not failed. I’ve just found 10,000 ways that won’t work.” Any company that demands that every innovative effort be rewarded with a commercial product is not a good candidate for survival. Having a board that understands that innovation involves much trial and error is a positive attribute.

In the long run, of course, an infinite capacity for tolerating failure is not a winning strategy. Failure is just a step along the road to successful innovation, and understanding the role of failure, again, is associated with diversity. Boston Consulting Group found that companies with more diverse leadership teams tend to have higher proportions of revenue attributable to innovation.[11]

Climate change may be the greatest problem that humanity faces, but another of our grand challenges is inequality. Solving both problems will make just about every other issue we face easier to deal with. We don’t need to treat them as two distinct things; there is solid evidence that diversity and inclusion not only addresses the problems of inequality but can help us deal with climate change as well. By investing in entities that understand the importance of gender diversity, impact investors will be part of the solution to both.

[1] Steve Falci, Julie Gorte, Scott LaBreche, David Loehwing and Heather Smith, “Gender Equality Delivered: Results from Five Years of Investing in Women,” Pax World Funds, July 22, 2019.

[2] Julie Gorte, “The Investment Case for Gender Equality,” Pax World Funds, July 2019.

[3] Erik Larson, “New Research: Diversity + Inclusion = Better Decision Making at Work,” Forbes, Sept. 21, 2017.

[4] Heidi Grant and David Rock, “Why Diverse Teams Are Smarter,” Harvard Business Review, Nov. 4, 2016.

[5] Mohammed Hossain, Omar Al Farooque, Mahmood Ahmed Momin, Obaid Almotairy, “Women in the Boardroom and Their Impact on Climate Change-Related Disclosure,” Social Responsibility Journal, Oct. 2, 2017.

[6] B. Charumathi and Habeebu Rahman, “Do Women on Boards Influence Climate Change Disclosures to CDP? Evidence from Large Indian Companies,” Australasian Accounting Business and Finance Journal, 2019.

[7] Francisco Bravo and Nuria Reguera-Alvarado, “Sustainable Development Disclosure: Environmental, Social, and Governance Reporting and Gender Diversity in the Audit Committee,” Wiley Online Library, Dec. 11, 2018.

[8] Zigan Wang and Luping Yu, “Are Firms with Female CEOs More Environmentally Friendly?” March 24, 2019.

[9]Kellie A. McElhaney and Sanaz Mobasseri, “Women Create a Sustainable Future,” UC Berkeley Haas School of Business, Oct. 2012.

[10] Dale Griffin, Kai Li, Ting Xu, “Board Gender Diversity and Corporate Innovation: International Evidence,” Sept. 25, 2019.

[11] Rocio Lorenzo, Nicole Voigt, Miki Tsusaka, Matt Krentz, and Katie Abouzahr, “How Diverse Leadership Teams Boost Innovation,” Boston Consulting Group,” Jan. 23, 2018.

Related: The Data Behind Sustainability