Gender equality remains a major concern in business worldwide. We all know the story: the gender pay gap is a persistent problem and female-dominated industries tend to be paid lower.

The representation of women in senior management and board positions remains low in many countries, especially in Aotearoa, New Zealand. Include women only 28.5% of director positions among all NZX-listed companies and only 23.7% among companies outside the NZX’s top 50.

Change is slow despite the well-founded evidence demonstrating the merits of improving gender equality for businesses – including better business performance – and outstanding initiatives such as Watch the gap.

But there is a way to support companies that have made the transition to greater gender equality – and encourage others to do the same: we can invest with a “gender lens”.

The goal of investing with a gender lens is not only to generate financial returns, but also to improve women’s lives by providing capital to companies that are doing well on gender issues.

Gender lens investments go beyond counting female representation at the board level. It includes the number of female managers, leaders, and employees, as well as the existence of policies or products offered by a company to address the gender pay gap and other inequalities faced by their female employees. It also encourages investment in women-owned businesses.

Essentially, investing with a gender lens means identifying and investing in those companies that empower their female employees and embrace diversity. This may seem simple. But there are no investment portfolios or funds that invest in companies that benefit women.

One explanation for this gap is that identifying gender-friendly companies is not easy. And this is where rating agencies come into play.

UN chief says world is ‘300 years away’ from gender equality and women’s rights are ‘disappearing before our eyes’ https://t.co/LggXPPy79k

— Patrick F. Herlihy (@herlihy_f) March 7, 2023

The role and power of credit rating agencies

Over the past three decades there has been a fundamental shift towards investing not only for financial returns, but also for social results – the so-called Responsible Investment (RI).

The growth in RI has spawned an industry dedicated to defining and measuring a company’s non-financial contributions across a number of areas, most notably the environmental, social and governance (ESG) pillars.

The rating agencies build scores by collecting data on issues within each of the ESG pillars – for example, the environmental pillar includes data on carbon emissions, land use and water, among other things – and then convert this into an overall score.

Fund managers, especially those who manage RI funds, use these scores to inform investment decisions. So what are the comparable metrics for investing in gender lenses?

While some rating agencies have taken steps to identify companies suitable for a portfolio with a gender lens – Sustainalytics, for example, has a gender equality index – others have nothing to do with gender at all. Some rating agencies seem to base gender equality performance on the number of women on a company’s board of directors or on internal policies on diversity and discrimination.

In short, there is little or no substantive information available to enable investing with a gender lens. And why is that?

A group of New Zealand companies including Skycity, Westpac, DB Breweries, Coca Cola, Xero and Kiwibank have urged the government to address the gender pay gap.https://t.co/5Qv17tL1T4

— RNZ (@radionz) September 21, 2022

Well, rating agency MSCI says it collects information on “financially relevant ESG risks and opportunities.” Sustainalytics requires that an issue has a “substantial impact on the economic value of a company”. These agencies need a problem to affect financial performance.

For example, under the “social” pillar, MSCI considers water consumption, arguing that companies in water-intensive industries face business disruptions, stricter regulations and higher water costs, which can reduce returns and increase risk.

The lack of gender-related data implies that women-friendly policies are not seen as affecting company performance or risk.

A gender lens to the rescue?

But with a little push, rating agencies can help make gender equality transparent. They have the research capacity and access to company data that ordinary investors do not. This can help investors make informed decisions about what to invest in.

Pressure from investors can also force companies to address equity issues. When that happens, public measures of company performance on gender issues become a lever upon which companies can be encouraged to change.

Investors themselves could also find great personal satisfaction in being able to make gender-sensitive decisions if they could easily apply a gender lens when deciding where to invest.

It’s time potential investors started demanding data collection. Once that happens, rating agencies send a message to companies that gender equality matters. As long as investors remain silent, progress will remain slow.