ESG adoption is rapidly increasing, but so is criticism of it. ESG—envisioning social and governance—is a framework used to assess a company’s societal and environmental impact, aiding investors in evaluating sustainability and ethical practices.
With the growing emphasis on sustainability and responsible business practices, ESG has become vital for evaluating companies’ alignment with ethical, human capital, and environmental considerations. It provides a foundation for businesses to advance sustainability beyond mere marketing strategies.
By February 2024, over 90% of S&P 500 companies reported on ESG, showcasing that its adoption is more than a passing trend. Investors, both institutional and individual, are increasingly factoring in ESG criteria in their investment decisions. Despite a surge in ESG investments in 2021 and 2022, 2023 witnessed a decline due to mounting criticism of the framework’s shortcomings concerning standards, regulatory mandates, and incomplete data collection hindering progress towards gender equality.
Unlocking Women’s Potential with ESG
Research indicates that organizations with gender-diverse leadership, as highlighted in reports like “When Women Lead, Firms Win” by S&P and “Diversity Wins” by McKinsey, tend to be more profitable. Gender-diverse corporate boards, as noted by Luisa Palacios of Columbia’s Center on Global Energy Policy, offer a cost-effective means to attain global standards. However, businesses often miss the opportunity to leverage ESG metrics for driving gender-inclusive actions.
Investors are increasingly recognizing the significance of gender diversity and equity in risk assessment and identifying opportunities. Despite this, women remain underrepresented in various sectors, such as energy and cybersecurity leadership roles. Addressing gender imbalances in hiring, training, and promotions is essential
With the rise of ESG requirements, private companies can benefit by implementing initiatives that support women’s participation, retention, and leadership within the organization. Empowering women in male-dominated sectors through equal pay, training, mentorship, sexual harassment prevention programs, and facilitating access to STEM education are impactful measures.
Governmental responses, like the UK’s gender pay gap reporting mandate and California’s law requiring female representation on boards, are shaping gender diversity norms. Initiatives such as the Gender Parity Accelerators aim to drive gender equality across public and private sectors. Regulators and policymakers should urge the private sector to adopt voluntary and mandatory ESG metrics specific to gender equality.
Addressing the Lack of Unified Methodology
Despite available metrics to enhance gender equality, these standards are underutilized and primarily serve investment decisions. Limitations in human capital regulatory requirements compared to environmental disclosures emphasize the need for policy interventions to embed these standards into regulatory frameworks. The absence of a unified methodology in ESG metrics has drawn criticism.
Enhancing data collection on human capital, especially gender-related metrics, is crucial for accurate information. Achieving gender equality is vital for operations, aligning with the UN 2030 Agenda and Sustainable Development Goal 5. However, current progress indicates it will take several centuries to close the gender gap without transformative efforts from business leaders.
Views and opinions expressed here are those of the authors and do not reflect the official stance of the Columbia Climate School, Earth Institute, or Columbia University.
