Environmental, social and governance (ESG) investments are more popular than ever. With ESG funds bringing in $21 billion in the first quarter of this year, this category is on track to have a record year of inflows in 2021 and is poised to become a $1 trillion category by 2030.
A major reason for this upward trend is due to the increased focus on addressing climate change, which has been amplified further by the priorities of President Biden’s administration. As excitement for ESG continues to build across industries and such investing becomes more mainstream, it’s worth noting, now more than ever, that the social factors of ESG are also important.
In addition to traditional financial analysis, ESG investors weigh a company’s impact on the environment, their proclivity to advocate for social good across their spheres of influence, and the effort their leadership makes to drive positive change when considering whether to invest.
Within the three components that make up ESG, the emphasis tends to be placed on environmental factors. This is because elements like carbon emissions have been at the forefront of public dialogue, and because certain environmental factors are relatively easy to quantify, as opposed to social and governance factors, which are not so easily placed into neat data buckets.
The focus on environmental impact and sustainable finance is well-placed, and its ability to improve the planet which we all inhabit deserves its own spotlight. What if we also continued to evolve the ESG framework, and worked to push the social assessment to the next level, using standardized data where possible? In a post-pandemic world, this could also have positive effects on our communities and our economy.
One place where this sort of framework is needed is in addressing the recent “shecession.” The recent economic downturn hit women particularly hard. Even in the best of times, our economy does not always support working women, so it is no surprise that women have disproportionately borne the brunt of additional household responsibilities during the pandemic.
During the height of the economic crisis, peak unemployment for women hit a staggering 15 percent versus 13 percent for men. For women with kids under 13, labor force participation declined 3.4 percent, versus 1.4 percent for men. A recent McKinsey study showed that 1 in 4 working moms across varying levels of seniority have considered leaving their jobs or reducing work responsibilities. Among minority communities, who already face institutional challenges, this picture is even worse. This reality could fundamentally diminish the role of women in the workplace, undoing years of economic and societal progress toward gender equality.
In addition, studies show that hiring women is just good business. A Gallup report based on decades of research showed that female managers are superior at driving employee engagement, and that companies with strong employee engagement have a materially higher earnings per share.
So for women who wish to return to the workplace, how do we help them? Public policies such as increased funding for child care and schools, as well as before and after school programs, could go far to address the misalignment in work and school schedules fueling the shecession. However, a problem this big requires everyone to pitch in, which is why the private sector should also take a leading role in buoying the economic prospects of working women.
Companies with institutional investors who consider ESG when making decisions (a very large universe) could attempt to quantify their efforts to address the disproportionate impact of the pandemic on women in the workforce. This could be done by using hiring data, such as proactively seeking out candidates who were forced to leave the workforce during the pandemic. Companies could also formally implement a more flexible work schedule for those roles that can support it, to better accommodate the needs of some employees (LinkedIn has found that women are 26 percent more likely than men to apply for remote jobs). Such a shift would benefit all employees who manage multiple responsibilities, regardless of gender, and by focusing on the social assessment, investors would not only be helping women succeed, but would also boost the economic standing of all stakeholders. Many companies, of all sizes and structures, have already taken steps like these, and should be recognized and applauded for their efforts to date.
Concerted, measurable efforts must be made to reverse the past year’s troubling workplace trends. If investors and shareholders are willing to incorporate social attributes as part of ongoing investment decisions, we could see this trend subside and perhaps even begin to reverse — and we still need to address the long-term negative effects of the pandemic on business ownership among women entrepreneurs.
If we ramp up social attributes of ESG investment, we can start making a real impact in rebuilding our economy and ensuring that women who want to return to the workplace are able to do so, confidently and of their own volition.
Lori Bettinger is a president of Alliance Partners, the asset manager for the BancAlliance network of over 250 community banks. Prior to her role at Alliance Partners, she served as the director of the TARP Capital Purchase Program at the Department of the Treasury.