Women on Boards: The Hidden Environmental Connection?

• As of Feb. 18, 2021, 19% of constituents of the MSCI ACWI Index achieved “sustained board diversity,” meaning their boards included at least three women directors for at least three years.
• One-third of these companies were overall MSCI ESG Ratings leaders, twice the percentage of companies that lacked sustained diversity on their boards.
• The stronger ESG profiles of companies with sustained board diversity had better environmental practices. In all sectors, these firms had stronger records of reducing carbon emissions than peers lacking sustained board diversity. 

With social inequality gaining prominence ahead of the 2021 proxy season, investors and other stakeholders are increasingly vocal about the need for greater diversity in corporate boardrooms. Our most recent study of gender diversity on boards found that progress in this area is slowing. But there are bright spots: Some companies that achieved three women on their boards have managed to sustain that diversity for at least three years.¹

Among the 1,290 (44.8%) MSCI ACWI Index constituents² that had at least three female directors, only 547 (19.0%) have sustained this level of board diversity for at least three years, our study found. With the COVID-19 pandemic intensifying existing workplace challenges faced by women, and senior-level women in U.S. corporations being “1.5 times more likely than senior-level men to think about downshifting their careers or leaving the workforce because of COVID-19,” identifying the companies that have exhibited an ability to sustain a critical mass of female directors seems particularly salient.³

What might distinguish these companies from the rest?

Fewer than 20% of Companies Had Sustained Board Diversity

This chart includes the 2,877 constituents of the MSCI ACWI Index as of Feb. 18, 2021. A female director was considered as having served for at least a three-year tenure if she has been a director since at least Jan. 1, 2018. Only current directors were counted. For the purpose of this report, directors include members of the board of directors, supervisory board, audit board and management board, as applicable. Source: MSCI ESG Research

We found that, among the companies with sustained board diversity (i.e., companies that currently have at least three women directors who have served for at least three years), 33.3% achieved leader status (rated AAA or AA) with their MSCI ESG Ratings, and 9.7% were ESG laggards (CCC or B). Among the rest, however, the percentage of ESG leaders dropped by half — to 16.2% — and the percentage of ESG laggards more than doubled, to 23.8%. As the contribution of gender diversity to the rating is less than 0.3% on average, the difference in the ESG ratings of these two groups was surprisingly large.

The primary driver of these rating differences was the companies’ environmental practices. While companies with sustained board diversity did not necessarily have the lowest three-year average carbon-emissions intensities, we found, for example, that companies in all sectors with sustained board diversity had stronger three-year reductions in carbon-emissions intensity than their sector peers.⁴ In addition, our preliminary analysis indicates that companies with sustained board diversity were more likely (16% versus 6.3%) to have environmental targets linked to executive compensation, based on a sample of 525 companies’ disclosures.⁵

Companies with Sustained Board Diversity Also Reduced Carbon-Emissions Intensity

Carbon-emissions intensity is calculated as the compound annual growth rate in companies’ carbon emissions. Data as of March 1, 2021. Sectors in this report refer to GICS® sectors. GICS is the global industry classification standard jointly developed by MSCI and Standard & Poor’s. Source: MSCI ESG Research

Does sustained board diversity actively contribute to such differences, or are women simply more likely to join the boards of companies that have stronger environmentally friendly practices? Given the novelty of boards with sustained diversity, there is simply insufficient data to test whether correlation implies causation. As companies make incremental progress in increasing the percentage of seats held by women, the next frontier will be to hang on to them. There is now a nascent group of companies that have managed to do so. Understanding how their board composition may relate to other firm characteristics could help inform investors, employees and customers about the merits of continuing to push for greater diversity on boards.

¹For the purpose of this report, directors include members of the board of directors, supervisory board, audit board and management board, as applicable. A female director was considered as having served for at least a three-year tenure if she has been a director since at least Jan. 1, 2018. Only current directors were counted.

²The MSCI ACWI Index includes the large- and mid-cap constituents across 23 developed and 27 emerging markets. The MSCI World Index and MSCI Emerging Markets Index cover large- and mid-cap constituents in developed markets and emerging markets, respectively.

³“Women in the Workplace.” McKinsey & Co. and LeanIn.Org, Sept. 30, 2020.

⁴Ending in 2019, unless the data is unavailable, in which case the three-year period ended in 2018.

⁵This analysis was limited to the 525 constituents of the MSCI ACWI Index currently assessed on this indicator.

Further Reading

Women on Boards: 2020 Progress Report
The Tipping Point: Women on Boards and Financial Performance
Women on boards: One piece of a bigger puzzle
MSCI on Social Responsibility