ESG Focus: Diversity Proves More Profitable

ESG Focus | Oct 21 2021

ESG Focus: Diversity Proves More Profitable

While Australia manages to remain middle of the pack on gender representation in the workplace, it is JP Morgan’s view that a commitment to female representation would be financially beneficial to companies.

– Australia is largely on track with global peers when it comes to gender diversity
– Female representation in leadership roles correlates with how companies address diversity, inclusion and gender pay gaps
– Companies with female CFOs are more profitable and have superior stock price performance than peers

By Danielle Austin

According to S&P Global, investors are increasingly using a company’s gender diversity and equity as a guide to how that company may respond to environmental, social and governance (ESG) risk and opportunity.

Like many ESG issues, companies are facing growing pressure from customers and shareholders to improve gender representation in leadership roles, female participation in the workforce, and reporting standards around diversity and equity.

There are proven financial benefits for those companies who do embrace gender diversity in the workplace.

S&P Global recently found that generally companies with female chief financial officers (CFO) continue to be more profitable and report better share price performance than peers.

The same study found that women were the most under-utilised resource that could be tapped by companies to encourage market valuation increases, demonstrating a clear financial advantage for companies who value gender diversity.

In 2017, the Australian government estimated that an additional 6% of women in the workforce would be economically accretive to the tune of $25bn, or an approximate 1% increase to the nation’s gross domestic product.

While JP Morgan describes female participation in the workplace in Australia as above average, there remains a global shortfall in female representation.

Overall female representation in the Australian workplace is fairly balanced at roughly 47%.

However, Australia’s female participation in the workplace is 68%, well short of the reported 78% male participation.

Where to find top performers in Australia

Overall, JP Morgan reports that Australia’s gender diversity performance in the workplace is largely middle-of-the-pack when compared with other members of the Organisation for Economic Cooperation and Development (OECD).

Looking closer at Australia’s biggest large cap stocks, trends vary widely.

Within the ASX200, female participation is about 39%, but exclusively considering the ASX 50 female participation of 42% makes it a global stand-out for gender equity.

The mid-cap 50, at only 35%, is failing to perform to global standards.

On a sector-by-sector analysis, women continue to be over-represented in Healthcare, Education and Retail, while Construction, Mining, Transport and Manufacturing remain heavily male-dominated.

In the past decade, the biggest contributors to increases in female employment have been the Healthcare, Professional and Education sectors.

Missing the mark on parental leave

It is JP Morgan’s view that Australia’s parental leave policies continue to be a key driver of gender disparity in the Australian workplace.  

While data shows female participation rates in the workplace are lower than male participation rates from the age of 20, the largest disparity gap occurs between the ages of 30 and 39 and is highly correlated to the age when women in Australia are most likely to be accessing maternity leave.

JP Morgan suggests that more equitable parental leave policies, including paid parental leave available to all parents, could improve staff retention.

Sweden, the first nation to offer an equitable parental leave policy, offers each parent 90 days of leave, and experienced huge jumps in female workforce participation rates after implementing the policy.

By comparison, Australia offers the primary caregiver access to 18 weeks leave at minimum wage, a policy that costs just $2.4bn annually.  Only 0.4% of Australian parents accessing government leave schemes are men.

Many companies also offer additional paid leave to new parents, but there is little consistency between sectors.

While on average employers offer an additional 10.9 weeks of paid parental leave, more than 70% of companies in Retail Trade, Accommodation and Food, and Administrative and Support Services offer no paid leave to employees.

With a clear financial benefit both to individual companies and to the economy to have equitable gender representation and more females in leadership, it would appear that commitment to improved parental leave policies and support for parents returning to the workplace should be a priority for more companies.

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