Actioning Gender Equity to Reduce Volatility: Women in Leadership
The more women there are in high-level decision-making roles, the better positioned an organization is to make a difference on climate change. Their representation translates to more sustainable workplaces, increased retention, better productivity, and higher profits.”
Rachel Western, UK Head of Technical, Health Solutions, Aon
Lack of gender equity is a pervasive issue in virtually every form of leadership across the world. Internationally, 7 percent of political leaders are women; in local government leadership positions, women comprise 36 percent. Emerging research indicates that lack of gender diversity may create business risk, beyond climate risk. And conversely, a greater gender mix in leadership may reduce volatility and risk.
When we engage women in decision-making around climate change at a societal and national level, the results are far greater.”
Charles Alberts, Head of Wellbeing Solutions, UK, Aon
According to a study in the Journal of Financial Economics, greater board diversity leads to lower volatility and better performance. Research has also shown women to be more effective leaders in a volatile environment, akin to the types occurring in the aftermath of a climate-related disaster. For evidence, look no further than the global pandemic. Between March and June of 2020, Harvard Business Review assessed 454 men and 366 women on their leadership effectiveness and found that women were ranked significantly higher amidst the early stages of the pandemic. Additional studies link gender equity in leadership to better financial returns (which, of course, can build stability and resilience for businesses).
Specifically pertaining to climate, companies with at least 30 percent of female board directors had better climate governance from 2016 to 2020 worldwide, according to a report by BNEF. Further, work by CRD Global suggests that board-level gender diversity is associated with more transparency about ESG performance. And a 2020 study from the University of Quebec found that the likelihood that a firm will voluntarily disclose climate-related data increases alongside the percentage of women on boards. The study stressed the importance of a board reaching a “critical mass,” wherein women are no longer seen as outsiders. Further, our research suggests that when men cede their board seat to females—instead of just equaling out the number of men to women on the board—that illustrates a shift in power towards true gender diversity
Having women on the board can help to mitigate risk and ultimately lead to better company performance. As companies familiarize themselves with these standards, they can achieve a sense of where they are and where they can improve to attract talent in a competitive labor market, both in terms of women and in terms of younger generations that increasingly care about climate and DEI.”
Laura Wanlass, Partner and Global Corporate Governance ESG Consulting Practice Leader, Aon
Given that ESG transparency and performance are top of mind for institutional investors as well as regulators, it is important for companies to explore how greater gender equity may bring benefits in reducing climate transition risks, which typically include regulatory actions, reputational risk and shareholder or other lawsuits. While more research is needed, in an era of increased volatility, strategies that show promise for building resilience while reducing instability and risk will undoubtedly capture the interest of investors as well as insurers and financial markets as time goes on.
We need everyone we can possible have on board, as communities that have not had extreme climate events before are increasingly seeing them. We need diversity of thought in order to mobilize incentivizing resilience in the same way that automotive insurance influenced seat belt use.”
Elizabeth Henderson Senior Managing Director, Aon, Eight-year veteran Co-leader of Aon's Catastrophe Management practice
Indeed, the value of diversity of thought in problem-solving and for building resilience is beginning to become part of the conversation throughout operational and strategic planning at companies from ideating new benefits offerings to catastrophic risk modeling. While the insurance industry has long been motivated to make buildings stronger and safer by calculating risk and incentivizing resilience, the actual hazard component of the equation is increasingly volatile due to climate change, and the resilience efforts that worked in the past are not adequate for the future.