Associate Client Partner, Executive Pay & Governance
This Week in Leadership (Nov 22 - Nov 28)
Surging COVID cases have leaders debating their return-to-office plans. Plus, business books for the holidays and tips for launching a second career.
If there were ever a sign of how hot the topic of gender equality has become, consider this: Wall Street is now pitching it as an investment opportunity.
UBS just became the latest bank to introduce an exchange-traded fund (ETF)—a popular investment tool for millions—that tracks gender equality. State Street and Société Générale are among the other large firms that have introduced similar funds over the last few years. While their criteria are different, each fund has a similar goal: to offer investors exposure to companies that are seen as leaders in areas such as equal pay, diversity at the board and senior leadership levels, parental leave, and flexible work opportunities.
Though such funds are still relatively small, the move is another reminder that corporate leaders who are not moving in this direction do so at their firm’s own financial peril, with now investor backlash a potential. “I can’t say that it surprises me given the increased focus on this topic,” says Brian Dresch, an associate client partner with Korn Ferry executive pay and governance practice. “It’s paramount that companies get on top it.”
Certainly, the recent #MeToo and #TimesUp movements have helped increase the volume on the growing chorus of investors, shareholders and employees calling for companies to rethink their diversity and inclusion practices. The business case for listening continues to grow as well: research shows that organizations that manage gender and diversity well tend to have better financial returns, more employee engagement, and less turnover.
But the rise of gender equality ETFs, in particular, is also a thematic play on the investor community’s interest in companies with strong “ESG” standards -- environmental, social and governance. The idea is that companies with sustainable and responsible business practices are poised for long-term success. “A lot of investors like the idea that they’re investing in something that’s good, rather than in tobacco companies or companies that don’t treat diverse communities well,” says Chad Astmann, the co-head of global asset management at Korn Ferry.
Wall Street’s response to this trend has been significant, and has sparked a sea change at some of the loftiest firms. In a letter published in January, Larry Fink, the billionaire founder and CEO of BlackRock, told business leaders that they must contribute to society if they want the investment firm’s support. “Society is demanding that companies, both public and private, serve a social purpose," he wrote. Indeed, in a recent global survey of 22,000 investors, 64% said they have increased their investment in sustainable funds over the last five years.
To be sure, performance of well-intentioned funds is never guaranteed. “Someone may still want to invest in that ETF because of what it’s aiming to highlight politically, but be clear about what the investment return is,” says Astmann. But he sees Wall Street’s focus here as a promising sign. “This is the first time I’m seeing so much energy from the investors, the corporations, the mutual fund producers,” he says.