Franklin Templeton

Executive summary

At Franklin Templeton Fixed Income (FTFI) we believe that responsible and sustainable investing in companies that aim for gender equality and diverse representation contributes to a more inclusive world as well as compelling financial returns.
The gender gap remains a significant issue in our societies, affecting various aspects of life, including the workplace, education and leadership positions. 
However, we see this changing, as there has been a rise in women being appointed to C-suite and board-level positions.
In fact, several studies have found that board gender diversity has a positive impact on financial performance and is linked to improved corporate governance and decision-making.

Moreover, companies with a higher representation of women on their boards tended to respond better during the COVID-19 pandemic, suggesting that diverse leadership teams contribute to greater resilience during a crisis.

To achieve greater equality, women require support in both the private and professional spheres of life. The first-ever sovereign gender diversity bond, which was issued by the Republic of Iceland, can serve as an example.
 
Introduction

The aim of this article is to discuss the gender leadership gap and how—via responsible and sustainable investing in projects that aim for gender equality and diverse representation—we can contribute to a more inclusive world without sacrificing financial returns.

The gender gap remains a significant issue in our societies, affecting various aspects of life, including the workplace, education and leadership positions. 

In nearly every country, a comparison of men's and women's wages reveals that women generally earn less than men. However, these disproportions have been decreasing worldwide. In the past few decades, many high-income countries have achieved significant reductions in the gender pay gap.

A key factor in the reduction of the gender pay gap is the closing, and sometimes even reversal, of the education gap between men and women. Currently, education has little relevance in explaining the remaining gender pay gap in affluent countries. An important factor that does contribute to the disparity is the nature of the jobs that women typically undertake.

While the gender pay gap does not directly measure discrimination, evidence from various contexts suggests that the latter is crucial to understanding the former. Similarly, social norms that influence gender roles in the workforce significantly impact wage inequality.

According to a United Nations (UN) report on gender equality,1 less than 1% of women and girls reside in countries where women’s empowerment2 is high and gender inequality low. Globally, women are enabled to realize only 60% of their full potential, on average, according to the Women’s Empowerment Index. Furthermore, women achieve, on average, 28% less than men across key human development dimensions, as indicated by the Gender Gap Progress Index.3,4

Women in leadership

The leadership gender gap is not only a reflection of inequalities in the workplace but also of broader societal expectations. Women continue to bear a disproportionate burden of unpaid caregiving and household tasks, which further hinders their ability to attain and maintain leadership roles.

The disparity in power and leadership roles based on gender remains deeply rooted and, if current trends persist, the upcoming generation of women will continue to devote, on average, 2.3 times more hours each day to unpaid caregiving and household tasks than men. It is estimated that women's representation in managerial roles will remain below parity even by 2050.2

However, it is heartening to see that the representation of women in C-suite roles has increased across various regions over the past decade. Within financial services, for example, more women have been appointed to C-suite positions compared to men over this time and now make up 18% of upper management. This positive trend is expected to continue.5

In 2023, FTFI conducted a survey focused on the gender composition of management. The findings indicated that 30% of the declared C-suite and 40% of the board positions were held by women. Another survey we conducted, in July 2024, indicated that over 60% of the companies we surveyed have targets for female representation at both the board and C-suite level. On average, respondents are targeting 40% of female representation in their management board and 35% for their C-suites. It is interesting to note that these percentages were stable across industries. Another point worth noting is that the average target value was often aligned with the actual female representation that was declared. Both female representation and the target for female representation remained below 50%. This makes us wonder why the targets cannot be set higher and how we can better advocate for greater diversity.

Board gender diversity and corporate performance

Several studies have found that board gender diversity has a positive impact on financial performance.6 The research suggests that a diverse board of directors improves board effectiveness and positively influences both accounting and market-based performance measures.7

However, it is important to note that the impact of board gender diversity on company performance can be influenced by cultural and contextual factors. A study examining European firms found that high power distance and masculinity can undermine—even invalidate—the positive effects of gender diversity on firm performance.8 That is why it is important to consider cultural dimensions when assessing the effects of gender diversity.

Besides its positive impact on financial indicators, board gender diversity is also linked to improved corporate governance and decision-making. Research indicates that women’s participation enhances the efficiency of a board’s monitoring and advising functions. This leads to better decision-making and a stronger focus on long-term investment strategies, which ultimately improves profitability.9 Additionally, gender-diverse boards are associated with greater board independence and improved governance, which can result in better oversight and accountability and also contribute to overall corporate performance.10

Women leading through crisis

During the COVID-19 pandemic, women in leadership roles—particularly on corporate boards—showcased distinct advantages in crisis management. Research indicates that companies led by women tended to record better financial performance during the pandemic compared with those led by men. The difference was attributed to women's leadership styles, which emphasised empathy, adaptability and effective communication.11,12

It appears that female chief executive officers utilized more positive and emotionally resonant language in their communications, which fostered trust and collaboration among their teams.12,13 This approach not only helped maintain morale but also in align the workforce toward common goals during uncertain times.

The pandemic highlighted that diverse leadership teams contribute to more resilient organizational structures13 and reinforced the need for inclusive practices in corporate governance. The experience makes a compelling argument for a shift towards more balanced representation in decision-making roles.13,14

Sustainable investing for a more equal world

The path to increased representation of women in positions of power starts with providing them with the support they need in both the private and professional spheres of life.

At FTFI, we work to ensure that the social bonds we hold in our portfolios are a catalyst for meaningful change. First, we follow a strict process to qualify bonds as sustainable investments and establish their alignment with the European Union’s Sustainable Finance Disclosure Regulation based on the positive project contribution and ensuring that “do no significant harm” and “good governance” principles are preserved.

An important part in our process of assessing impact is our proprietary Sustainable Impact Database (SID). Our SID records standardized data that is collected from publicly available allocation and impact reports. This allows us to monitor the allocation of and impact generated through all the green, social and sustainable bonds held in our dedicated sustainability funds. The database also includes the bonds’ contribution to various financed project categories, such as gender equality, among others. In addition to our analysis of a project’s expenses, we match both the projects financed by the bond in question and the issuer’s overall economic activity to the UN Sustainable Development Goals (SDGs). To assess the effectiveness of each investment, we measure its impact intensity (the impact per €1 million invested). We summarize all our impact achievements in the FTFI Impact Report 2023.15

The gender bond issued as a private placement by the Republic of Iceland16—a first for the sovereign debt market—can serve as an example. The projects that were listed as eligible for financing via the bond’s issuance included the provision of adequate living standards for women and gender minorities, the expansion of affordable housing that benefit low-income women, and initiatives to increase maximum payments during parental leave. The latter encourages both parents to exercise their equal right to said leave. Through the private placement, we were able to influence the project selection as well as help choose the impact indicators that would be reported.

Another example of one of our impactful investments, sourced from the SID, is a social bond issued by the Instituto de Crédito Oficial17 in 2021.18 The bond focuses on lending to small and medium enterprises, socioeconomic advancement, social housing and access to essential services. One of the SDGs that the bond aligns with is gender equality. The funds raised by the bond’s issuance also helped finance the construction of a hospital in Nicaragua. This project not only created 527 permanent jobs within the health sector, but 65% of these positions were filled by women.

Conclusion

The topic of gender equality is multifaceted. While we know that diversity brings various benefits, the impact can be influenced by a variety of cultural and contextual factors. We believe that responsible and sustainable investing in companies that aim for gender equality and diverse representation can help influence those cultural and contextual factors. This, in turn, can contribute to a more inclusive world, while also aiming for compelling financial returns, in our opinion.

Through our dedicated sustainability funds, we can potentially offer our clients the ability to align their values and goals with the financial vehicles that best suit their sustainable investing needs. Together we are working toward creating a better future for everyone involved.

Endnotes

Source: “The paths to equal: Twin indices on women’s empowerment and gender equality.” United Nations Women. 2023.
Defined as women’s power and freedoms to make choices.
Source: Papa Seck, Yanchun Zhang and Ginette Azcona. “Expert's take: Most of the world’s women and girls struggle with large gaps in equality and empowerment.” United Nations Women, July 28, 2023.
Source: “Women’s economic empowerment strategy.”  United Nations Women. 2024.
Source: “Women in financial services leadership, 2023 global update. A playbook for how organizations can accelerate their path toward equity.” Deloitte. 2023.
Source: Z. Ouni, J.B. Mansour and S. Arfaoui. “Corporate Governance and Financial Performance: The Interplay of Board Gender Diversity and Intellectual Capital.” Sustainability. 2022.
Source: L.N. Simionescu, S.C. Gherghina, H. Tawil and Z Sheikha. “Does board gender diversity affect firm performance? Empirical evidence from Standard & Poor’s 500 Information Technology Sector.” Financial Innovation. 2021.
Source: Ashikul Kabir, Saiyara Shabbir Ikra, Paolo Saona and Md. Abul Kalam Azad “Board gender diversity and firm performance: new evidence from cultural diversity in the boardroom.” LBS Journal of Management & Research. 2023.
Source: L.N. Simionescu,S.C. Gherghina, H. Tawil and and Z Sheikha. “Does board gender diversity affect firm performance? Empirical evidence from Standard & Poor’s 500 Information Technology Sector.” Financial Innovation, 2021.
Source: Z. Ouni, J.B. Mansour and S. Arfaoui. “Corporate Governance and Financial Performance: The Interplay of Board Gender Diversity and Intellectual Capital.” Sustainability. 2022.
Source: Daniela Brandazza, Marion Amiot, Katie Darden, William Watson, Gaurang Dholakia, Lindsey Hall, Azadeh Nematzadeh, Nicole Serino and Alexandra Dimitrijevic. “Leadership In Turbulent Times: Women CEOs During COVID-19.” S&P Global. May 25, 2021.
Source: Tanja Sinha. “The Role of Female Leadership in Times of Financial Crisis – an Analysis During the COVID-19 Pandemic.” Copernican Journal of Finance & Accounting.January 21, 2024.
Source: “Effective decisive and inclusive: Women’s leadership in COVID 19 response and recovery.”  United Nations Women. 2021.
Source: E. Ozdenerol, RM Bingham-Byrne and J. Seboly. “Female Leadership during COVID-19: The Effectiveness of Diverse Approaches towards Mitigation Management during a Pandemic.” Int J Environ Res Public Health. 2023.
FTFI Impact Report 2023. https://www.franklintempleton.lu/download/en-lu/sales-tools/9f5a6b3a-75f7-498d-9d52-a8e636e53ba7/Impact%20Report%202023.pdf
Source: “The Republic of Iceland issues first sovereign gender bond.” BNP Paribas. June 24, 2024

The Instituto de Crédito Oficial (ICO) is a Spanish public financial institution. As a state financial agency, it manages public funds to finance social development and sustainable environment projects, among others. As one of the main national promotional banks at the European level, ICO promotes sustainability as the backbone of its strategy and all its actions, across both its assets and liabilities.
Source: ICO Social Bonds Reporting Webpage, last accessed October 2024.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. 

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.

Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign securities generally, including, but not limited to, the risk that a governmental entity may be unwilling or unable to pay interest and repay principal on its sovereign debt.

The manager may consider environmental, social and governance (ESG) criteria in the research or investment process; however, ESG considerations may not be a determinative factor in security selection. In addition, the manager may not assess every investment for ESG criteria, and not every ESG factor may be identified or evaluated.

Ft Fixed Income
CONTRIBUTORS

Ania Cwojdzinska, Ph.D.
Impact Analyst
Sustainability & Europe Fixed Income

Justyna Tasic, Ph.D.
Fixed Income Sustainability Manager, Sustainability & Europe Fixed Income

Magdalena Gruszecka
Sustainability Analyst                    
Franklin Templeton Fixed Income ESG

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