Women on Boards Leads to Greater Sustainability
Why would female directors be more likely to promote the use of renewable energy than their male peers? What evidence is there that women care more about ethics and corporate social responsibility (CSR) than men? Marc Goergen, Finance Professor at IE Business School, answers these questions and elaborates on why women are key in the move towards a more sustainable society.
By Marc Goergen, Finance Professor at IE Business School.
During the peak of the Covid pandemic, the global emissions of carbon dioxide (CO2) caused by human activity decreased by as much as 26% due to government enforced confinements. CO2 is one of the greenhouse gases causing global warming. These drastic reductions in environmental pollution have started a debate about how to build a more sustainable society once the Covid pandemic is behind us. I believe that one of the recent studies I have conducted with several colleagues provides an answer to how to build a more sustainable society.
The key finding from my study is that firms with female board members use more renewable energy than firms with male board members only. The study, which covers Standard & Poors 1500 firms from the USA over the period of 2008-2016, also finds that the combination of female directors on the board and the use of renewable energy creates shareholder value. This result is important as it makes the business case not only for sustainability but also for female board representation.
I believe that this is the first study on the link between female board directors and renewable energy consumption. The United Nations (UN) define renewable energy as energy stemming from biomass, small-scale hydro, solar, wind and waste sources. The shift of businesses from fossil or dirty energy to renewable or clean energy is an important step in reducing global climate change. The American Energy Protection Agency (EPA) estimates that in 2018 businesses were responsible for most greenhouse gas emissions in the USA. This means that global climate change cannot be tackled without substantial efforts made by businesses.
Why would female directors be more likely to promote the use of renewable energy than their male peers? First, women think about morality and ethics in terms of responsibilities. Such responsibilities include the duty to care for others as well as the duty to make the world a better place by tackling the challenges that society faces. In contrast, men tend to see morality and ethics in terms of their rights. For example, for men morality and ethics is about not interfering with the rights of others to live a fulfilled life. Second, men and women also differ in terms of how they help others. For women, helping others is typically about nurturing as well as providing help over the longer term. For men, helping behaviour normally consists of one-off and more short-term heroic interventions. As combatting climate change is a major societal challenge, which also requires actions over the longer term, one expects women to be more likely to take such actions.
What evidence is there that women care more about ethics and corporate social responsibility (CSR) than men? In other words, is it true in practice that female directors are more inclined to take CSR seriously? The evidence suggests that female directors are less likely to engage in business practices that CSR rating agencies, such as MSCI KLD, consider to be negative business practices. More generally, female directors tend to improve the CSR ratings and the reputation of their businesses. They also typically disclose more information
about their business’s CSR on a voluntary basis. In turn, the stock market values such voluntary disclosures more than similar voluntary disclosures made by companies with male directors only. My study adds to this evidence by finding a positive link between female directors and renewable energy.
However, is there a business case for promoting greater use of renewable energy? Although environmental CSR is clearly in the interest of society at large, does it create financial value for the owners of the businesses concerned? The answer to this question is not straightforward. Early studies on the link between CSR and financial performance or firm value had contradictory results. While some studies found that CSR created shareholder value, others found a negative link. Yet other studies found no link between the two. Nevertheless, several recent extensive surveys of existing studies tend to conclude that most studies find that better CSR results in improved financial performance. Similarly, studies on whether firms run by female directors perform better than those run by male directors have been equally inconclusive. My study contributes to our knowledge by highlighting a context where female board representation and environmental CSR are more likely to result in increased financial performance. This is the case where the two coexist. In other words, my study finds that it is the combination of female board representation and the greater use of renewable energy that results in better firm performance and value.
To conclude, increasing the number of female leaders is an important and necessary step in the move towards a more sustainable society. The study, which is forthcoming in the Journal of Corporate Finance, can be downloaded free of charge here.