Pension fund trustees, administrators, and investment firms think about investing in more than just maximizing returns—many people want their investments to promote gender equality. But is it actually possible to close the gender pay gap by investing in companies that claim to be socially responsible? As Eleanor Greene from Green America noted in her 2024 blog post, "The global gender pay gap will now take 136 years to close, and this setback highlights the importance of making informed investment decisions that prioritize gender equality." This stark reality urges TEXPERS members to examine whether their investments can truly make a difference.

Recent research titled Socially Responsible Investment and Gender Equality in the United States, published by the Center for Economic Studies, looked into this, and the results are both surprising and insightful. Here's what researchers found and what it means for anyone interested in making investments that have a positive impact.

The Good, the Bad, and the Gender Pay Gap

Many big investors are now investing their money in companies promoting gender equality. It sounds great in theory, but the reality is a bit more complicated. The research showed that investing in companies prioritizing social responsibility didn't always translate into fair employee pay.

The report found that the average gender pay gap across U.S. companies from 2001 to 2021 was around 24.8%, meaning that, on average, female employees earn 24.8% less than male counterparts for similar roles. The difference in average and median pay further highlighted the gap, with a mean difference of 29.28% and a median difference of 28.83%. In other words, just because a company promotes diversity at the leadership level doesn't mean women across the entire company are being paid fairly.

But there is some good news. The study found that when female directors were on the board, socially responsible investments were more likely to be connected to smaller pay gaps between men and women.

As Julie Gorte, senior vice president for sustainable investing at Impax Asset Management, noted in her 2024 commentary, "When there is more diversity in decision-making, the companies tend to be environmentally better, they tend to manage resources better, and they tend to be more innovative." Female leaders seem to make a difference when it comes to ensuring everyone's getting a fair deal.

Why Female Leadership Matters

The report also found that female leadership had a measurable impact on reducing the gender pay gap. Specifically, having two female directors on the board was the most significant, reducing the gender pay gap by 2.24 times compared to having just one female director. However, having three or more female directors did not yield additional statistically significant improvements beyond what was achieved with two female directors.

It's Also About Representation

When female employees see women in leadership, it sends a message that the company values diversity and is committed to breaking down barriers. This can encourage more women to pursue leadership roles, creating a positive change cycle. A recent blog by New Leaders emphasizes that motivating aspiring leaders, particularly women and teachers of color, to step into leadership roles enables them to influence positive outcomes across their communities, creating a cycle of empowerment and progress.

As noted in a recent blog by LHH, "Encouraging women to step into leadership roles sets off a positive chain reaction, as it's vital for women to witness other women assuming leadership roles, empowering them to view upward advancement as an attainable goal." The blog also emphasizes that giving women a seat at the table and encouraging them with clear opportunities to grow are crucial steps toward breaking the glass ceiling and fostering an environment of female-friendly mobility. Furthermore, LHH states, "Giving women a seat at the table means having the same opportunities to be heard, considered, and respected as everyone else in the room," highlighting the importance of equitable representation in leadership roles.

How This Affects Your Investments

So, what can TEXPERS members do with this information?

1. Look for Companies with Women in Leadership: If you want your investments to truly support gender equality, look for companies with women in leadership roles—not just at the top, but throughout the organization. The presence of female directors and executives can make a real difference in how a company approaches pay equity and employee treatment. According to sources like Gender Equality Funds and the UN Pension Fund, pension funds can leverage tools such as Equileap scores to evaluate gender equality within companies and use shareholder engagement to promote more female representation on boards.
2. Push for Transparency: A big part of the problem is that knowing what's happening inside a company is hard. More transparency about pay and workforce demographics could help investors understand if a company is genuinely committed to equality. Companies that openly share data about their pay practices and employee demographics are more likely to be held accountable and make meaningful progress. Pension funds can turn to resources like the U.S. Department of Labor's Pay Transparency Guidance and the Government Accountability Office's public policy recommendations to help advocate for greater disclosure. These resources provide tools and frameworks to assess and promote transparency in gender equality practices.
3. Consider the Bigger Picture: Gender equality isn't just about having a few women in top positions—it's about fair treatment and opportunities for everyone. When considering socially responsible investments, look at how a company treats all its employees, not just the ones at the top. Are there policies in place to support work-life balance? Are there opportunities for career growth for all employees, regardless of gender? These are essential questions to consider. Pension funds can use resources like the National Strategy on Gender Equity and Equality from the White House, Harvard DCE's insights on why gender equity is beneficial for business, and the U.S. Government Accountability Office's public policy recommendations to understand and advocate for comprehensive gender equity initiatives that benefit all employees.
4. Engage with Companies: As investors, pension funds have more power than they might think. Engaging with companies by asking questions, attending shareholder meetings, and voting on important issues can push them to adopt better practices. By voicing support for gender equality and pay transparency, pension funds, and stakeholders can encourage companies to take these issues seriously. Pension funds can use resources like the U.S. Equal Employment Opportunity Commission, which provides tools and support for ensuring workplace equity, and the SEC's EDGAR Database, which offers insights into company disclosures and helps evaluate a company's commitment to transparency and gender equity.

Despite the increasing demand for gender equality, most countries do not have mandatory disclosure requirements, according to researchers Minsu Ko from Monash University and Cynthia Yin from Ohio State University, who contributed to the report on Socially Responsible Investment and Gender Equality in the United States. This lack of transparency challenges investors to identify companies with strong gender equality practices. Although some countries, like Denmark and the United Kingdom, have implemented such requirements, similar efforts in the United States stalled in 2018. The researchers emphasize that detailed disclosure of gender equality is crucial for making truly effective socially responsible investments.

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