Let’s celebrate the number of women on FTSE boards, but smaller companies will face regulatory hurdles if they don’t step up

It is worth taking a moment to celebrate that the number of women on FTSE 350 boards has jumped by 50 per cent over the last five years, according to the Hampton-Alexander review published yesterday. But we must not take our foot off the pedal, the work is far from done. 

Another recent report from Company Matters, part of the Link Group revealed that a staggering 84% of AIM and 78% of Small Cap 100 companies have all white boards. This is over double the proportion seen in the FTSE 100, and clearly demonstrates that much more needs to be done within the wider business community.

There is clearly a societal and moral imperative to address this problem, but there is also a financial one. Businesses that do not proactively seek to address the current imbalance face real operational and bottom line risks.

It is abundantly clear that the diversity issue has caught the eye of regulators. In March, the EU’s Sustainable Finance Disclosure Regulation (SFDR) will require all financial services firms to be more transparent across a range of environmental, social and governance (ESG) considerations. It is intended to prevent greenwashing and promote sustainable business. 

Closer to home, gender pay gap enforcement may have been delayed due to the pandemic, but the chickens will come home to roost before the year is out – and with the pandemic having huge consequences for women in the workforce, businesses will have to act fast to avoid action being taken by the equalities watchdog. 

From an investment perspective, amendments to the MiFID II regulatory framework will mean advisers must ask investors about their responsible and sustainable preferences. This, combined with the SFDR, means that firms without plans to offer sustainable investment solutions will need a policy in place. 

Read more: Female representation on FTSE boards climbs by 50 per cent, finds Hampton-Alexander Review

Investment analysts are gathering detailed information across ESG criteria. For example, our UK Dynamic Fund aims to achieve growth from investing in businesses that are seeking positive corporate change, both because we believe that positive corporate change is a good thing, and also because doing good business creates more sustainable growth. 

Diversity is a core element of this corporate analysis, with an eye to good governance. Responsible investing is here to stay, and companies which don’t make the cut of the ESG analysts could soon see their capital drying up, hitting the bottom line where it hurts.

There is, of course, an introspective business case for diversity too. Regardless of what’s happening at a policy level, it has been proven that by including diverse perspectives and backgrounds you reduce exposure to long-term risks that could sink unprepared businesses such as having teams where groupthink permeates, and they aren’t pushed out of their comfort zones to innovate.

Diverse and inclusive teams are also often happier teams, which leads to increased productivity and lowers your employee turnover. Furthermore, when employees think their organisation is committed to and supportive of diversity, and they feel included, their ability to innovate increases by 83%.

March’s regulatory changes won’t affect every UK business, but the direction of travel has never been clearer. At both a domestic and global level, ESG is the topic of the hour – and it’s here to stay.

Leadership must step up and rise to the challenge. The most productive and inspiring leaders are ones who welcome those who see things differently and provide alternative perspectives. Leaders, regardless of the size of their business, must seize the opportunity for change or risk investors, customers, as well as current and future employees embracing a future without them.

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