Women in finance bring ESG benefits to Mideast
When Lubna Olayan, CEO of the Olayan Financing Co., was appointed chair of the newly merged Alawwal Bank and Saudi British Bank (SABB) last year, she became the first woman at the top of a publicly traded Saudi financial institution. About 36 years after joining J.P. Morgan as an analyst in New York, Olayan is proving the value of diversity in the Middle East, a region belatedly coming to grips with the benefits of environmental, social and governance (ESG) data.
Unlike other parts of the world, most countries in the Middle East lack ESG regulations. But such an impediment hasn’t prevented regional companies for the first time to be eligible for inclusion in the Bloomberg Gender-Equality Index, measuring the performance of global companies recognized for their commitment to transparency and policies supporting gender equality. That’s because the number of regional companies willing to disclose such data increased to 210 from eight in 2005 and their Bloomberg ESG disclosure score advanced 194 percent during the past decade, when the comparable score for their much more transparent global peers in the MSCI World Index rose 39 percent. Not only does the data speak for itself, but we’ve seen the strong appetite companies in the Middle East have for gender diversity initiatives firsthand, through events and roundtables Bloomberg has organized in the region.
Middle East companies have an incentive to catch up because investors increasingly favor ESG. The trend is reflected in the iShares MSCI KLD 400 Social Index ETF, the largest exchange-traded fund investing in ESG companies. Net inflows since the ETF’s 2007 inception increased more than 26 times when net inflows into the largest ETF tracking the S&P 500 index, gained 109 percent. The ETF tracking technology stocks saw an outflow of 1 percent, according to data compiled by Bloomberg.
When almost 900 major companies disclosing the number of women in management are divided into four groups based on several categories of performance, the results show why ESG is so important to investors. Companies with the greatest total return (108 percent) during the past three years had the highest percentage of women executives (23 percent). Companies with the worst share performance (minus 26 percent) had the fewest women executives (13 percent), according to data compiled by Bloomberg.
As Olayan would appreciate, women are proving to be effective communicators, which is a significant aspect of leadership in the financial markets. Companies with the narrowest fluctuations of their share prices (17 percent) have the highest percentage of women executives (17 percent) while the group with highest volatility (47 percent) during the past 200 days have the lowest female executive ratio (12 percent). The group with the fewest earnings surprises (1.3 percent) have the highest percentage of women executives (19 percent) and the group with the most negative earnings surprises (minus 45 percent) have the fewest women executives (13 percent).
Such data is especially meaningful in the $13 trillion market for US government debt, where the average volatility of US Treasury bonds fell 35 percentage points since Janet Yellen succeeded Ben Bernanke as the first woman chair of the Federal Reserve in its 100-year history. It remains 69 points below the volatility that prevailed under Alan Greenspan, who led the Fed for two decades, according to data compiled by Bloomberg.
The Bloomberg Gender Equality Index is the world’s only comprehensive investment-quality data source on gender equality. As more investors seek ESG-related investments, the Bloomberg GEI represents an opportunity for corporations to attract new capital and widen their investor community. Since 2016, the Bloomberg Financial Services Gender-Equality Index gained 41 percent while the global benchmark, MSCI World Financial Index returned 26 percent.
That’s another way of saying shareholders get richer with the most transparent companies.
• Matthew Winkler is co-founder and editor-in-chief emeritus Bloomberg News.
(With assistance from Shin Pei, Shaina Palmere and Cory Bender)