Evidence from the Netherlands indicates that EIB investment favours companies with more female leadership. Those firms are often better managed, more innovative and outperform their competitors.
The European Union took a giant step toward greater gender diversity on corporate boards on 7 June, 2022, when an agreement was reached — after a decade-long deadlock — on a European Commission proposal to improve gender balance among the directors of listed companies.
According to the new directive, women must hold at least 40% of non-executive director positions or 33% of total director positions (non-executive and executive) in listed companies by 2026. In October 2021, only 30.6% of board members and 8.5% of board chairs in the European Union as a whole were women, a figure that varies greatly among EU Member States.
A business case for women’s leadership
The European Investment Bank (EIB) embraces the business case for women’s leadership. Research shows that companies with a gender diverse leadership have greater returns on equity and lower operating costs, among other benefits.
Having women in the boardroom and upper management is associated with greater financial returns and lower risk taking. In addition, female investors are twice as likely to finance start-ups with at least one woman founder, and three times more likely to invest in companies with a female chief executive.
Despite the overwhelming evidence of gender balance’s positive effects, women remain severely underrepresented in the upper management of companies and particularly in the venture capital industry, where only about one in ten decision-makers is female, as highlighted in a recent European Investment Bank report, Funding women entrepreneurs: How to empower growth.
The EIB Group’s Gender Action Plan 2021-2024 focusses on promoting gender equality through the Bank’s investments in the European Union. To find out more about women’s leadership in the Bank’s investment portfolio, we analysed EIB investment projects in the Netherlands, a sample country where in 2021 there were still more CEOs named Peter than CEOs who were women.
The Netherlands introduced a mandatory 33% gender quota for the supervisory boards of publicly listed companies that came into effect on 1 January 2022. The law also requires large public and private limited liability companies to set ambitious target ratios to improve the gender diversity on their boards and among their senior management personnel. Before the introduction of the law, Dutch boardrooms were notoriously male-dominated, with the proportion of women in single digits until recent years.
Looking at the European Investment Bank’s investments in the Netherlands between 2019 and 2021, we found that as a whole, women occupied 30% of executive board seats and 34% of supervisory board seats in the portfolio.
This translates to a higher average of women in leadership in the EIB portfolio compared to overall figures among listed Dutch companies. In 2021, the listed Dutch companies had 14% women on executive boards, and 33% on supervisory boards.
One reason the EIB portfolio features a relatively high number of women in leadership might be because its investment process identifies companies that are well managed, innovative, outperforming their competitors, and that attract and retain the best talent — all attributes that are also associated with the benefits of gender-diverse boards.
EIB Dutch portfolio meets 30% gender quota in most sectors
In our sectoral analysis of the EIB’s Dutch portfolio, the 30% gender quota for supervisory boards was met in aggregate in eight of the 11 sectors where the Bank invests. These sectors include education and healthcare, where women tend to be better represented, but also sectors where women generally remain underrepresented(1), such as construction and transport. As a result, the EIB portfolio in the Netherlands does not consist disproportionally of sectors that broadly do better. As gender balance is not an explicit selection criteria, we can infer that by selecting innovative, well-managed companies, the Bank naturally finds itself with companies that are more gender diverse than in the broader market.
Comparing female leadership ratios in various firm size categories, we found that the Netherlands had a combined 10% of women in executive boards of publicly listed small to medium-sized enterprises (with fewer than 250 employees) and mid-caps (with up to 3 000 employees). Conversely, EIB customers in the small firms and mid-cap category had a combined 29% of women on their executive boards.
This indicates that our investment selection favours companies with a better gender balance than the market on average.
Much to gain from more reporting on gender balance
Still, there is a shortage of available information about the make-up of boards in the Netherlands. Of the 60 private companies in the European Investment Bank’s 2019-2021 Dutch project portfolio, ten (17%) do not publish data on the gender composition of their executive boards, and 21 (35%) have no publicly available data on the gender composition of their supervisory boards.
Evidence shows that gender diversity in leadership can contribute to the improvement of company financial and risk performance, and positively affect gender considerations elsewhere, as in the example mentioned above, of women funders being twice as likely to finance women-led start-ups and companies with female chief executive officers. As a result, companies, investors and communities have a lot to gain from more systematic reporting on gender balance in leadership.
The European Investment Bank is the first multilateral development bank to have adopted the 2X Challenge criteria, a set of internationally recognised gender indicators that are becoming a global standard for gender lens investment in low and middle-income countries. The criteria also provide a powerful framework for the Bank to actively engage with its clients on gender equality and to further the understanding of its benefits — in leadership, employment and entrepreneurship.
Next steps
While the analysis of the EIB Dutch portfolio is narrow compared to the entirety of Bank’s portfolio, it provides a glimpse into our gender lens investing performance pertaining to women’s leadership. More systematic reporting and analysis across other EU countries could help confirm the positive effects of gender balance in boardrooms at a far greater scope.
In addition to reporting on the proportion of women in corporate leadership roles, it is important to share best practices on how to actually improve it. Here, other elements of the recent EU agreement can help, such as shedding a light on the benefits of clear and transparent board appointment procedures. In this context, the European Investment Bank also is a member in the InvestEU Advisory Board’s subgroup on gender equality to advance further exchange on best practice in investment and capacity building, and in piloting and refining relevant gender research.
(1)Here no sectoral data was found for the Netherlands specifically, so the statement points towards broader global trends.
Nea Prättälä is a trainee within the EIB’s Social Policy Unit of the Environmental, Climate and Social Office (ECSO) in Luxembourg. Els Sweeney-Bindels is the head of the EIB Amsterdam office, and Wim Verhagen provided input as a trainee in that office.