[K-Women Talk] Female Directors and ESG Performance According to MSCI

I reviewed a report on women on corporate boards published by Morgan Stanley Capital International (MSCI) in early March. Companies with no female directors had lower average ESG (Environmental, Social, and Governance) performance scores compared to companies with less than 30% or 30% or more female directors. Interestingly, companies without female directors scored the lowest not only in the S (Social) and G (Governance) categories but also in the E (Environmental) category.

Among the 2,811 companies comprising the MSCI ACWI index, 106 were Korean companies, of which 22 companies, or 21%, were reported to have no female directors. In India, which has a similar number of 102 companies included in the MSCI ACWI index, only 2%, or 2 companies, had no female directors. Among the 20 companies from the Philippines, only one company had no female directors. The MSCI report separately listed 64 companies with female-majority boards, among which only one Korean company, Krafton, was included.

Using data from ESG Moneta’s ‘2023 ESG Regular Evaluation,’ I examined the status of 1,093 listed companies. The ESG evaluation grades ranged from A+ to D, with seven grades in total, and 19 companies received A or A+ grades among the 1,093 listed companies. Although the grades these 19 companies received in the E, S, and G categories varied, all 19 companies received an A+ grade in the S category. The E category grades ranged from B-, B, B+, to A.

What about the G category? Among the 19 companies, 4 received an A+ grade, 11 received an A grade, and the remaining 4 companies received a B+ grade. Without securing gender diversity, it is impossible to receive better evaluations in the G category.

Large corporations declaring ESG management tend to frequently mention the GRI Index, SASB, and TCFD indices and place great importance on evaluations received from MSCI. MSCI, a frequently cited rating agency by listed companies, emphasized gender diversity as a key ESG trend in 2023. Why is that? Since 2009, MSCI has tracked the correlation between gender diversity on boards, human resource management, and employee productivity. They found that companies with three or more female directors or 30% or more female directors show significantly better human resource management performance than companies with no female directors. This threshold is considered a potential tipping point.

The call to introduce gender diversity in corporate management is coming not from philosophers or women’s rights activists but from investment institutions. Malaysia introduced a 30% recommendation for female directors in 2017, and India mandated female independent directors on the top 1,000 companies by market capitalization in 2020. Korea’s Capital Markets Act Article 165 stipulates that boards of directors “shall not be composed of directors of a specific gender.” The interpretation of this clause might mean that having just one female director is sufficient. Could we not expect companies to create a tipping point with three female directors instead of just chasing after one?

The phrase “I looked but found no women” ultimately confesses an inability to find them. At the end of such a confession, companies might end up being listed in global investors’ reports as ‘ESG-washing’ companies or companies with no female directors at all.

Lee Suk-jin, CEO of DUESG, former Vice Minister of Gender Equality and Family

This content was produced with the assistance of AI translation services.