Gender equality has been a frequent media story over the last year, with the #MeToo and #TimesUp campaigns garnering global support and attention, and recent UK pay-gap figures revealing that stark pay inequalities still exist in most industries and companies. It also remains true that, despite similar levels of men and women leaving university and entering the workforce,[1] at the executive level women seem to disappear.

Conversations are happening everywhere about the importance of improving diversity and inclusion, but most of these conversations center on the possible social impact of supporting gender equality in the workplace.

We observe that, along with having a positive social impact, increasing the numbers of women in the workplace (and supporting them once they’re there) carries a host of potential macroeconomic benefits. We believe this highlights that working to achieve gender parity should be on the agenda of all investors, not just those with a social impact focus.

What Is the Gender Gap?

Research by a number of organizations including McKinsey and the World Economic Forum shows that current educational attainment is essentially very equal globally. For example, Saudi Arabia, where women have only recently been allowed to drive and enter sports stadiums, actually has a marginally higher proportion of women than men enrolling in primary education than Iceland – a famously progressive country in gender-parity terms.[2]

However, despite accounting for 50% of the global working-age population, women only generate 37% of global GDP,[3] suggesting that they are a seriously under-utilized economic resource given their comparable levels of education. Much of this discrepancy can be explained by two key factors. First, there is a lack of women in leadership positions, both professional and political, and, secondly, women undertake the vast majority of unpaid care work. As you can see from the chart below, the majority of countries still fall into the ‘extremely high’ level of inequality category on these two measures. Given the traditional care-giving role of women in society, this is hardly surprising.

Source: McKinsey Global Institute, The Power of Parity: How advancing women’s equality can add $12 trillion to global growth, September 2015.


One theory by Harvard economist Claudia Goldin, which has proven controversial among some, is that the gender pay gap isn’t driven by discrimination in the workplace, but by female demand for ‘temporal flexibility’ – or, in less academic language, women simply require work that has flexible working arrangements and generous parental leave policies in place as they are the primary carers to children and other dependents.

As a result, not only are women more likely to drop out of the workforce early to meet caring commitments, but they also tend to work in less productive sectors and in less senior roles in order to accommodate their needs for flexibility; therefore they simply earn less. The chart below shows just how quickly women drop out of the workplace from associate to partner level.

Source: Newton data, April 2018.

We believe there are three primary benefits of increasing equality in female participation in the workforce – not just in terms of the numbers of women in work, but also in terms of improving equality in senior positions and across sectors.

1. Bridging the gender gap is a GDP opportunity globally

Gender equality and GDP are positively correlated! The chart below presents some research from McKinsey, which looked at potential changes in GDP in 95 countries if women participated in the economy identically to men – so presuming no gap in participation rates, no gap in hours worked, and no gap in representation within each sector. McKinsey estimates this ‘full-potential’ scenario could add $28 trillion to GDP in 2025 versus a ‘business-as-usual’ scenario. Obviously, it can be argued that this number is too good to be true, with the reality of having women participate in the economy identically to men unachievable for a host of cultural, social and economic reasons.

However, the study also considered a ‘best-in-region’ scenario, where each country would perform at the level of the best-performing country in its geographic region. In this far more realistic and achievable scenario, data still suggests that this would add $12 trillion to the overall world economy, an increase of 11%.

Further, the study also considered the potential for slowing down workforce shrinking in those developed countries which are suffering from ageing populations – for example, increasing women in the workforce in Japan is expected to slow the reduction of Japan’s workforce from 65m in 2014 to 63m in 2025.

While there are nuances this study may not take fully into account, for example the displacement of men as more women enter the workforce (although historic data proves this effect is actually marginal), the research suggests there is still huge potential in harnessing the female labor force.

Source: ILO; World Input-Output Database; Oxford Economics; IHS; national statistical agencies; McKinsey Global Growth Model; McKinsey Global Institute analysis, September 2015.

2. Progressive and flexible working practices (for both genders) can save money and retain talent 

While it may seem logical to replace women who leave the workforce or wish to work part time with full-time employees, studies suggest that this is not the case. In fact, according to a study by KPMG and Vodafone, recruiting and training new employees to replace women who do not stay in the workforce after having a baby costs businesses $47bn every year. In contrast, it would cost businesses an additional $28bn a year to offer 16 weeks of fully paid maternity leave.[4] Clearly, there are very large savings to be made by retaining female employees after their maternity leave ends, and it seems logical to extend this point to both genders.

Furthermore, there are 96 million skilled women worldwide aged 30-54 on career breaks, with 55 million having middle-manager experience or above. If such women had manager-level employment – assuming other employees are not displaced – they could generate £151bn per year of economic activity.

3. Women are an untapped resource in a global economy with a growing skills gap

The final point focuses on a sector with a significant skills gap and a huge gender gap – technology. The disparity between the proportion of men and women in this sector starts at graduate level and is reflected in the labor market. Unless the entire working-age population has the chance to acquire these new abilities, this could have a serious economic cost; take the UK for example, where 72% of large companies report that they are suffering a digital skills gap, and where tech-related jobs are linked to one in five of all vacancies.

There are a variety of reasons for this gap; women (as well as men) are put off by the stereotypes associated with the sector, and there is a general lack of awareness of the opportunities available in the sector – a failing of the education system.

Luckily, we believe there’s an obvious solution for companies – those who do the most work to combat those stereotypes and who work to improve the pipeline of graduates available to them will have access to the widest possible talent pool, and therefore should attract the best talent. 

What Are the Implications for Investors?

As we’ve shown, getting more women to participate in the economy has huge economic potential, and therefore, importantly for us, huge investment potential. Further, we see diversity as one of the most tangible factors by which we can judge the wider corporate culture of a company, and, given the correlation cited above, we believe this can be an important criteria to measure for all our investments. 

In addition, further evidence of correlation between improving executive gender diversity and company profitability[5] encourages us to measure and engage with companies on a number of obvious and demonstrable factors, including:

– Flexible working practices
– Parental leave policies
– Improving female leadership pipeline
– Attracting/retaining women in STEM (science, technology, engineering and mathematics) sectors, improving the pipeline
– Whether the company measure its performance on diversity measures, and, if not, why not?
– Public disclosure of all of the above

Ultimately, we think the research above shows that incorporating the analysis of company’s diversity and inclusion policies into our investment process has clear importance not only for our clients, but also for wider society.



[3] McKinsey Global Institute, The Power of Parity: How advancing women’s equality can add $12 trillion to global growth, September 2016.



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