still a white man’s world?

Welcome back. Our colleagues in Brussels have just published a fascinating interview with Stéphane Séjourné, newly appointed as the European Commission vice-president in charge of the EU’s industrial policy.

With protectionism on the rise — especially in the US — the EU must consider pursuing a “Europe First” strategy of its own, to support its most important industries including clean technology, Séjourné argued.

It’s a difficult moment for Europe’s green drive, with the bankruptcy of the celebrated, lavishly funded Swedish battery start-up Northvolt. In Wednesday’s edition, we’ll take a deeper look at what companies and investors can expect in terms of green policy under European Commission President Ursula von der Leyen’s second administration, which officially began yesterday.

Meanwhile, in today’s newsletter, we look at a new paper suggesting that capital market reform, not trade barriers, should be the main focus for EU officials seeking to maintain momentum around the bloc’s energy transition.

First — you might be wondering whether US companies’ once-trumpeted efforts to promote board diversity have been losing steam, as they contend with the political backlash against supposed “woke capitalism”. We bring you new data that sheds some light on that question.

New data gives mixed picture on board diversity

It’s been over four years since the murder of George Floyd triggered a wave of corporate promises to promote diversity, equity and inclusion. More recently, some of the biggest US companies have been retreating from those pledges amid a conservative political backlash (notably Walmart last week). Has the corporate DEI train come off the rails?

A new report published by the Conference Board think-tank with data from ESGAUGE gives some useful insights on that question. Among other statistics, it shows the change in non-white representation on corporate boards since 2020.

The proportion of non-white (including Hispanic/Latino) directors at S&P 500 companies rose from 20.4 per cent in 2020 to 25.6 per cent in 2023 — but then almost flatlined, rising only 0.1 percentage point in the following year. This compares with an overall 41.6 per cent non-white population in the US.

Just as striking is the big gap between the representation on boards overall and representation in senior roles, with non-white people holding only 13 per cent of lead director and 12 per cent of board chair positions. Non-white representation in lead director roles has actually fallen for two consecutive years, from a peak of 15 per cent in 2022.

One interpretation of the above data could be that many companies have approached non-white representation on boards with window-dressing, rather than leadership, in mind. Companies have added non-white directors to boost their DEI credentials or satisfy the quota requirements imposed by the Nasdaq exchange, this argument runs, while keeping real boardroom power firmly in white male hands.

That is too cynical a reading, according to Rusty O’Kelley, who co-leads the Americas board and chief executive practice for headhunting firm Russell Reynolds. Companies continue to seek more diverse boards, he told me, “because they want to make sure they have thought about all types of risk, and to make sure they see all types of opportunity, and to reflect all of their stakeholders”.

“What takes time is for leadership roles to turn over and then for people of colour to be elected in those roles,” he added.

Given that nearly half of S&P 500 companies have combined chair and chief executive roles, the overwhelming white representation in board chair positions is partly a reflection of the lack of diversity in senior executive ranks, as well as of board hiring practices.

Much the same can be said on the gender front. Only 11 per cent of S&P 500 board chairs are women, compared with 33.7 per cent of directors. But the proportion of female chairs has more than doubled since 2020, while the proportion of female lead directors has doubled from 11 per cent to 22 per cent.

While those trends on female representation might sound promising, all these numbers are well below the 50 per cent ratio that would indicate gender parity.

Globally the figures are still lower, according to a study published this year by Deloitte, which analysed more than 18,000 companies in 50 countries. Women held 23 per cent of board seats, it found, and only 8 per cent of chair roles.

At the current rate of change, Deloitte found, gender parity will be achieved for director roles in 2038, for chair positions in 2073 — and for chief executive jobs, not before 2111.

The green argument for an EU capital market overhaul

At $360bn last year, EU investment in the energy transition was far ahead of the US ($303bn) and every other country except China ($675bn), according to a BloombergNEF analysis.

But the same analysis (like others, including from the International Energy Agency) suggested that this level of green investment will need to rise more than twofold by 2030 for the world to reach net zero goals. How can this be financed?

In Europe, only through a comprehensive overhaul of the capital markets, with a much larger role for asset managers and a proportionately smaller one for banks. That’s the argument in a new paper by Berlin think-tank Themis Foresight, commissioned by German bank Norddeutsche Landesbank.

The paper argues that EU green investment is being constrained by its excessive reliance on banks — whose assets are worth 163 per cent of EU GDP — and its relatively small level of equity capital financing for businesses, which is worth 66 per cent of GDP. In contrast, the respective figures in the US are 87 per cent and 157 per cent.

Europe has outpaced the US in low-carbon investment thanks to more aggressive green policies, including an EU-wide carbon pricing scheme and ambitious decarbonisation targets for sectors including power and automotive.

But to boost the flow of green finance to another level, Themis argues, the EU must undertake a “great reform” of its financial system — not least by forging a capital markets union, creating a single set of laws and regulations to govern flows of capital across the bloc.

The debate over such a move has sputtered along for a decade. This report argues that a capital markets union could unlock serious growth in the EU’s asset management sector, which could provide a less expensive and more flexible source of capital for green businesses than comparatively risk-averse banks.

On the risk front, the report calls for governments to galvanise green investment by offering loan guarantees for projects. It argues that covering the risk of projects, rather than stumping up capital for them, would be a savvy way of responding to the political pushback against governments investing huge sums in greening the economy. (That’s an argument that holds up so long as only a modest proportion of the guaranteed loans end in default.)

“When governments step in to provide guarantees or risk participation mechanisms for green projects, this can fundamentally change the risk-return profile of these investments,” potentially doubling private-sector investment in green projects, the paper argues.

Smart reads

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