Much of sustainable investing has so far been focused on taking action on the environment and less so on social issues or corporate behavior. But the three are very much inter-related, and so we have been working to launch this fall more investment options for our clients that focus on social impact.
One key aspect of corporate governance — who sits on the board — also has a high level of social impact, especially when it comes to large companies with great levels of influence. Recently, we’ve had a historic and welcome development on board diversity, focused on the 3,000 companies listed on the NASDAQ exchange, many of which are leaders in innovation and highly rated for environmental efforts. Now they’re being called on to do more on the social front.
On August 6, 2021, the Securities & Exchange Commission (SEC) approved NASDAQ stock exchange’s historic proposal calling for all 3,000 companies listed on the exchange — many in the tech industry — to diversity their boards.
Here’s what NASDAQ will require for exchange-listed companies with more than five board members:
***At least 1 woman on the board;
***At least 1 person from a racial minority OR who identifies as LGBTQ
***Companies must publicly report on the demographic composition of their boards
***If companies do not comply with above, they must publicly report the reason why (but they will not be delisted)
NASDAQ’s deadline depends on how the companies are listed on the exchange, but all corporations must have at least one diverse board member by next September. (For companies with fewer than five board members, only one diverse member will be required, not two).
It is common knowledge that the boards of the largest US companies are far from diverse: In 2020, Fortune 500 boards were comprised of about 26% women and 17% other minorities. A more diverse board can be a catalyst for bringing in new perspectives, more capabilities and re-energizing a business-as-usual policy.
While calls for diversity are gaining momentum, most types of significant change are slow to materialize and often met with resistance. So we are not surprised to see that already a lawsuit has been filed in New Orleans challenging the SEC’s approval of the NASDAQ proposal.