Investment & Policy Implications of the Icelandic Gender Equality Strike in the Age of GenAI and ESG Backlash
by Ryan Scott, Executive Director of DuLac Capital Advisory L.L.C.
October 25, 2023
When one turns on the news—whether traditional 6 P.M. evening news, Bloomberg TV financial news, Good Morning America, or Sunday morning policy shows such as Meet the Press—gender equality seems evident. There is typically a greater share of action movies as well that display gender equality such as the Hunger Games series. Gender equality on the big screen and news media, however, may have lured the developed world to sleep. Studies continue to show that women, even if in the same job function, face pay inequality (and likely barriers for promotion equality as well) across industries, across the globe in the developed world.[i] DuLac Capital Advisory L.L.C. believes there are underappreciated implications for the gender pay/opportunity equality strike in Iceland that launched on October 24, 2023[ii]. It may be under-reported by most news media, but the implications for the rationale behind the strike will manifest in capital allocation decisions and policy action in more developed countries in the near future.
America was fixated on the Hollywood strikes over the summer: the strikes were mainly driven by actors and writers recognizing that technological changes—such as they growth of social media platforms combined with streaming services for younger cohorts—were creating challenging headwinds for many writers and actors to achieve “scale” via royalty income from their previous work effort, which often requires a significant amount of undervalued sweat equity. From a financial perspective, they were essentially trying to revalue the “call option” on their career’s work effort, especially in the age of Gen AI which industry could use as a tool, or as a replacement vehicle (a “put option” on talent) rather than continue to pay for their intellectual capital and labor that goes into producing entertainment.
DuLac Capital Advisory L.L.C. a similar dynamic will emerge within the developed world for gender pay equality— stakeholders will increasingly question the narrative that women are not paid the same as men due to “self-induced” job segregation into lower valued opportunities. The age of Gen AI will usher in a significant increase in opportunities that level the STEM playing field for women across industry verticals. Essentially, excuses are running out for corporate America and other developed world companies to continue to allow investment and human resource systems to enable pay inequality where gender is the primary factor.
In the Developed World— Gender Pay Gap is Not Biological or Intelligence Based
Professor Claudia Goldin of Harvard University recently won the Nobel Prize for her economic research that focused on labor markets and gender equality. Her research illustrates how the process of closing the wage gap between women and men across sectors: it underscored the wage gap is not due to biological or intelligence differences. Rather, the wage gap across the Western world is driven by structural impediments— for example, due to the undervaluation of unpaid/underpaid labor women perform at home[iii]. There also is evidence that even when women are not impaired by “couple inequality,” such as single women, there are still statistically significant gaps in compensation and opportunity even when adjusted for job function—such discrimination, of course, is illegal in America per the 1964 Civil Rights Act, yet it persist, despite the headline risk and civil lawsuit risk that could materially impact a company’s bottom line and market sentiment: let alone investable increase headwinds for index inclusion in the age of growing institutional allocation to ETFs and index investments.
DuLac Capital Advisory L.L.C. also thinks it is within institutional investor’s fiduciary duty to give a fair consideration towards active and appropriate metrics-based solutions that focus on investing in explicit strategies that support gender equality within the corporate sphere. Such investment strategies may seem to be in peril in the era of ESG backlash, but data-driven fiduciaries will find plenty of evidence that investing in companies that proactively implement gender equality in pay/opportunities will often tend to outperform their peer group that does not. Thus, not only will metric focused gender-equality considerations be recognized as simply a legal and ethical imperative (discrimination based on gender is illegal per the American Civil Rights Act of 1964 and other similar laws in developed countries), but also a positive investment factor.
Iceland has one of the most stringent gender pay equality and anti-sex discrimination laws in the West. That said, Iceland’s female workforce median pay is still 21% lower than men’s: not much different than in America. Therefore, the women of Iceland, including even the Prime Minister, went on “24 hour strike” on October 24, 2023, to drive systematic change to close the equality gap. This effort underscores the need for pay equality for a given level of measurable productivity, innovation, and hours worked. DuLac Capital Advisory L.L.C. believes there will be increased calls for corporate disclosure on their measurable gender pay/opportunity equality initiatives by investors, and therefore increased audit requests at a corporate governance level. There also will be increased momentum for institutional investors to allocate to gender equality focused strategies as fiduciary stakeholders will increasingly find such an approach to be positive for their bottom line investment objectives—in addition to the right thing to do from an ethical basis.
Additionally, and possibly even more importantly for addressing the gender pay/opportunity gap, The New York Times cited a 2018 study by the University of Iceland that showed that 25% of Icelandic women surveyed have reported assault[iv]. This systemic tragedy is clearly not isolated to only Iceland. There will be increased policies that therefore require companies to provide mental health services to be treated the same as so-called “physical health” (mental health is actually medical as well, even if insurance and corporate practices treat the former with greater stigma), to help women heal from the trauma of such violence, while being able to still continue working[v]. Companies that voluntarily implement total health policies where survivors of trauma can get the medical help they need to continue to be “thrivers” from an enterprise and civil society standpoint are often recognized as better quality companies— that has factored into better equity performance.
Gender Pay/Opportunity Equality is not ‘Woke’— It is Good for ROIC & Business Bottom Line
DuLac Capital Advisory L.L.C. projects that the pay equality strike in Iceland will spread in some format to other Western countries: similar to how the Hollywood actors strike, ended up spreading to Hollywood writers, and even directors to strike citing similar rationale. DuLac Capital Advisory also believes that the impacts of the Iceland gender pay equality strike will likewise trickle to corporate governance in America and other developed countries: there will thus likely be increased pension allocation and asset manager proxy vote interest in “gender pay/opportunity equality audits” for their portfolio companies. Audits that focus on identifying whether a company is living up to its stated policy of gender equality would be akin to external audits that companies such as BlackRock request from external experts to ensure it is adhering to the letter and the “spirit” of the Civil Rights Act’s mandate that prohibits discrimination based on race within hiring, promotion, pay, and job segmentation[vi].
Many point that the interest for such incentives and mandates may wane given the ESG/Sustainability backlash across significant portions of the United States. DuLac Capital Advisory L.L.C. covered the implications of the backlash and ways to move forward in a previous White Paper, Will ESG End up in the Ash Heap of History[vii]. DuLac Capital Advisory L.L.C. agrees with the notion that, at the end of the day, fiduciary investors must only take into consideration what can generate the best risk-adjusted return for their portfolio objectives. Nonetheless, investing capital to companies, sovereigns, non-profits, and municipalities that implement metric-focused gender pay/opportunity equality is aligned with the medium and long term performance objectives of fiduciaries.
Investment Criteria for Gender Pay Equality can Compliment Fiduciary Mandates
There are approximately 3 European listed UCITS ETFs and eight U.S. listed ETFs that focus on gender equality. In my experience, institutional investors often find it accretive to “barbell” an active strategy via a gender equality focused VC and PE firms with dedicated gender pay equality strategies, and with a asset managers who offer index-based gender equality exposure for beta management, such as the SPDR MSCI USA Gender Diversity ETF (SHE) by State Street SPDR ETFs. State Street, one of the top five ETF and index managers by AUM, launched the ETF in March 2016.
The ETF weights U.S. based companies based on their market capitalization and their gender equality factor score which is measured by MSCI: SHE manages close to $196 Million as of October 24, 2023. According to Financial Times, gender equality focused ETFs in the U.S. and Europe have approximately $1.7 Billion in AUM; certainly, active strategies and private capital add to the focus.
Nonetheless, the Icelandic strikes, and the increased attention focused on this issue (from a rationale economic and political lens) thanks to the Dr. Goldin’s Nobel award, will increase allocation interest to such strategies. The increased interest will past fiduciary muster given the evidence that such strategies are not counter-indicative of positive and sustainable return on invested capital over the medium to long-term relative to strategies that do not consider gender-equality to be important. In fact, The Financial Times illustrated that “gender equality ETFs” in both the United States and Europe tended to outperform their broader benchmark in 2022[viii].
GenAI will Produce Measurable Gender Pay/Opportunity Equality Initiatives throughout the Corporate Ladder
Last year, of course, was among the toughest investment environments in history as both equities and the bond market experienced effective bear markets for most of the year—a rarity in the last 200 years of recorded history of the markets. Therefore, fiduciaries that automatically exclude gender-equality focused strategies on the surface level view that they are a contradiction to absolute return investment mandates, will likely find such a strategy to be an empirical mistake within their investment due diligence process.
When Katie Koch, current CEO of private investment giant, was chief of public equities asset management at Goldman Sachs, implemented an investment criterion that required GSAM to factor in corporate board gender diversity as a key screening criterion. Her rationale pointed to evidence that companies with gender-diversity in key-decision making functions tend to do better over the long term than companies that lack such gender diversity[ix]. Within a few years, their investable universe quickly expanded as the majority of companies quickly implemented action to include women on their board.
Investing in gender equality during the age of GenAI is already producing unique challenges and opportunities for corporations to address systematic gender equality. For example, companies should perform audits ASAP to determine whether their investing, hiring, and promotion processes include gender equality considerations within the fast-growing Gen AI oriented functions. Companies that include women for positions for Gen AI development, fine-tunning, Prompt Engineering, and implementation will likely produce more sustainably profitable use cases for its adoption.
DuLac Capital Advisory L.LC. believes judging early stage gender equality inclusion efforts for Gen AI Ecosystem will be a good case study as to whether the West has made progress. Given the last ten year commitment to STEM training and hiring for women. There will be no excuses this time around in ensuring women have an equal shot at Gen AI enabled career opportunities, and also get recognition for adopting it as part of their innovation and productivity enhancing process to drive value for the company’s priorities.
Additionally, investing and policy stakeholders will face increased pressure to ensure women receive the same “intellectual property” credit and copyright protection as men do for their work being utilized to train and develop GenAI systems and services. Such will all be important factors for fiduciaries to consider in this ongoing saga to generate greater opportunities for all workers, regardless of gender.
Ryan Scott
Executive Director and Founder
DuLac Capital Advisory
(+1) 516-939-6833
End Notes and Sources:
[i]Gender Pay Gap Persists Globally. Forbes Magazine. By IESE Business School. https://www.forbes.com/sites/iese/2022/12/14/gender-pay-gap-persists-globally-even-for-same-jobs-within-companies/
“Our study, published recently in Nature Human Behaviour, brought together 29 professors and researchers from around the globe to analyze millions of data points with matched employer-employee data. The project was led by Andrew Penner from University of California, Irvine.
The results run somewhat counter to recent thinking that the pay gap in many advanced, industrialized countries is due to gendered job segregation – e.g., men tending to be well-compensated corporate executives and tech workers, and women leaning toward lower-paid professions such as nurses and teachers.”
[ii]Women in Iceland Go on Strike Against Gender Inequality. New York Times. By Isabella Kwai and Jenny Gross. October 24, 2023.https://www.nytimes.com/2023/10/23/world/europe/iceland-equality-strike.html?smid=nytcore-ios-share&referringSource=articleShare
[iii]Claudia Goldin Wins Nobel in Economics for Studying Women in the Work Force. New York Times.by Jeanna Smialek. October 9, 2023: https://www.nytimes.com/2023/10/09/business/economy/claudia-goldin-nobel-prize-economics.html
[iv]One in four women has been raped or sexually assaulted. University of Iceland. By Dr. Unnur Valdimarsdottir, and Dr. Arna Hauksdottir, University of Iceland’s Faculty of Medicine. November, 16, 2018. https://english.hi.is/news/one_in_four_women_has_been_raped_or_sexually_assaulted
“Research scientists at the University of Iceland recently launched a very ambitious study entitled The Saga Cohort (Áfallasaga kvenna). The overarching aim of the study is to significantly advance our understanding of the role of trauma and major adversities in women’s health. Recent discussions in society support the importance of considering the health consequences suffered by women exposed to trauma or major adversities.
The target population are all women, 18 years or older, residing in Iceland in February 2018. Participants answer an extensive web-based questionnaire on trauma history and health on the website afallasaga.is. Participation has been good, around 50 thousand women received invitations to participate last spring and over 23 thousand of them have already answered the questionnaire on the study's website. The results discussed above are the first that are published from the study.”
[v]Substance Abuse and Mental Health Services Administration (United States). https://www.samhsa.gov/trauma-violence: “Research has shown that traumatic experiences are associated with both behavioral health and chronic physical health conditions, especially those traumatic events that occur during childhood. Substance use, mental health conditions, and other risky behaviors have been linked with traumatic experiences. Because these behavioral health concerns can present challenges in relationships, careers, and other aspects of life, it is important to understand the nature and impact of trauma, and to explore healing.”
[vi] BlackRock Racial Justice Audit Shows Struggles to Retain Black, Latinx Leaders. Bloomberg News. By Jeff Green. April 20, 2023: https://news.bloomberglaw.com/daily-labor-report/blackrock-racial-audit-shows-struggles-to-retain-black-latinx-leaders
[vii]Will ESG End Up in the Ash Heap of History. By Ryan Scott, Executive Director of DuLac Capital Advisory L.L.C. August 31, 2023. https://www.dulaccapitaladvisory.com/dulaccapitaladvisoryllcblog/will-esg-end-up-in-the-ash-bin-of-history. “ Balancing ESG Mandates: To address the diverse attitudes toward ESG, and its next iteration, Impact Investing, stakeholders must adopt an approach that recognizes America’s historical “federalist based society.” This reality has long balanced regional preferences vs. centralized national standards. This approach involves tailoring ESG strategies to align with each state's specific needs, enabling policies that promote both economic growth and socially responsible outcomes. McDonald’s Corp launched vegetarian only restaurants in India 10 years ago, yet that doesn’t mean it stopped buying cattle from Texas[ii]. Traditional industries like oil and gas face challenges due to ESG concerns, but these challenges might not automatically lead to underperformance.”
[viii]Gender Equality ETFs Delivered Best Performance Yet in 2022: five of nine funds beat their relevant broader peer group benchmarks in 2022. By Emma Boyde. April 4, 2023. https://www.ft.com/content/957c8255-f2a9-4a9c-8c40-7c0fe42af26e
[ix] Goldman Sachs Asset Management Updates its Proxy Voting Policies to Increase Ethnic and Gender Diversity Expectations for Public Company Boards. December 2, 2021. GSAM. https://www.gsam.com/content/gsam/us/en/advisors/about-gsam/news-and-media/2021/Goldman_Sachs_stewardship.html
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