Gender discrimination in finance holds back women – and investment

We need more women in senior roles in finance to build inclusive institutions and allocate capital more rationally and fairly.

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Studies show substantial evidence of discrimination by banks against women entrepreneurs, who are less likely to receive loan approvals, pay higher interest rates – on average 0.5 percentage points more – and receive smaller funding amounts than male-led businesses. Image: UN Women Asia & the Pacific, CC BY-SA 3.0, via Flickr.

They say a woman’s work is never done. It certainly true when it comes to gender equality. That goal remains out of reach, despite record numbers of women joining the workforce.

Globally, women’s wages are still only half those of men. Entire industries, such as finance, remain dominated by a workplace culture where women earn less than men and have fewer promotion opportunities, and where it is taboo to complain about it.

Years of damaging lawsuits and naming and shaming have done little. In 2023, women held only 18 per cent of C-suite positions in financial services globally. Even in the highest positions, female directors are paid less than male peers.

Far less. In the UK, for example, female directors at financial services companies can expect to earn, on average, two-thirds less than their male counterparts, according to research by law firm Fox & Partners.

Equally concerning is the fact that the talent pipeline that will feed the next generation of female leaders has grown at a much slower rate than the number of women in the C-suite. This bodes poorly for our collective ability to close the gender gap in financial services.

We must do something about this, but we need a new approach.

To spearhead the transformation we want, we need strong networks to support female professionals in their careers (and not just in finance).

The price of irrational prejudice

I focus on finance because of its outsized influence on the broader economy. Investment and credit, both mediated by the finance industry, allow businesses to grow, new ventures to be explored and economies to thrive.

But those in charge of allocating capital belong to a culture that, simply put, values women less than men. The cost of this irrational prejudice can be measured in dollars and cents, and it collectively holds everyone back, not just women.

Studies show substantial evidence of discrimination by banks against women entrepreneurs, who are less likely to receive loan approvals, pay higher interest rates – on average 0.5 percentage points more – and receive smaller funding amounts than male-led businesses.

This despite reams of data showing that female-led businesses are a safer bet. A study by Boston Consulting Group found that women-led start-ups raise less than half the venture capital funding of those founded by men, but generate more than twice the revenue.

Yet it is in funding start-ups that the gender gap becomes a chasm. In 2022, companies founded exclusively by women received only 2.1 per cent of the total capital invested in venture-backed start-ups in the U.S.

The same is true in Europe, where a 2018 study found that more than 90 per cent of European investment in tech start-ups went to all-male ventures. Tech is supposed to be building our future. Does it really make sense to entrust our futures to only half of the population?

It is time to end gender discrimination in the finance industry and save the industry from itself.

Research by the IMF shows that the gender gap in leadership impacts bank stability: banks with more women board members have higher capital buffers, relatively fewer non-performing loans and greater resistance to stress.

Building strong and supportive networks

To spearhead the transformation we want, we need strong networks to support female professionals in their careers (and not just in finance). We also need to educate male managers and HR teams to identify their own biases and correct them.

This is critical for ensuring that the pipeline of female talent doesn’t peter out in mid-career. At present, too many women in finance abandon their careers in their prime, disappointed by the lack of promotion opportunities and the yawning pay gap with their male peers.

Progressive legislation can be effective in reducing the discrimination women suffer – in promotion opportunities and pay – for having children. But it is harder to legislate against a toxic work culture, or more subtle forms of discrimination, such as all-male networking events.

To fight this toxic culture and all aspects of gender discrimination, the United Nations Global Compact (UNGC), the world’s largest corporate sustainability initiative with more than 20,000 global members, is launching the Invest in Women Platform.

The aim of this network is to share promising practices to achieve equal representation across all levels of management and leadership in finance. We will explore areas where finance can support gender equity across issues and industries, from procurement and supply chains to women entrepreneurs in combating climate change.

Imagine what we could achieve if we could make finance, banking and investment gender-neutral.

Women’s work may be never done, but with more women decision-makers in finance, and a fair share of funding, at least their work might stand a better chance of being funded and rewarded equally with that of men.

This story was published with permission from Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, climate change, resilience, women’s rights, trafficking and property rights. Visit https://www.context.news/.

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