This article was originally published by the Atlantic Council. This version has been shortened.

  • Economic prospects for women in both rich income and middle-lower income countries have been much diminished by the experience of the COVID-19 pandemic.
  • Closing the global gender gap works as a terracing effect: with an eye on the future, closing the wealth gap and the confidence gap present practical ways in which to further advance female economic empowerment.
  • Looking beyond 'quotas', forward-thinking policymakers, investors, and executives should focus on addressing the ‘next big thing’ in ESG, and in advancing the position of women across the globe.

As caretaking burdens often falls disproportionately on the shoulders of women, many working women were forced to act as a primary caregiver, making them withdraw from the labor force during the pandemic. The decline in female labor force participation catalysed what the IMF has referred to as a ‘She-cession.’ The UN posits that an estimated 47 million women have been pushed to extreme poverty.

Even despite a robust recovery in advanced economies such as the US – and an uptick in wage growth for women in 2022 – the gender wage gap remains material, with female wages in America standing at 83.1% of the earnings of men.

Policymakers from countries such as Japan, Italy, and the US are announcing measures to improve the labor force participation rate (LFP) of women, while also introducing measures to achieve gender parity in wages, increase the number of women on boards, and boosting digital skills for women.

How ESG investments could benefit female economic empowerment

Amidst the backdrop of an accelerated focus on ESG, investors, executives, and industry bodies have a renewed focus on improving gender parity in the boardroom, as well as by stepping up the number of women on executive management teams.

So, what is the next ‘big thing' in female economic empowerment, and accordingly, in ESG policy and investment? Closing the wealth gap between men and women is likely to expand as a need and as an opportunity. As more and more women enter the labor force; as protocols and quotas are expanded to include more females on executive teams and boards; and amidst growing efforts to achieve parity in pay, women are likely to accumulate more wealth over time.

The ways in which this wealth is secured and grown over time presents a challenge to societal and organisational norms across countries, and to women themselves. Related factors such as uneven access to credit, barriers to female entrepreneurship, unbalanced venture capital funding, lack of ownership of business assets and the pension gap have hindered creating a more level playing field for women. Mitigating the gender wealth gap presents a sizeable opportunity for governments to truly improve the situation; for organizations and investors to fulfill the ‘S’ and ‘G’ components of ESG mandates; and for societies and economies to grow durably and sustainably over the long term.

Closing the global gender gap: A terracing effect

A close look at the data behind the World Economic Forum’s Global Gender Gap Report reveals a terracing effect of advancements for women in the world. To work towards gender parity, health and survival is a foundation, which then enables access to education; expanding educational opportunities allow for political empowerment; and female political empowerment can spill over into opportunities for economic participation. However, this type of progress is not linear. While 2020 presented setbacks for women in economies across the globe, countries can also backslide on previous achievements in political empowerment, as well as on economic participation.

By breaking down the various components which may comprise female economic empowerment, one can see how expanding female LFP, increasing quotas for women on management teams and boards, and greater moves toward gender parity in wages form the foundation for greater opportunities for women to hold wealth, and thus to generate both wage and non-wage income.

Wealth inequality: Diverging asset composition

Wealth inequality between men and women is not just a problem in developing economies, where women might face barriers to accessing financial services, or accessing inheritance, or land or non-land assets. In the heart of Europe, within Germany, a man’s wealth is on average 45% higher than that of a woman in France, 15% higher, and in Italy, 18% higher. A recent study of administrative data in Estonia reveals that even within households, substantial wealth inequality exists: in households of married couples, ‘men have on average 89% more wealth than women.’

This wealth gap widens significantly at the top of the income distribution: and the data from Estonia reveals that diverging asset composition underpins this gap. At the lower part of the income distribution, women tend to hold deposits, as well as men: at the top of the income distribution, men tend to hold more business assets than women. Indeed, researchers point to a ‘striking’ difference in business wealth between men and women, with men in Estonia holding ‘nine times as much business wealth’ than women; in Germany, men hold 5.5x more business wealth than women. On the whole, women tend to be more conservative in the types of investments they hold, hence the rephrasing of the old adage, that women hold savings accounts on Venus, and that men hold shares on Mars.

Closing the confidence gap: Yes, she can

Empirical data also shows that women often suffer from a confidence gap in measuring their own performance, vis-a-vis men. Researchers found a ‘large gender gap in self-promotion,’ which is ‘persistent’ and emerges as early as the 6th grade (11-12 years old). If a woman completes a math and science test, a ‘robust’ gap between how women describe their performance vis-a-vis men exists. By contrast, when a woman is tested in what is designated to be more ‘female’, that is, verbal tasks, the gap narrows. Strikingly, even when women outperform men on a math and science test, women persistently underestimate themselves.

The ‘pass through’ of these lower confidence levels into wealth inequality is clear. Research indicates that there is an corroboration between lower financial literacy scores for women, and thus lower stock market participation rates. In the UK, a recent report evidences that women ‘consistently’ lag behind men on financial literacy, ‘across generations.’ In efforts to address these gaps, measures have been taken by women working with one another, by offering services to improve financial literacy and to provide insights on investing; the offer of female-owned investment services and a notable increase in female wealth managers.

Reimagining female entrepreneurship

This unbalanced playing field between men and women in the business world has revealed the inequity in the startup and venture capital ecosystem. In the US, 75% of venture capital firms do not have any female partners. US policymakers have recently drafted legislation to improve access to capital for female entrepreneurs via tax credits.

And yet, it is worth pointing out that female entrepreneurship is not limited to a female-run business or a startup. Women can exist as entrepreneurs within larger organizations: incentives are needed to facilitate greater shares of ownership within companies. Increasing opportunities for women to build up business assets naturally follows the larger trend of higher female LFP, higher numbers of female managers, and efforts to mitigate the gap in wages. Management practices, too, will need to keep up: to enact such incentives requires a departure from the ‘quota’ mentality.

In sum, forward-thinking policymakers, investors, and executives should focus on addressing the ‘next big thing’ in female economic empowerment. Mitigating the wealth gap has the potential to have positive feedback loop into prospects for sustainable economic growth and development. Finally, this presents a substantive measure for efforts to closing wealth inequality overall.