SIFs welcome EU gender law but say companies need to go further

Investors think the new law will propel gender diversity laggards but say company management needs to be 'interrogated' for real progress.

Last month, the European Parliament approved a law to boost the number of women on EU company boards.

The Women on Boards directive will require companies to have either a minimum of 40 percent women directors on non-executive boards, or 33 percent of women on both boards. The quota will be enforced from mid-2026.

While the law has been welcomed by European states, investors have said that companies must go further and focus on diversity throughout the business if we are to see a real cultural shift across Europe and if companies want to successfully reach the new targets.

Cassandra Traeger, vice-president, ESG analyst, responsible investment at Columbia Threadneedle Investments told Responsible Investor: “Companies will need to think about their recruitment pipelines and how to expand them. Traditional recruitment strategies often return the same sort of candidates, which can be an impediment to true progress on diversity.

“If companies continue to recruit from the same places as they historically have, they will struggle to find qualified, experienced candidates that don’t already have full commitments, but if they widen their searches and modernise recruitment practices, this shouldn’t be a problem.”

The French, Italian and Finnish Sustainable Investment Forums (SIFs) told RI that they support the new law, which aims to improve female representation across Europe.

Grégoire Cousté, general delegate and secretary general of the French SIF, said that companies will need to change the way they search for talent, in addition to shifting company culture if they are to attract more women.

“A phenomenon we’ve found is that women are often challenging the positions they’re offered and sometimes turning roles down if they feel that a strategy doesn’t meet their requirements, or for other reasons such as work-life balance.

“The management of big companies needs to be interrogated, along with their hiring processes. This could be a good leverage for transformation since there is now pressure and regulation to have women well-represented across companies.”


Linda Zeilina, CEO and founder of International Sustainable Finance Centre and advisory board chair of the Czech SIF, thinks the law will spark more conversations around diversity, equity and inclusion issues, especially for member states lagging behind.

“The new law will certainly force companies to start a conversation about diversity and facilitate a rethink of recruitment targets. Culture change is a process, and the new law will force laggards to embark on a greater effort to add female representation.”

Currently 31.5 percent of board members at the EU’s largest publicly listed companies are women – with significant disparity among member states – and only 8 percent of board chairs, according to 2022 research from the European Institute for Gender Equality.

Finsif board member Emilia Vähämaa said that the law is important for Europe to be holistically diverse.

“The common view is that things won’t change unless we enforce it. Though some countries are ahead, I think it’s needed for an initial change across Europe as a whole.”

Itasif said that the benefit of mandatory quotas is that they “compel companies and shareholders to focus on board composition and to establish more formal recruitment processes in order to find the necessary directors”.

Overboarding risk

As of 2022, France, Italy, Belgium, Portugal, Germany, Austria, Greece and the Netherlands – a new addition this year – had national gender quotas in place.

These countries are also unsurprisingly leading on gender diversity, with several Western European countries and some of the Nordic states already reaching the high 30s or even 40 percent target.

Germany however is lagging behind with only 29 percent of financial services board member seats filled by women, according to data from Ernst & Young.

As of 2021, Denmark, Estonia, Ireland, Spain, Luxembourg, Poland, Romania, Slovenia, Finland and Sweden had soft measures in place. The remaining member states – Bulgaria, Czech Republic, Croatia, Cyprus, Latvia, Lithuania, Hungary, Malta and Slovakia – had no measures in place.

“CEE countries will struggle more than many Western European jurisdictions. This is because there has been a lot less societal pressure or expectations to have women in senior leadership positions in any sector. The law will likely trigger an initial knee-jerk reaction against it and people will voice their concerns, but eventually they will comply,” noted Zeilina.

Companies that fail to comply with the new law will face a penalty system, such as fines, which will be implemented by their respective national authorities.

With only a short period of time to reach the 40 percent target, the risk of overboarding – where a director sits on more than four boards – has been raised as a possible issue for countries which lack senior female representation. Overboarding poses several governance risks of directors taking on excessive commitments and not fulfilling their duties.

However, Zeilina said that this concern is “vastly exaggerated” and that currently, there are the same men on many CEE company boards but that this has received very little scrutiny or criticism compared to the equivalent “golden skirt” phenomenon.

Cousté explained that overboarding is an inevitability at the start of these initiatives, but said it doesn’t set a precedent for the future.

“Overboarding is exactly what happened in France at the beginning – but that’s the transition process. France has now moved onto the second step where there are more women available for these roles.”

Ann Cairns, global chair of the 30% Club and executive vice-chair of Mastercard, outlined how the gender diversity non-profit pushed for more female representation in its respective jurisdictions through cultural shifts rather than quotas.

“The progress we’ve made at the 30% Club has been achieved without quotas. Instead, it was largely driven by board chairs and CEOs setting a shift in corporate culture and was the result of many business-led initiatives, including the Davies and Hampton-Alexander Reviews as well as the 30% Club’s work. While quotas make a difference when progress remains stubbornly low, the 30% Club believes aspirational targets lead to more cultural change.”