Paid parental leave could significantly propoel a company’s efforts toward gender parity in its workforce. A growing body of evidence indicates that paid parental leave policies save companies money in addition to supporting the emotional, physical, and social well-being of working parents.

Out of 41 developed countries studied by the Pew Research Center, the US is the only one without a mandated paid parental leave policy. This means that American businesses have an opportunity to take the lead on improving the economy and addressing outdated social norms in the process—and investors can help catalyze that shift through gender lens investing.

Women Suffer the “Motherhood Penalty”

A 2020 study from the University of California, San Francisco, found that despite the long list of upsides for parents, children, and the economy, only 16% of American workers employed in the private sector have access to paid family leave. This has created what the researchers dub a “two-tiered system” in which only parents who can afford it take time off. Nearly 25% of new mothers who are denied paid leave return to work within 10 days of giving birth, even though doctors recommend at least six to eight weeks of rest.

The negative economic consequences of denying paid leave fall on women at all income levels. Women with children are paid an average of 71 cents for every dollar made by a father, a discrepancy that is even more pronounced for women of color. Men see virtually no change in their salary after becoming fathers. On average, single mothers have the least professional flexibility, while white married men have the most. For same-sex couples, this “motherhood penalty” applies to the partner who gives birth or takes more time off at the child’s arrival.

One of the biggest roadblocks is enduring social norms. Denmark has one of the most generous parental leave policies on the planet—yet men were less likely to take advantage of the benefit. This finding appears tied to public opinion polls showing that a majority still believe women should be primary caregivers. Paternity leave allows men to better bond with their children and enables women to share childcare duties with an available partner.

To learn more about gender lens investing, read Gender Lens Investing in Public Markets: It’s More Than Women at the Top.

The Benefits of Paid Parental Leave Policies

What about companies that do offer paid leave? The UCSF study also found that women with access to paid leave are more likely to remain in the labor force and less likely to need public assistance, echoing a 2014 report from the International Labor Organization that concluded that “providing adequate maternity protection is not only affordable and feasible even in the poorest countries, but it is also conducive to social and economic development.”

Examples of two of the world’s largest companies illustrate the tangible benefits for companies. When Google parent company Alphabet increased its paid maternity leave from 12 to 18 weeks in 2007, the rate of new mothers quitting dropped by half. In 2015, Vodafone increased its paid maternity leave to 16 weeks and added the option for six months of reduced working hours at full pay. Vodafone’s decision was backed by a commissioned study by KPMG, which found that global businesses like Vodafone could save up to $19 billion per year by offering the benefit. The reason: companies spend nearly $50 billion a year to recruit and train employees to replace women who quit after having children, far more than the $28 billion it costs them to provide paid leave.

What are the implications for investors? According to the Wharton Social Impact Initiative and Catalyst at Large’s Project Sage 3.0 report, “advancing companies that have a positive impact on the women they employ” is one of five criteria under the gender lens investing umbrella. Not all self-identified gender lens investors apply all five criteria to their portfolios, and some may not include paid family leave in their definition of “positive impact.” Yet if investors push their portfolio companies to make paid family leave a core component of that “positive impact,” they can help advance gender equity in the workplace.

For example, investors such as Zevin Asset Management, Arjuna Capital, and the Interfaith Center on Corporate Responsibility, among others, have engaged companies through dialogue and shareholder proposals to improve their paid family leave policies. These efforts have already resulted in expanded benefits at major employers like Walmart, Starbucks, and CVS Health.

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