One of the fast-growing areas of impact investing is gender-lens investing, which incorporates gender-based factors, either to enhance investment performance, lower risk or to promote more gender equality. Just as environmentally minded investors may ask about their portfolio’s carbon footprint, increasingly people want to know what good or harm their money is doing for women.
While some of the interest has been fueled by #MeToo, “Times Up”, and the Women’s March, there’s clearly a heightened general awareness that gender inequality is still a major concern. Since most consumer decisions are made by women, corporate marketers understand that they ignore this at their own peril.
According to Veris Wealth Partners and Catalyst At Large, by the middle of 2017, $910M was invested with a genderlens mandate across 22 publicly traded vehicles, up from $100M and 8 products in 2014. When including private funds, the number grows to $2.2B.
So how does gender-lens investing fit into the larger sustainable, responsible, impact (“SRI”) picture?
As with other forms of impact investing, some options can be quite basic, while others are more aggressive in their approach. There are mutual funds and exchange-traded funds (ETFs), such as the SHE-ETF by State Street, that filter out companies with fewer women in senior management. On the more aggressive end of the spectrum are funds that invest in projects benefiting poor women in developing countries. These impact-focused vehicles may have higher financial risk and/or lower returns, but some investors may find this to be an acceptable trade-off. Several other options for retail investors are now coming online. The Pax Ellevate Global Women’s Leadership Fund is based on the Pax Global Women’s Leadership Index, an index of companies that are leaders in advancing women through gender diversity on their boards of directors and in management.
Several studies have demonstrated that companies with women in senior management and on their board of directors perform better than those without. The SRI community has been aware of this for many years and has looked at this aspect of social performance as one of the key determinants of expected financial performance. Some of this can be attributed to a more collaborative style decision making. Studies have also found that women are typically more riskaware and don’t suffer from the overconfidence that can negatively impact men’s financial decisions.
One reason gender-focused investing is becoming increasingly important is that women are becoming more affluent. By 2020, women are expected to hold 32 percent of total wealth, up from 30 percent
in 2015, according to Boston Consulting Group. Additionally, most of the incoming inherited wealth will likely go to women. Women are interested in sustainable/impact investing—84 percent of women according to a recent Morgan Stanley study.
About a year since the Fearless Girl statue started her showdown with Wall Street’s Charging Bull, State Street Global Advisers, the investment firm behind the “Fearless Girl” statue, just announced that over 150 corporations have added women to their board due to this campaign and that another 34 said they plan to in the near term.
Investor-led efforts to get women on boards are at their strongest in years. California State Teachers’ Retirement System said it will withhold votes from directors at companies without women on their boards. In January, BlackRock, which manages nearly $6.3 trillion in investments, put CEOs on notice that they would be expected to answer questions such as what they are doing to create a diverse workforce.
With any investment strategy based on a single issue there is always a risk of overexposure to particular market sectors. It’s critical that investors build a properly diversified portfolio that maintains an appropriate risk level. If someone is working with an advisor, it’s imperative that the advisor have relevant experience and training since poorly diversified portfolios often lead to unexpected outcomes. There is no
evidence that employing a mild gender lens should lead to lower returns. It’s simply the integration of another material factor into investment analysis. Sustainable Wealth Advisors, and other specialist firms, have the resources and expertise to help individuals and institutions evaluate the most appropriate ways to thoughtfully integrate this, and other social or environmental priorities, into their financial decision making.