WITH GENDER EQUALITY AND DIVERSITY under increasing scrutiny today, a growing number of people are investigating how to create gender-related change through their investments. Many are turning to an approach called gender lens investing. Others may have heard about it but are unsure what it is and what potential investment advantages it might offer.
According to Jackie VanderBrug, Head of Sustainable and Impact Investment Strategy for Merrill Lynch and U.S. Trust, gender lens investing is the integration of gender into investment analysis, with two main goals in mind: to make the world a more equitable place and to make a profit. “It’s a way to leverage the market to support progress towards gender equality—in the workplace, the supply chain, the consumer market, and elsewhere,” she says. “And simultaneously it’s a way to identify areas of opportunity in the search for enhanced investment returns, sustainable growth and lower risk.”
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It’s more than philanthropy
Perhaps it’s no surprise that some investors equate the idea of investing to improve society with philanthropy, which generally does not involve financial returns. So, when it comes to gender and investing, it’s important to stress the “making a profit” side of the equation. Indeed, gender lens investing is considered to be a subset of impact investing, which itself is often described as having the potential of “doing good while doing well.” That is, investing to make a positive social or environmental change while pursuing a return on your investment.
“We’re hearing more about gender lens investing today because there is a growing interest among consumers and investors to support gender equality as a fundamental human right.”— Jackie VanderBrug, Head of Sustainable and Impact Investment Strategy for Merrill Lynch and U.S. Trust
Investors and companies are responding
“We’re hearing more about gender lens investing today because there is a growing interest among consumers and investors to support gender equality as a fundamental human right,” VanderBrug observes. This is reflected in increasing calls for equal pay for women, more diversity in upper management, the production of consumer products beneficial to women, and in other areas. And the investment industry and corporations alike are taking note of this burgeoning interest. Consider the following:
- Gender lens mandate-focused assets under management (AUM) grew from $100 million in Sept 2014 to $910 million in June 30, 2017, close to a 109% CAGR according to a report from Veris Wealth Partners.1
- Gender lens investing affects the management of nearly $132 billion in money manager assets, and $397 billion in institutional investor assets.2
- The proportion of companies reporting indicators on pay equity to RobecoSAM for the Dow Jones Sustainability Index rose from 21% to 31% between 2012 and 2016, and the proportion of companies reporting detailed breakdowns of their management level workforce grew from 29% to 44%.
- Over a five-year period (2011-2016), U.S. companies that began the period with at least three women on the board experienced median gains in return on equity (ROE) of 10 percentage points and earnings per share (EPS) of 37%. (Three women is considered a “tipping point” of sorts in terms of improving performance.) Companies that began the period with no female directors experienced median changes of -1 percentage point in ROE and -8% in EPS over the study period.3
This kind of gender-related data is important, VanderBrug says, “because it can help concerned investors identify companies that are making progress in these areas.”
Gender diversity yields many benefits
Equally important, research indicates that a company’s gender diversity can be a fairly reliable indicator -- along with traditional metrics such as return on equity and debt free cash flow -- of its potential for investment outperformance relative to the broader market. A recent study suggests that outperformance may derive, for example, from better decision-making by a more diverse group of directors—including those that have a greater representation of women.3 Outperformance may also be tied to greater gender diversity among senior leadership and the rest of the workforce, which may in turn be correlated with reduced turnover and higher employee engagement. Leadership behaviors more often applied by women may reinforce a company’s organizational performance on several dimensions, and gender diverse teams may make better decisions.
Women & Education
Higher education: is considered a gateway to advancement in the workplace. The underrepresentation of women in business, particularly in the upper levels of management, points to a notable waste of talent. As organizations do a better job of incorporating women’s skills, they stand to benefit from it on the financial bottom line.
According to a Pew Research Center study and Census Bureau data:
|of undergraduates enrolled at four-year colleges are women (as of 2016).|
|of U.S. women graduating from high school enrolled in college, versus only 67% of men (2016).|
Science, technology, engineering and mathematics (STEM): Expanding the ranks of women in science, technology, engineering and mathematics (STEM) is particularly important, for the economy as well as for women themselves. According to a 2013 "Women in STEM" communication, formerly available on whitehouse.gov: “Supporting women STEM students and researchers is not only an essential part of America’s strategy to out-innovate, out-educate, and out-build the rest of the world; it is also important to women themselves. Women in STEM jobs earn 33 percent more than those in non-STEM occupations and experience a smaller wage gap relative to men. Increasing opportunities for women in these fields is an important step towards realizing greater economic success and equality for women across the board.”
“While the advantages of women in the boardroom and executive suite are reasonably well documented, the benefit of adding women extends across an entire company or organization, from every level of the workforce and all the way down the supply chain,” VanderBrug says.
“No matter the political environment, we believe the issue of gender will only grow in importance-- in the workforce, in the home and and around the globe.”— Jackie VanderBrug, Head of Sustainable and Impact Investment Strategy for Merrill Lynch and U.S. Trust
And with women making a clear majority of consumer decisions, companies are finally looking beyond “pink products” – the color is usually associated with support for breast cancer awareness but may also be used more broadly to show support for women -- to design items specifically for the female consumer.
The future of gender lens investing
Going forward, the quality and quantity of gender-related data and research should continue to expand, making it increasingly easier for investors to consider gender-related issues in making investment decisions. The use of gendered data promises advances in fields from life sciences to software, with innovations standing to benefit not just women but all consumers. Opportunity can also be found in investing in products that address global issues disproportionately affecting women such as maternal mortality, clean water, indoor air pollution, safety and human trafficking. Bottom line, investing with a gender lens can help scale up the companies that significantly improve the lives of women and girls. This type of progress is something VanderBrug is confident will continue. “No matter the political environment, we believe the issue of gender will only grow in importance--in the workforce, in the home and around the globe.”
3 Questions to Ask Your Advisor
- How could I incorporate gender lens investing into my current financial strategy?
- How can I identify companies that are focused on promoting greater gender equality?
- Are there mutual funds or Exchange Traded Funds (ETFs) that focus on this issue?
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1 “Gender Lens Investing: Investment Options in the Public Market," Veris Wealth Partners, 2017.
2 U.S. Sustainable, Responsible and Impact Investing Trends, US SIF, 2016.
3 “The Tipping Point: Women on Boards and Financial Performance,” MSCI ESG Research (2016).
4 “Top 10 Things Everyone Should Know About Women Consumers,” Forbes magazine, 2015.
Impact investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating.
The views and opinions expressed are those of the author, are subject to change without notice at any time, and may differ from views expressed by Merrill Lynch or other divisions of Bank of America Corporation. These materials are provided for informational purposes only and should not be used or construed as a recommendation of any service, security or sector.