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Gender diversity and female empowerment are playing a bigger role in corporate performance and strategy than before. From an investors’ perspective, women bring to the table higher returns and lower risk. On the other hand, companies that struggle to make strides in inclusivity can pose risks for investors.
Gender lens investing is an approach that considers gender-based factors across the investment process, with the aim of advancing gender equity and driving financial performance. This may include investing in gender-diverse companies, women-led enterprises, or companies that provide products and services that improve the lives of women and girls.
Here’s a list of commentaries by fund managers on incorporating a gender lens into investment portfolios. Read on to find out why it should matter to investors, and how gender fits into sustainable or environmental, social, and governance (ESG) investing.
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Diversity builds strength
“Companies with above-average female representation in their management team and diversity policies in place — like child care and a flexible work environment — outperformed the market over the past 10 years.”
“Examples (of criteria to evaluate diversity initiatives) include whether a company is monitoring its annual progress in hiring, retaining, and promoting women; its approach to providing equal pay for equal work; leadership development programmes aimed at helping high potential women take the next step in their career, and the presence of both maternity and paternity leaves.”
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Board composition and diversity: why does it matter?
“Maintaining a strong, diverse and balanced board requires continuous planning. This is an important responsibility of the board and its nomination committee. … A balanced composition allows it to adapt to the changing demands of the business environment and ensures that it can fulfil its role in driving sustainable corporate performance. … An imbalance may be symptomatic of weakness in the nomination and succession planning process. Over time, this weakness can reduce the effectiveness of the board’s leadership.”
“In emerging markets, board gender diversity can lag behind the levels seen in some more developed markets. … In order to encourage progress in this area, we wrote to our emerging market holdings… to explain our expectation that boards meet a minimum standard of having at least one female director.”
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Gender equality — a multi-asset approach
“One way investors can identify companies that are committed to promoting greater gender diversity is to screen firms based on a number of criteria.”
“For example, our Multi-Asset team uses a Gender Equality Equity Basket which only admits companies that operate policies and practices supporting the United Nations Social Development Goal No.5: gender equality. These are companies that can demonstrate a record of:
- Promoting women into leadership positions
- Seeking a pro-gender balance in the workforce
- Showing commitment to pay equity
- Innovative parental leave and/or other supportive/protective practices”
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Gender-balanced leadership delivers more opportunities
“Sceptics question whether ensuring gender-balanced leadership detracts from company performance, however, much academic and industry research determined that it does not. Moreover, opportunities for long-term company performance result with board compositions of at least 30% women.”
“Chief investment officers of leading institutional investment firms said if choosing between two comparable firms, they would allocate twice as much capital to the more gender-diverse private equity firm.”
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Three ways gender issues matter to investors
“1. Diversity is linked to better decision-making and performance
Research from consulting firm McKinsey & Company has found greater diversity across genders and ethnicity to be strongly correlated to higher profitability and value-creation.”
“2. Action to increase gender diversity is working (and more is needed)
Asset managers like Schroders can use their influence to help drive change at companies through their interactions and rights to vote at company AGMs.”
“3. Gender-lens and social impact investing can contribute to solutions
… 70% of female workers in developing countries operate in the informal economy. This means they do not have access to vital services such as health insurance and unemployment benefits and are more likely than men to fall into poverty. Women also take on 75% of unpaid care work globally.”
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Tackling gender equality at investee companies
“Having a more representative leadership and workforce may also lead to increased consideration for products and services available for differing diverse needs, product design considerations, marketing communications to women and underserved communities.
One of my favourite books is Invisible Women, which really emphasises why representation is important. For example, it highlights that because cars are often designed around the male body, women involved in collisions are nearly 50% more likely to be seriously hurt than men.”
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Raising the bar on diversity
“Greater gender/ethnic/cultural diversity on both executive teams and boards of directors helps drive business performance. This relationship is statistically significant and has been observed over time and across geographies.”
“Investing in diverse companies: According to Merrill Lynch, US companies that focus on gender diversity at the board and C-suite level consistently achieve higher return on equity and lower earnings risk in subsequent years. These companies also generally trade at a premium versus their more homogenous counterparts. In Europe, stocks of companies that have seen rising diversity on boards experience more stable earnings and dividends. In Asia Pacific, stocks of companies that have at least two female board members trade at a premium and have higher net margins as well as dividend yield.”
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Unlocking the "S" in capitalism
“The “S” in ESG — the environmental, social and governance factors that are a core part of sustainable investing — has long been overshadowed by other aspects of the sustainability story. Yet today, social issues are increasingly coming into focus.”
“Another major driver (of inequalities) is climate change. Local environmental resources are crucial for a high proportion of the poorest populations, and these resources are affected by global warming. For instance, under the medium scenario for population development, the Intergovernmental Panel on Climate Change estimates that at 1.5°C warming, 178 million people — including a high proportion of women, children and the elderly — will be affected by water stress, drought intensity, and habitat degradation by 2050. At 2°C warming, this figure rises to 220 million people.“
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Why gender lens investing may lead to better returns
“According to Morgan Stanley Research, a more diverse workforce, as represented by women across all levels of the organisation, is correlated with higher average returns. When our quantitative team analysed global companies based on their percentage of female employees and other metrics of gender diversity, companies that have taken a holistic approach toward equal representation have outperformed their less diverse peers by 1.2% per year between 2011 and 2022.”
“Just as getting qualified women into the C-suite and the boardroom, female ownership and developing policies supporting diversity are important, there are other dimensions of gender diversity, equity, and inclusion that motivated investors can also support — for example, investing in companies providing products and services that benefit women and girls.”
“Women … represent the majority of unbanked adults globally. Increasing access to financial services for women, such as bank accounts, can support inclusion and serves as a growing business opportunity as well.”
“In addition, investors may consider diversity at the asset managers they invest with. Women continue to be underrepresented in the fund management profession; in fact, diverse-owned firms manage less than 1.5% of assets in the US.”
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To explore best-in-class funds from leading global fund managers, check out the Endowus Fund Smart platform.
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Investors can play an important part in pushing for change and creating an equitable and inclusive world.
Everyone should have the opportunity to build their wealth. Endowus hopes to empower more women to take care of their own finances, in whichever life stage they may be at. To learn more, explore our curated section of investing articles dedicated to women. To get started with Endowus, click here.
Read more:
- Financial wellness for women — taking charge of your wealth
- All about sustainable investing — ESG, socially responsible investing, and impact investing
- Why "corporate karma" is crucial for your investment returns
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This article is for information purposes only and should not be considered as an offer, solicitation or advice for the purchase or sale of any investment products. It is recommended that you seek financial advice as to the suitability of any investment. Whilst Endowus Singapore Pte. Ltd. (“Endowus”) has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or typographical errors.
Any opinion or estimate above is made on a general basis and none of Endowus, nor any of its affiliates, representatives or agents have given any consideration to nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Opinions expressed herein are subject to change without notice.
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Past performance is not an indicator nor a guarantee of future performance.
Please note that the above information does not purport to be all-inclusive or to contain all the information that you may need in order to make an informed decision. The information contained herein is not intended, and should not be construed, as legal, tax, regulatory, accounting or financial advice.
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