Gender-Lens Investing: How to Invest to Advocate for Women
The challenge of gender inequality
In the US, female representation at more senior levels of corporate leadership has experienced minimal change, despite women’s increased participation in the workforce and a heightened focus on building inclusive workplaces. Although board diversity is increasing, women remain underrepresented, and progress is slow. In 2018, women still held just 21.2% of board seats among companies in the S&P 500 Index1. Only 11% of top earners at those companies are women. Less than 5% are CEOs.
The gender-pay gap is another related challenge to gender inequality. According to the US Census and Bureau of Labor Statistics, women earn $0.80 for every dollar earned by men. Over a lifetime, that wage gap is projected to cost each college-educated American millennial woman more than $1 million in earnings.2 These statistics reflect historical and systemic causes for inequality in female participation in the workforce. One consideration is motherhood. The gender-pay gap widens most sharply in a woman’s 20s to mid-30s, when most women have children.3 One study conducted based on data from the National Longitudinal Survey of Youth found that on average, men’s earnings increased more than 6% when they had children, whereas women’s decreased 4% for each child they had.4 This is known as the fatherhood bonus and the motherhood penalty. And the research showed that the disparity was not because women become less productive and fathers work harder when they become parents, but rather it reflects corporations’ expectations for their performance. This data illustrates preconceived notions and biases toward women employees who become mothers. These biases also play out throughout a woman’s career. The majority of the pay gap, 73%, according to data from the Census Bureau’s Longitudinal Employer-Household Dynamics program, is from women not receiving raises and promotions at the rate of men within companies.5 Women are also nearly four times as likely as men to say they have been treated as though they were not competent because of their gender (23% of women vs. 6% of men).6 Relatedly, due to advances in technology, many higher-paying positions today require around-the-clock availability, and companies use that as a measure for success, known as the “overwork premium.”7 Because women are the more likely of the two partners to take on responsibility at home, they are less likely to take the more intensive job that requires being available at all hours. This negatively affects a woman’s ability to move up the corporate ladder.
These statistics demonstrate the increasing awareness that creating opportunities for women will require more than merely raising salaries for them so that they obtain equal pay for equal work. It also will require improving corporate systems and shifting corporate culture to break down the barriers that exist for women to enter senior-level positions. And it will require upending societal norms on gender to ensure that women are not held back or discriminated against for becoming a parent, or simply for being a woman. Gender-lens investing offers a channel to support these efforts.
The opportunity in empowering women
The thesis for gender-lens investing supports the notion that women should be treated as an equal counterpart to men, with equal opportunities, and that these are fundamental rights. But it does not have to be solely an altruistic choice. Women add value to the economy and improve corporate performance. McKinsey & Company found that the global economy could be between $12 trillion and $28 trillion larger in 2025 if women were employed at the same rate, in the same roles, and with the same pay as men.8 This is in part because women, when they have financial control, are more likely to put their money back into their communities and families.9 As it relates to improved corporate performance, countless studies address how diverse companies are more successful at retaining talent and demonstrate that inclusive workplaces maximize talent and productivity. In addition, numerous studies discuss how diverse teams earn a premium for their innovation, reduce groupthink, and enhance decision making. And further, diverse companies have better reputations, are more likely to recognize risk factors, and have stronger corporate social responsibility performance.10
Companies also perform better financially. In 2016, the Credit Suisse Research Institute analyzed companies where women occupied 50% or more of the leadership positions. The research found that sales growth, earnings-per-share growth, and return on assets were all higher than for the broad universe of companies, and that debt/equity levels were lower.11 There is a clear economic opportunity to capitalize on advancement and equality for women.
What it means to invest with a gender lens, and how to do it
It is estimated that by 2020, women will control $72 trillion of wealth, or 32% of all global wealth, and will influence 70%–80% of all consumer purchasing. As women take on more financial decision making, investment products that reflect their perspectives will become increasingly important.
Traditionally, gender-lens investing in public equities has focused on companies that have a higher representation of women on their boards. However, it is clear that the issue of gender inequality is systemic, and in order to make meaningful strides toward equality, we must begin to focus more on fixing the systems that prevent women from advancing into more senior roles. We must expand the analysis of a company beyond the number of women on the board, and begin considering what companies are doing to improve maternity and paternity leave programs, implement flexible work schedules, provide on-site day care and lactation centers at corporate offices, develop mentorship and development programs for women at various levels, and report on the gender-pay gap. The challenge is that companies do not yet disclose many of these metrics, because they aren’t required to do so by law. Although there is mounting pressure from investors and consumers to disclose certain gender-related metrics, such as the gender-pay gap, those metrics can be vague, and calculation methodologies are not clear. Significant work remains to be done through corporate engagement and regulation to motivate companies to report on gender-related metrics.
When constructing a gender-lens investment strategy, it is important to pinpoint which areas of women’s empowerment are most important to the investor. From there, when identifying gender- themed strategies, due diligence is required to determine the underlying gender-lens approach and methodology. The following five questions can be useful to consider:
- Within the investment process, what gender-related metrics are analyzed in security selection and portfolio construction?
- What measures does the manager take to engage with companies on the commitment to advancing women?
- Does the manager support shareholder resolutions related to the gender-pay gap, gender discrimination, and women on boards? Does the manager vote against companies that are not taking adequate steps to empower and advance women in leadership positions?
- Does the manager report on gender-related outcomes?
- Is there diversity within the team that manages the strategy?
These questions are a way to better understand the meaningful and measurable impact the investment manager is having on corporate behavior.
According to a report by Catalyst at Large and Veris Wealth Partners, assets under management with a gender-lens mandate grew 85% in the 12 months prior to July 2018, as global investors added more than $1 billion to a range of gender-lens strategies.12 The recent focus on gender inequality, as is evident from the “Me Too” movement, the UK’s new regulations on companies to publish gender-pay- gap data, Sheryl Sandburg’s “Lean In” crusade, and the ongoing debate over women’s reproductive rights, has mobilized many investors to align their investment dollars with their world view of gender equality. With a gender-lens investment framework, investors have an opportunity to be part of the solution by shifting capital toward companies that advocate for women to succeed at all levels of employment.
10 Muhammad Ali, Isabel Metz, and Carol T. Kulik, “Retaining a Diverse Workforce: The Impact of Gender-Focused Human Resource Management,” Human Resource Management Journal, vol. 25, no. 4 (2015): p. 580-599. Meghna Sabharwal, “Is Diversity Management Sufficient? Organizational Inclusion to Further Performance,” Public Personnel Management, vol. 43, no. 2 (2014): p. 1-21. Rocío Lorenzo, Nicole Voigt, Karin Schetelig, Annika Zawadzki, Isabell M. Welpe, and Prisca Brosi, The Mix That Matters: Innovation Through Diversity (The Boston Consulting Group, 2017).
11 Credit Suisse Research Institute’s 2016 study “The CS Gender 3000: The Reward for Change.”
The information, analysis, and opinions expressed herein are for informational purposes only. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.
© 2019 Envestnet, Inc. All rights reserved.