Momentum Grows for Gender Lens Investing
In the world of Sustainable and Impact Investing, few ideas have captured the imagination as quickly as Gender Lens Investing (“GLI”).
In just the past few years, the number of Gender Lens solutions has grown rapidly. The premise of this approach is that every investment has a gender dimension and that understanding it uncovers both overlooked opportunities and hidden risks. GLI solutions are about investing for gender balance, inclusion and equity. GL investors are betting that all of society – both women and men alike – will reap social and economic dividends from women’s equality.
Equally important is the passion this topic has generated among people interested in aligning their wealth with values. This also bodes well for the creation of new products and solutions, as we are already seeing.
GLI assets under management (AUM) in public market equities and debt have grown fivefold since 2014 to $561 million as of mid-year 2016, according to an analysis by Veris Wealth Partners and Women Effect.
The accelerated growth is the result of an increased number of GLI solutions being offered by money managers, along with demand from individual and institutional investors to place capital in public market securities that directly benefit women and girls.
To be sure, the entire field of Gender Lens Investing is still in its infancy and represents just a fraction of the assets in Impact and Sustainable Investing, but the growth is very promising.
Our analysis found as of February 28, 2017, there are 16 publicly traded GLI solutions explicitly asserting a gender mandate, up from nine as of September 30, 2014. Three of the newest opportunities target non-U.S. investors, including those in Canada and select European and Asian countries.
More than half of the growth in assets under management has been in the Gender Diversity Index ETF (SHE) sponsored by State Street Global Advisors. The ETF was launched in March 2016 and was seeded with $250 million from the California State Teachers Retirement System (CalSTRS).
To fully appreciate the potential of Gender Lens Investing, it’s useful to define it.
A Gender Lens investment focuses on companies and initiatives supporting: 1) women’s leadership, 2) women’s access to capital, 3) products and services beneficial to women and girls, 4) workplace equity, and 5) related shareholder engagement and policy work.
Investments that satisfy one or more of these criteria are presumed to deliver greater impact to women and girls, and ultimately society as a whole – including men and boys.
Why Gender Lens Investing Is So Powerful
The evidence supporting Gender Lens Investing continues to grow each day. Research demonstrates the compelling business case for gender inclusiveness. Consider the following:
• Fortune 500 companies with three or more corporate directors who are women (in at least four out of five years) outperformed those with zero women directors (in at least four out of five years) by 84 percent on return on sales (ROS), 60 percent on return on invested capital (ROIC), and 46 percent on return on equity (ROE). Yet, as of June 30, 2016, women held only 20.2 percent of board seats at S&P 500 companies, while 3 percent of those companies (for a total of 15) had no women at all on their boards.
• The quality of a company’s reported earnings is positively correlated with greater gender diversity in senior management.
• Microfinance institutions (MFIs) with more women clients have lower write-offs and lower credit-loss provisions, confirming the common belief that women in general are a better credit risk for MFIs.
• Venture-backed companies in Silicon Valley run by women had annual revenues that were 12 percent higher than those run by men. These companies also used an average of one-third less committed capital, and had lower failure rates than those led by men, a 2009 study found.
The data backs the emerging value proposition of Gender Lens Investing, as do the growing number of success stories.
There has been a notable increase in capital to women as a result of Gender Lens Investing. For example, in their 2016 impact reports, micro finance lender MicroVest stated that 62 percent of its clients were women, while agricultural investor Root Capital listed 44 percent of its clients as gender-inclusive businesses. In 2015, 53 percent of Northern California Community Loan Fund’s borrowers were women, while Coastal Enterprises, Inc. invested in 15 women-owned businesses.
Another illustrative example is American Water Works Company, a public company addressing gender equity in the utilities industry, a traditionally male dominated field. Led by women, the company is the largest American water and wastewater utility company, serving more than 15 million Americans and 1,600 communities in 45 states. Women comprise more than half of the board of directors, and 42 percent of the company’s executive officers are women. CEO Susan Story and CFO Linda Sullivan oversee more than 6,700 full-time employees and have incorporated diversity hiring goals throughout the business.
We believe there is much progress to be made in the coming years to produce deeper equity in solutions that focus on gender and race. The good news is that Gender Lens Investing is already making a real difference.
Article by Patricia Farrar-Rivas, CEO of Veris Wealth Partners (www.veriswp.com). Alison Pyott is a Partner and Luisamaria Ruiz Carlile is a Senior Wealth Manager at Veris Wealth Partners.