If you’re like many investors, you’re probably putting money into funds that own stocks, bonds, commodities and other assets from all over the world. That’s good, because history has shown that investing in the markets is one of the best ways to grow your money and reach long-term financial goals.
But have you ever taken a closer look at the companies responsible for building your wealth?
It’s a question that’s become increasingly important for investors who want to achieve their financial goals and have their investments reflect their core values. That's where ESG (environmental, social and governance) investing shines. ESG investing strategies not only consider a company’s fundamentals, but also the social or environmental impact they make in the world. For instance, someone might invest in funds composed of companies that adhere to environmentally sustainable practices, or they might invest in strategies that omit companies that manufacture products that endanger people’s health.
Now, gender lens investing (GLI), a subset of ESG, which is a strategy that focuses on companies promoting gender equity, is rapidly attracting investor interest: From 2014 to 2018, money invested in GLI funds grew from $100 million to over $2.4 billion.
HOW GENDER LENS INVESTING WORKS
GLI funds or indexes could include women-led firms or companies with gender representation at all levels, including the board. They may also include companies that provide products and services that help improve the social and economic well-being of women, or that lend money to female-led startups or organizations that promote women’s rights. Here are a few of the factors when measuring GLI:
- Workforce representation and pay: Where a company ranks on employee gender diversity, and whether they maintain equitable compensation policies.
- Benefits: How a company measures up when it comes to parental leave, flexible work options and health care.
- External power: Whether the company invests in education, public policy, diverse recruiting, or using diverse vendors and supply chains
- Impact portfolio: Companies that exist to improve a woman’s quality of life or representation.
As of 2018, there were 35 different GLI options available in the public markets to meet growing investor demand and awareness.
HOW DOES GLI PERFORM?
GLI indexes or funds can differ when it comes to the types of companies they invest in, which raises the natural question: Do investors sacrifice growth when they focus on GLI companies?
Data shows investors are in a win-win situation thus far. Companies that rank highest in gender diversity are 15 percent more likely to financially outperform their industry peers, according to a McKinsey & Company report. And corporate boards with higher gender diversity tend to be less volatile and manage risk better. Meanwhile, a study by Catalyst found that Fortune 500 companies with the highest percentage of women on the board outperformed those with the lowest by more than half.
On a global scale, McKinsey also estimates that focused investment in gender equality around the world could add as much as $12 trillion in annual GDP by 2025 — equivalent to the GDPs of Japan, Germany and the United Kingdom combined.
We should note that past performance doesn’t guarantee future returns, but the data suggest GLI investors have had something to be pleased about. If you have strong convictions about GLI or other ESG strategies that reflect your values, take a peek at your portfolio to see if it gels with your worldview. While investments are just one facet of a comprehensive financial plan, a financial advisor can help explore ways for you to invest in companies and other assets that align with who you are and the world you want to help build.