For an edge in portfolio performance, investors may want to consider companies that are serious about gender equality. These companies don’t just pay lip service to the idea of having more women in senior management or improving women’s lives; they make it part of their business model.
Companies that invest in women and include more of them at the top already get attention from socially responsible investors who include good governance among the criteria for building a stock portfolio. Holding companies to this standard is called gender lens investing, which is stock analysis that scores companies for both gender equality and financial performance.
The term gender lens investing may be new, but the idea isn’t. For years, sustainable, socially conscious investors have advocated for more diversity on boards and in senior management, says Meg Voorhes, director of research at US SIF, the Forum for Sustainable and Responsible Investment.
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Voorhes says the US SIF Foundation tracked data on gender investing for the first time in its 2016 Report on US Sustainable, Responsible and Impact Investing Trends. According to the report, $397 billion of institutional investor assets under management take gender equality into account — and for good reason. A report by the nonprofit group Catalyst found that companies with three or more women serving on corporate boards performed significantly better financially than companies with few or no women on their boards.
According to the Catalyst study, companies with the highest percentages of women board directors outperformed those with the least number of women, on average, by 53 percent on return on equity, 42 percent for return on sales and 66 percent for return on invested capital. The study was based on a four-year average of those three financial metrics for 520 companies, using data from Standard & Poor’s.
But gender-inclusive investment strategies and portfolios go beyond simply having more women on corporate boards. A larger goal of gender investing seeks to empower women by increasing their access to capital or by creating new services and products, says Lisette Cooper, managing partner and chief investment officer at Lincoln, Massachusetts-based Athena Capital.
What makes a company gender-investing worthy? Do-it-yourself investors should start by looking at companies with strong workplace equality. Cooper and Voorhes suggest asking about corporate disclosures of workforce diversity data that is broken down into the same categories the Equal Employment Opportunity Commission uses. The disclosures contain information about the racial, ethnic and gender diversity of a company’s employees, making it easier to see how diverse that workforce really is. A company’s sustainability impact statements may also contain data.
Companies that help women access capital to start a business are another thing to look for. Cooper notes gender remains a key factor for whether an individual or business can access capital. Between 63 percent and 69 percent of women-owned small and medium businesses in developing economies have less access to capital than those owned by men, she says, citing data from the International Finance Corp., a member of the World Bank Group.
Sometimes, investing in gender equality is easier than you think, she says. Cellphones and communications companies in emerging markets are good examples of how to think creatively about gender investing. Women who have cellphones can access mobile payments, Cooper says, which gives them much-needed access to capital. “A lot of investments [directed] at helping the consumer in emerging markets actually are disproportionately helping women,” she says.
This is where investors should understand the difference between investing in women and investing for women, says Erika Karp, founder and chief executive officer of Cornerstone Capital Group in New York. Just because a company has more women on its board doesn’t mean it’s improving women’s lives. She says it’s more important for investors to consider what the company does, including its products and services. “Give me a fantastic company that’s doing feminine hygiene products in the emerging markets, making lives better for women, even if the company is completely owned and managed by men,” she says.
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This angle of gender investing, that of companies with products and services designed to elevate women, can be the most difficult to discern. “This theme is most vulnerable to gender investing’s version of greenwashing if the quality of the outcomes is not considered,” Cooper says. Companies that make medicines to treat diseases affecting women have a more positive impact on women’s lives than companies designing more fashionable shoes for women. “The former is much more connected to the desired outcome of gender equality,” she says.
Companies behaving badly are punished in the #MeToo era. Now that workplace harassment and gender violence are coming out in the open, companies will need to pay closer attention to how both issues can hurt the bottom line, but few companies are, Cooper says. “Are we having a big loss in productivity based on the existence of this kind of violence? The answer is yes,” she says.
In fact, ignoring gender investing could cost investors. The most obvious example is the bankruptcy of the Weinstein Co. because of the sexual harassment charges against founder Harvey Weinstein. But it’s happened to publicly traded companies, too. She points to the mining industry as an example. A Canadian court is hearing a case against Hudbay Minerals that alleges the company was negligent in monitoring the actions of its subsidiaries in Guatemala, where 11 women were raped.
She also cited an academic study by Daniel Franks at the University of Queensland’s Sustainable Minerals Institute that found mining projects delayed because of community conflicts could cost the mining company up to $20 million per week, based on the net present value for a project with a total capital cost of $3 billion to $5 billion.
Although gender-based issues aren’t considered a material risk for companies yet, they could become one as investors start demanding more transparency, she says. “When does a company start losing customers based on inequality or discrimination?” she asks.
Even some funds use gender-based criteria. If investors prefer to leave the job of picking appropriate investments to asset management firms, some exchange-traded funds and mutual funds use gender investment criteria, Cooper says.
Most funds focus on women-led companies or those with more women in senior management. Examples are two mutual funds, Pax Ellevate Global Women’s Leadership Fund (ticker: PXWEX) and Glenmede Women in Leadership U.S. Equity Portfolio ( GWILX), and an ETF, SPDR SSGA Gender Diversity ETF ( SHE).
A bond fund from Community Capital Management, the CRA Qualified Investment Fund ( CRANX), invests in services and capital for women, particularly for low- and moderate-income women borrowers.
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Voorhes says whether an investor is researching individual companies or funds, three questions should be considered. “Gender lens is a way of going across the portfolio and saying, are women represented, what is this investment opportunity or strategy, and what does it do for women,” she says.
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Invest in Gender Equality for Strong Portfolios originally appeared on usnews.com
