How gender lens investing helps women, and investors, win

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In early August, Fortune reported that 4.8% of the companies on this year’s Fortune Global 500 list are led by a woman. Take a moment to let that sink in. Just 24 of the world’s largest 500 companies measured by revenue have a woman at the helm in 2022. PwC’s Executive directors report 2022 gave insight into the local scene shortly afterwards, stating that 15% (or 84, in numerals) of JSE executives are female. In the UK, 8% of the FTSE 100 companies are led by a woman.

These are unimpressive numbers for anyone to digest, but investors in particular should be troubled by such reports as the continued underrepresentation of women in leadership positions has a direct influence on investment returns. That’s correct, a growing body of research correlates gender diversity with the financial performance of a business.

Gender lens investing

Gender lens investing (GLI) “is an impact investment strategy which deliberately integrates gender analysis into investment analysis and decision-making”, explains KPMG, going on to detail that adopting a gender lens can involve investing in women-owned or women-led businesses and/or organisations that promote gender parity in the workplace or business.

The Global Impact Investing Network takes it further and argues that GLI can apply to strategy decisions as well as processes, pre-investment activities and post-deal monitoring – which appeals to investors who would like to pay more attention to the “S” of their ESG (environmental, social, governance) investing pursuits.

In May, asset management firm BlackRock signed a memorandum of understanding (MOU) with UN Women to “cooperate in promoting the growth of GLI” and “inspire greater mobilisation of capital into companies that address women’s needs”. When the world’s largest asset manager (with USD 10 trillion in assets under management), puts its weight behind something, investors should pay attention.

Helping women win

At its core, GLI seeks to address the global gender gap issue, as the global community hunkers down to attain the 2030 Sustainable Development Goals (SDGs). Of the 17 SDGs, goal 5 (achieve gender equality and empower all women and girls), goal 8 (promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all) and goal 10 (reduce inequality within and among countries) are specifically concerned with the success of women.

In July, the World Economic Forum published its annual Global Gender Gap Report, revealing that we are 132 years away from reaching global gender parity. When women win, we all do, as investment into women yields the most significant returns both socially and economically.

Continued gender inequality is an obvious socio-economic challenge, but did you know it also impacts individual investment returns and the ability to create long-term wealth?

The business case for (more) women leaders

In a 2018 study by the International Labour Organization, the majority of companies surveyed (that is, two thirds) agreed that “[gender] diversity initiatives improved their business outcomes”.

Of the companies surveyed, boards with better gender diversity were believed to be 20% “more likely to have enhanced business outcomes”. In those companies that track the impact of gender diversity in management, the majority reported profit increases of 5-20%. Additionally, the survey suggests that at least 60% of respondents believe that organisations with inclusive business cultures and policies stand a better chance of improving profitability and productivity.

In their Diversity wins report, McKinsey found that “the relationship between diversity on executive teams and the likelihood of financial out performances has strengthened over time”. The report cites academic research which found that companies with female executives accounting for at least 30% of the leadership demographic were more likely to outperform those with less impressive numbers.

Further, BCG research (Why women-owned startups are a better bet, 2018) found that despite the disparity in financial investment into companies founded/co-founded by women (on average USD 935 000), compared to companies founded/co-founded by men (on average USD 2.1 million), the former performed better and generated more value in the long run.

The “dual bottom line”

While improved financial performance shouldn’t be the sole reason for promoting a gender-friendly approach to investing, the dual social and financial outcomes certainly strengthen the case for considering GLI. BlackRock’s “dual bottom line” thesis champions driving and supporting “positive real-world outcomes while delivering attractive, risk-adjusted returns for investors”. The two are not mutually exclusive, and investors who fail to recognise this do themselves – along with their investments and their potential future wealth – an injustice.

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