Evaluating Gender Lens Investing

An array of academic research and, more importantly, real world returns, confirm publicly traded companies with above-average levels of gender diversity in the C-suite and on boards of directors can and do outperform rivals lacking that gender diversity.

With those important points in mind and when considering the environmental, social and governance (ESG) and sustainability evolution in the investment landscape, it's not surprising that there's an emerging investment style that's gender-driven. It's known as gender lens investing and it's easily conveyed to clients.

“Gender Lens Investing is an impact investment strategy which deliberately integrates gender analysis into investment analysis and decision-making. It has garnered increased global attention in recent years, as investors seek to bring new dimensions to the nature of their investments,” according to KPMG.

As is the case with other ESG and sustainability focused strategies, gender lens investing provides advisors with an approach to present to clients that could mesh with personal value while not exposing them to lagging returns.

Exploring Gender Lens Investing

Using the Global Impact Investing Network's guidance, advisors can articulate to clients that there are two forms of gender lens investing. The first is “investing with the intent to address gender issues or promote gender equity.”

Under that umbrella are concepts such as investing in women-owned or women-led businesses, companies focusing on gender equality or firms that make products that benefit women.

“The second category uses a gender lens to help assess the quality of an investment. For example, it might include strategies that examine workplace culture and a company’s commitment to gender equality as part of their due diligence. Individual investors can take this approach when assessing companies,” notes Margaret Giles for Morningstar. “This approach can help mitigate environmental, social, and governance risk--companies with greater gender diversity and better workplace environments face less potential reputation risk from inappropriate behavior by senior management, for example.”

There are sound reasons why advisors should consider these concepts and these reasons are applicable to both credit and equity.

“Our analysis shows that higher-rated companies continue to have a higher proportion of women on their boards. Although the data falls short of demonstrating direct causation, we consider the presence of women on boards – and the potential diversity of opinion they bring – as being supportive of good corporate governance, which is positive for credit quality,” says Moody’s Investors Service.

The ratings agency goes on to note that higher-rated companies have more women on their boards and that higher credit ratings are also correlated with more women in the C-suite.

Accessing Gender Lens Investing

Fortunately for advisors, there are a growing number of avenues for tapping into gender lens investing.

“Parallelle Finance identified 26 gender lens investing equity funds with $3.56 billion in assets as of Sept. 30, 2021. Total net assets climbed to roughly $4 billion as of Jan. 31, 2022. Meanwhile, fixed-income funds and products had assets of $8.41 billion as of Sept. 30, 2021, according to Parallelle’s Gender Lens Investing Q3 2021 Review,” adds Morningstar's Giles.

Expect those numbers to grow, likely in the exchange traded funds realm, too, as more clients demand access to this growing values-based style.

Related: Transparency Could Be Better ESG Mousetrap