When most people think of ESG investing, they think of climate change — portfolios that avoid companies that harm the environment, or that invest in companies that protect the environment.
But the potential impact of ESG investments broadened in 2020 with the attention to and prioritization of social and equity issues. Beyond the “E,” the “S and G” rose to prominence for investors, particularly families and foundations, who care about gender and diversity.
This heightened priority provides an ample and proactive opportunity for advisors to learn about gender lens and diversity investing. Many may not know about investment tools to identify companies that are contributing to or detracting from fairness at their workplace.
Looking at boards, leadership representation, diversity representation and other indicators can guide advisors when considering investing in companies that align with their clients’ objectives.
Like broader ESG investments, gender and diversity lens investing helps meet client values. In this case, clients seek to have a good financial return while supporting fairness to all who face discrimination in corporations, as well as society at large, based on characteristics such as gender, race, ethnicity, sexual orientation and gender identity, disability, age, geography or personality.
When you add gender and diversity as a screen to your clients’ investments, you not only offer them a chance to invest in companies that research shows have a chance for financial outperformance, but also you give them a chance to have an impact on fairness in corporate America.
The business case has been well researched. S&P 500 companies with more gender diversity on boards see 15% higher return on equity, according to
To honor Pride Month, let’s dig deeper on this matter of impact.
Prospective clients of mine — let’s call them Emily and Steve — recently asked me, “How can our one family investment portfolio make a difference?”
I asked them if they had ever attended a demonstration to support a cause.
“Of course,” they answered.
I asked them to imagine if they and others who attended had decided not to go. What if, instead of being counted that day, they thought, “Well, they’ll have a good turnout without me, so I’ll stay home.”
We all know the end result of such a mindset: No show. No voice. No power. No change.
Emily and Steve got it.
Collectively, by aligning their investments with their values, our clients can help change corporate behavior. Investing in companies that support diversity and withdrawing money from companies that don’t is, in fact, showing up to make change. As former Sen. Barbara Mikulski said, “Each one of us can make a difference. Together we make change.”
To help our clients like Emily and Steve, we select managers who seek strong financial returns and fairness in the workplace. We look for companies that prioritize fair compensation; hire, retain and promote women and diverse talent; have strong family leave policies; bring on more women and people of color for their executive teams and boards; and implement policies that will achieve a high score on the
A research and methodology company with a star-studded board launched the product with an eye toward advisors, retail clients and institutional investors.
The AUM sums up
As I further explained to my prospects, social impact can be assigned a collective monetary value.
The level of AUM invested by retail and institutional investors in gender and diversity funds is growing. In the U.S., by the end of 2019, $3.4 billion were invested in gender lens investments. At the end of 2020, when the largest pension plan in the world, Japan’s GPIF,
At the same time, organizations, corporations and government entities that pressure companies to become a force for fairness represent substantial AUM. One example is the
Your clients’ investments add to this collective monetary power.
According to the Forum for Sustainable and Responsible Development, one in three dollars of U.S. invested assets are in ESG funds. That’s having an impact. Business managers notice this. So, too, do government officials. The amount invested defines ESG as a massive movement.
Though they have not yet gathered as much AUM as the older and more established ESG funds, gender and diversity lens investments are already part of amovement and therefore are already a force for change.
Corporate behavior is changing
Companies are responding positively to the public conversation, to investors and to other stakeholders including employees, customers, vendors, suppliers and their communities.
If your prospective client asks, like Emily and Steve, “How does my money make any difference?” below are a few affirmations.
• Many companies now report their social performance in their investor meetings and in their corporate social responsibility reports.
• Many companies now tie executive compensation to achievement of diversity goals.
• The organization 20/20 Women on Boards, having achieved its goal of 20% representation of women on corporate boards by the year 2020, has recently changed its name to 50/50 Women on Boards.
• At one of the largest investment banks’ annual meetings this spring,
Clients increasingly want to align their investments with their values. They want to show up. But don’t take just my word for it.
Ask your clients — before they ask you.
