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May 2020Gender lens investing: What it is and why it’s important

MAP3056969 | 472313PM | 5/2020

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Impactonomics®

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women in the corporate workplace: data on disparity

The deck appears stacked against women in many areas of the workplace. A McKinsey report found that:

• The biggest challenge to achieving gender parity, known as the “Broken Rung,” is the first step up to manager where for every 100 men promoted, only 72 women are promoted.

• Women are negotiating for raises and promotions just as often as men, but are less likely to see a positive outcome.

• Women are more likely to never have substantive interactions with senior leaders about their work.

• 35% of women experience sexual harassment in corporate America.

• Only 1 in 5 C-suite leaders is a woman and only 1 in 25 is a woman of color.

• Women of color, women with disabilities, and lesbian women face even more barriers.

Source: McKinsey & Company and LeanIn.Org. 2019. “Women In The Workplace 2019”.

Gender lens investing (GLI) is the intentional incorporation of gender-based factors into investment analysis with the intention of driving both financial performance and social benefit.

Investors who include GLI in their overall strategy often find that:

• The addition can help them identify investment opportunities, generate alpha, lower risk and build stronger and more diversified investment portfolios.

• By investing in companies that are making gender progress, or by avoiding or divesting from those that are not, they can give companies a financial incentive to change.

• More equality and diversity can help improve national and global economies, and in turn benefit billions of people, women as well as men.

Gender lens investing is important because it can help foster gender parity in the workplace, in part by giving companies a financial and ethical incentive to hire with equality in mind. That’s not to say parity will come easy. For starters, corporate bias against women, a leading cause of gender inequality, remains deep-seated and tenacious, even in the face of a growing body of evidence suggesting that adding more women at various levels, including the executive suite, can potentially benefit companies in a number of areas. Indeed, think how many more of the best and brightest people companies could attract and keep by offering equal opportunity and equal pay. Equality is especially important to the millennial cohort. Born between the early 1980s and early 2000s, millennials are now the largest generational bloc in the workforce, and many say they prefer working at companies that hold values of diversity and gender equity. In other words, equality may be a key driver to attract top talent.1

2 of 8 May 2020 – Impactonomics®

What would a world free of gender-based discrimination look like? Companies would no longer operate with the kind of bias, explicit or implicit, that can create patterns in hiring and promotion that favor men, the workplace would support the talents and contributions of men and women in equal measure, giving them the same access to jobs, similar membership on corporate boards and equal pay for equal work. Such a world would benefit all of us, not just women. For the 36 countries in the Organisation for Economic Co-operation and Development (OECD), for example, the income loss associated

with gender discrimination is estimated at up to US$12 trillion, or 16% of the world’s income.2 A gender bias-free world may be some way off, however. At the current rate of progress, it will take nearly a century to close the global gender gap, according to the World Economic Forum.3

Three core drivers of current and future parity progress — education, employment and entrepreneurship — provide insights as to how GLI potentially benefits investors — and also how it may accelerate change.

educationGender parity in education is not only a moral imperative, but an economic one as well. A 2018 study by the World Bank found the global losses from low educational attainment for women are estimated at between $15 trillion and $30 trillion.4

PROGRESS

Almost 90% of girls around the world are enrolled in primary education.5 Even in some developing nations, where enrollment rates are far lower, progress has been made. About 42% of the 72 countries in the Global Partnership for Education improved on an educational equity index between 2010 and 2016.6 In the United States (U.S.), women are now in the majority at all levels of higher education, attaining 64% of bachelor’s degrees, 57% of master’s degrees and 53% of doctoral degrees.7

Global female enrollment in primary & secondary education

Primary education

171615141312111009Year

080700

90%

80%

70%

60%

50%01 03 0402 05 06

Secondary education

Enrollm

ents

Source: “Education Statistics - All Indicators”. 2019. The World Bank - Data Bank.

A range of gender lenses

A variety of gender lenses exist, and they may overlap. Examples include:

Access to capital

Reviewing the patterns of capital flows in a sector or region by gender to find potentially attractive investments as well as opportunities to shift social benefit.

Workplace equalityFocusing internally on gender diversity, inclusive policies and corporate culture. Various reports historically found differences in corporate performance at companies with more gender diversity.

Women in leadership

Honing in on diversity at the board and senior management levels of a firm, as diversity in leadership may lead to better firm performance.

Products and services

Consideration of how a company develops and promotes its product for female customers. Smart companies are uncovering significant unmet market needs as well as broadly applicable innovations.

Women as investors

Considering who is making the investments, women are under-represented as fund managers and owners.

Women in the supply chain

Reviewing supply chains for both risk, such as human trafficking or unfair labor practices, and opportunities, including inclusive sourcing and innovations in training or technology.

Source: Center for the Advancement of Social Entrepreneurship at Duke University and Catalyst at Large, March 2019.


PERSISTENT GAPS AND OPPORTUNITIES

Beyond primary education, stark inequity remains on a global basis. Only 66% of girls enroll in secondary education,8 and only 45% of countries have reached gender parity in lower secondary education.9 The United Nations underscored the need for progress in their 2018 Progress Report, saying, “Disparities in education along the lines of gender, urban-rural location and other dimensions still run deep, and more investments in education infrastructure are required, particularly in LDCs [Least Developed Countries].”10

While they are the majority of degree earners in U.S. colleges, women still lag men in the vitally important areas of science, technology, engineering and mathematics, or STEM. In 2015, men earned the vast majority of bachelor’s degrees awarded in STEM areas such as engineering, computer sciences and physics, and more than half of the degrees in mathematics and statistics.11 An area of acute inequality, women’s share of computer sciences associate’s degrees, dropped precipitously from 42% in 2000 to 21% in 2015.12 What’s more, many of the women who do graduate with a STEM degree may fail to move onto a STEM career.13

employmentGender parity in business is important for a variety of reasons, including:

GDP boost: Research company McKinsey estimates that global gender parity could boost global gross domestic product (GDP) by $12–28 trillion.14

Attracting employees: According to research firm Deloitte, millennials and Gen Z want to work for diverse companies that have a forward-thinking mindset.15

Improved business data: Research suggests that while performance results have varied over time, companies with better scores on board diversity and management diversity saw consistently higher future return on equities (ROEs) than counterparts with lower scores.16

Gender diversity signals higher return on equity (ROE)

Median forward 1yr ROE based on ESG scores (annually, 2005-2017) for Board Diversity and % Women Managers*

Board diversity

Forw

ard

1yr

ROE

(med

ium

)

Percent women mangers

High ESG scoreLow ESG score

13.2

15.1

11.7 11.7

* Data from 2010 on for % Women Managers.Note: High ESG Score based on >50 score on Board Diversity and >30% women in management. Low ESG Score based on <50 score on Board Diversity and <30% women in management.Source: BofA Global Research. March 6, 2019. “Thematic Investing: The She-conomy”.

Source: McKinsey and Company. 2015. “The Power of Parity: How Advancing Women’s Equality Can Add $12 Trillion to Global Growth”.

Gender parity could boost global GDP by

$12-28 trillion.


Source: Prudential. 2018. “The Cut: Exploring Financial Wellness Within Diverse Populations”. 2018 Financial Wellness Census™.

Women now represent 54% of breadwinners in American households.

PROGRESS

Women now represent 54% of breadwinners in American households.17 Women also make up 47% of the total U.S. workforce and 52% of management, professional and related occupations.18 Among companies in the Russell 3000 Index in 2019:19

• Women held more than 20% of board seats, up from 16% in 2017.

• 52% of Russell 3000 companies have 20% or more of their board seats filled by women, up from 37% in 2017.

• Companies with no women on their boards dropped from 22% in 2017 to 10%.


Progress has been made but much remains to be done to even come close to full gender equality. For example:

• Women make up just 19% of software developers, 28% of chief executives and 40% of physicians and surgeons, typically higher paying jobs. At the same time, they make up 90% of registered nurses and 79% of elementary and middle school teachers.20

• Over 2.7 billion women face legal restrictions that prevent them from having the same choice of jobs as men, such as being able to hold a job without their husband’s approval.21

• Women are paid 80.5 cents for every dollar earned by men, a gender wage gap of 19%. This disparity is reinforced by the persistent belief among more than a third of Americans that the gender wage gap is fictional.22

• At the current rate of progress, the gender pay gap will likely not close until 2059 for white women, and it will take over a century for women of color.23 A 2018 study by Columbia Business School shows that requiring gender pay gap transparency may help close the pay gap by 7%.24

• Over 1 in 5 small cap companies have no women on their board.25

• In the U.S., women do almost two-thirds more unpaid work than men.26

Women are underrepresented in higher-paying positions

White women Women of colorWhite men Men of color

36%

46%

52% 59% 67% 68%

16% 13% 12%

19% 19%

27%

26% 24%

12% 8% 6%

9% 9%

4% 4%

16%31%

17%

Entry level ManagerSr. manager

/directorVP SVP C-suite

Source: McKinsey & Company and LeanIn.Org. 2018. “Women In The Workplace 2018”.


entrepreneurshipEntrepreneurship is, by almost any measure, the backbone of the U.S. economy. Some 15 million Americans are self-employed full time and small business contributes 44% percent of U.S. economic activity.27

PROGRESS

Over 42% of total U.S. businesses are owned by women, with 1,817 women-owned businesses launched daily, on average.28 The number of women-owned firms has increased at a pace more than two times that of all firms since 2014.29 Research found that startups founded or co-founded by women generated 10% more revenue than male-founded startups over a five-year period, despite receiving significantly less than half as much in investments.30

All Raise, a nonprofit founded by 34 senior female investors, set a goal of increasing the percentage of venture funding going to companies with a female founder to 25% in the next five years, and doubling the percentage of female partners in ten years.31


Women globally have lower rates of entrepreneurship than men, and the consequences can affect not only women’s incomes but also the performance of their companies and the types of products and services they create. Gender gaps cause an average income loss of 15% in OECD countries, and 40% of that shortfall is due to entrepreneurship gaps, where women are once again underrepresented.32

Less than 3% of global venture capital dollars go to female founders.33 The World Bank estimates a $300 billion shortfall in access to credit for women-owned small businesses.34 Disparity emerges early, in networking and the request for funding (“the pitch”). When interviewing men, venture capitalists focused on hopes, achievements, advancement and ideals. When interviewing women, they were more concerned with safety, responsibility, security and vigilance.35

real-world actions

“If women — who account for half the world’s population — do not achieve their full economic potential, the global economy

will suffer.”*

This quote, from McKinsey Global Institute, says much about the repercussions of short-changing women. So what can be done? Here are some examples of how companies and governments have empowered women:

• A major credit card company has been cultivating young technology enthusiasts as part of its signature STEM education platform for girls. They have committed to reaching one million girls globally by 2025.†

• One of the largest companies in the automobile industry has implemented pay equity across all levels, including low-level employees and top executives. They currently have a female CEO and an equal number of men and women on their board.‡

• The 2017 UK “Equal Pay Transparency Bill” requires all companies with 250 or more employees to publish gender pay gap data.§

• In November 2018, California passed a law requiring its public companies to have at least one woman on their board of directors by the end of 2019, and at least three by the end of 2021. According to a new Bloomberg analysis, this seat change could offer women 692 seats at the table, enough to cause a measurable shift in the gender balance of U.S. company boards overall.||

* McKinsey and Company. 2015. “The Power of Parity: How Advancing Women’s Equality Can Add $12 Trillion to Global Growth”.

† “Our Mission - Youth For Technology Foundation”. 2019. Youth For Technology Foundation. ‡ Taylor, Harriet. 2019. “Closing the Gap”. CNBC.§ Calfas, Jennifer. 2018. “Almost 80% of U.K. Companies Pay Women Less Than Men”. Time.|| Green, Jeff, Hannah Recht, and Mathieu Benhamou. 2019. “Wanted: 3,732 Women to Govern

Corporate America”. Bloomberg Businessweek.

Less than 3% of global venture

capital dollars go to female founders.

Source: PitchBook and National Venture Capital Association. 2019. “Venture Monitor: 4Q 2019”. PitchBook Data, Inc.


GLI PICKS UP STEAM

Gender lens investing has become a more commonly used strategy in the past few years. Reports from 2018 found 35 public market and 87 private market GLI funds with $2.4 billion and $2.2 billion in assets under management respectively (AUM).36,37 These funds often reference their gender lens or even specifically brand themselves as ‘gender lens strategies’ and may use different but overlapping approaches, including:

• Gender mandate strategies are those with an overarching hypothesis around gender equality — in areas such as capital access, leadership, policies, workforce composition or products — as a driver of long-term performance.

• Gender advocacy strategies use a shareholder engagement strategy, such as voting against all-male board slates or pushing for positions on equal pay.

• Gender systems strategies seek to address social challenges that disproportionately affect women, such as low income housing (given that women are disproportionately poor, single heads of household, when compared to men), health care or transportation.

In addition, an important trend is traditional and broader sustainable funds that are newly incorporating gender as one of the many factors in their employment practices, sourcing and portfolio construction. While these funds may not specifically brand themselves as gender lens investments, the incorporation of gender as a material factor represents progress.

BOTTOM LINE

Gender parity, once little more than a dream for countless women and girls around the world, now seems like an achievable goal — as it should be. But parity will take time — likely decades — and be realized in different countries, regions and industries at different paces. With the rise of movements such as #MeToo and #TimesUp, a much needed spotlight has been shone on some of the inequities women continue to face. As we have seen, gender lens investing may be one way to speed up the journey to equality, as it gives investors the potential not only to diversify their portfolios while seeking competitive, risk-adjusted returns, but also may offer corporations financial incentives (that is, broadly speaking, by investing in or divesting from them) to improve their position on the issue. From an investor perspective, women and millennials favor sustainable and impact investing, which includes gender lens investing, far more than other investors.38 We believe investors should take time to learn about the potential benefits, as well as the potential risks, of gender lens investing, as the journey to gender parity stands to improve the lives of women and men, girls and boys, in the U.S. and around the world.

It is important to recognize that strategies such as gender lens investing do not eliminate the risks involved with investing. All investments, including gender lens investing, carry some degree of risk and can lose some or all of their value. Investment value might rise or fall because of market conditions, for instance, or corporate decisions or political or economic events (to name a few).

If you are considering investing with a gender lens, be sure to talk with your advisor about your plans and understand how gender lens investing may align with your overall investment goals, investment timeline and appetite for risk. Though the field is continually evolving, we believe that the economic drivers fueling its growth remain sound. Your questions and interest may become part of the movement.

Talk with your advisor to learn more about gender lens investing

and how it may be a pathway to help speed up the journey

to equality.


Glossary of TermsAlpha is a measure of the active return on an investment, the performance of that investment compared with a suitable market index.

C-suite gets its name from the titles of top senior staffers, which tend to start with the letter C, for “chief,” as in chief executive officer (CEO), chief financial officer (CFO), chief operating officer (COO), and chief information officer (CIO).

Environmental, Social and Governance (ESG) Scores are measures designed to transparently and objectively measure a company’s relative E, S, G performance versus its peer. Scoring methodologies vary across data providers and most are based on a combination of company disclosed information as well as data from other sources such as non-governmental organizations or other third parties. Companies may differ by the extent and depth by of E, S, and G related data they disclose, however, the SEC does require that material information, or information that would be relevant for a prudent investor to make an investment decision should be disclosed in financial reporting.

Return on equity (ROE) is a measure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders’ equity.

Russell 3000 Index is composed of 3,000 large U.S. companies, as determined by market capitalization.

Please see back page for important disclosure information.

Endnotes 1 Deloitte. 2019. “The Deloitte Global Millennial Survey 2019”. 2 Ferrant, Gaëlle, and Alexandre Kolev. 2019. “Does Gender Discrimination in Social Institutions Matter for Long-Term Growth?: Cross-Country Evidence”. Paris: OECD Publishing. 3 World Economic Forum. 2020. “Global Gender Gap Report 2020”. World Economic Forum. 4 Wodon, Quentin, Claudio Montenegro, Hoa Nguyen, and Adenike Onagoruwa. 2018. “Missed Opportunities: The High Cost of Not Educating Girls”. The World Bank. 5 Global Partnership for Education. 2018. “Global Partnership for Education Results Report 2018”. The Global Partnership for Education. 6 Global Partnership for Education. 2018. “Global Partnership for Education Results Report 2018”. 7 Okahana, H., & Zhou, E. 2018. “Graduate Enrollment and Degrees: 2007 to 2017”. Washington, DC: Council of Graduate Schools. 8 “Education Statistics - All Indicators”. 2019. The World Bank - Data Bank. 9 “Gender Disparities in Participation and Completion Vary by Country Group and Education Level”. 2017. Global Education Monitoring Report. 10 “Sustainable Development Goal 4: Targets and Indicators”. 2019. Sustainable Development Knowledge Platform. 11 National Science Board. 2018. “Science & Engineering Indicators 2018”. 12 National Science Board. 2018. “Science & Engineering Indicators 2018”. 13 “Statistics: State of Girls and Women in STEM”. 2018. National Girls Collective Project. 14 McKinsey and Company. 2015. “The Power of Parity: How Advancing Women’s Equality Can Add $12 Trillion to Global Growth”. 15 Deloitte. 2019. “The Deloitte Global Millennial Survey 2019”. 16 BofA Global Research. March 6, 2019. “Thematic Investing: The She-conomy”. 17 Prudential. 2018. “The Cut: Exploring Financial Wellness within Diverse Populations”. 2018 Financial Wellness Census™. 18 U.S. Bureau of Labor Statistics. 2018. “Women in the Labor Force: A Databook.” 19 2020 Women on Boards. 2019. “Gender Diversity Index”. 2020 Women on Boards. 20 U.S. Bureau of Labor Statistics. 2018. “Women in the Labor Force.” 21 World Bank Group. 2019. “Women, Business and the Law 2019: A Decade of Reform”. Washington, DC: International Bank for Reconstruction and Development / The World Bank. 22 Gebhardt, Jillesa. 2019. “On Equal Pay Day 2019, Lack of Awareness Persists”. Surveymonkey. 23 Institute for Women’s Policy Research. 2018. “The Gender Wage Gap: 2018.” 24 Bennedsen, Morten, Elena Simintzi, Margarita Tsoutsoura, and Daniel Wolfenzon. 2018. “Do Firms Respond to Gender Pay Gap Disclosure?”. 25 2020 Women on Boards. 2019. “Gender Diversity Index”. 26 Organisation for Economic Co-Operation and Development. 2019. “Time Spent in Paid and Unpaid Work, by Sex”. 27 Office of Advocacy of the U.S. Small Business Administration. 2019. “Small Businesses Generate 44 Percent of U.S. Economic Activity”. 28 American Express. 2020. “The 2019 State of Women-Owned Businesses Report”. American Express. 29 American Express. 2020. “The 2019 State of Women-Owned Businesses”. 30 Hu, Elisabeth, and Ruqayyah Moynihan. 2018. “Startups Founded by Women are Given Less Investment but Generate More Revenue”. Business Insider. 31 “A New Version of Visionary”. 2019. All Raise. 32 Cuberes, David, and Marc Teignier. 2016. “Aggregate Effects of Gender Gaps in the Labor Market: A Quantitative Estimate”. Journal Of Human Capital 10 (1). doi:10.1086/683847. 33 PitchBook and National Venture Capital Association. 2019. “Venture Monitor: 4Q 2019”. PitchBook Data, Inc. 34 International Finance Corporation. 2014. “Women-Owned SMEs: A Business Opportunity for Financial Institutions”. Washington, DC: International Finance Corporation. 35 Kanze, Dana, Laura Huang, Mark A. Conley, and E. Tory Higgins. 2017. “Male and Female Entrepreneurs Get Asked Different Questions By VCs — And it Affects How Much Funding They Get”.

Harvard Business Review. 36 Biegel, Suzanne, Sandra M. Hunt, and Sherryl Kuhlman. 2019. “Project Sage 2.0: Tracking Ventuer Capital with a Gender Lens”. The Wharton Social Impact Initiative. 37 Veris Wealth Partners. 2018. “Gender Lens Investing: Bending the Arc of Finance for Women and Girls”. 38 US Trust. 2018. “2018 Insights on Wealth and Worth®”.


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