Current limitations in GLI
Wealth and asset managers are currently missing operational gains and financial benefits by employing GLI in a limited scope when making investment decisions. To capture those gains and benefits, wealth and asset managers must give greater attention to advocacy, transparency, and development of accessible and meaningful gender metrics.
Many of today’s investment products use women in positions of leadership as their main, if not only, GLI metric. Disclosing this statistic is relatively simple and easily understood by investors, however, it skews focus toward the gender diversity of the board when defining GLI strategies, neglecting the impacts of other gender considerations.
Assessments of investment companies by wealth and asset managers are misleading unless they include a range of metrics, such as diversification of the overall workforce and the quality of employment opportunities for women. It seems unlikely that board gender quotas of today will be met tomorrow, unless viable candidates are supported and prioritized earlier in their careers.
The challenge in procuring the information to evaluate this range of metrics is in the lack of disclosure by companies. Advocacy efforts need to be augmented by wealth and asset managers, with a focus on obtaining more holistic GLI data beyond the board composition, so that we can define more impactful GLI strategies. This approach has been successful regarding other environmental, social, and governance (ESG) factors, such as climate change.
Two recent examples of successful advocacy efforts from wealth and asset managers in evaluating GLI impacts to their investments, though more specifically gender board composition impacts, are State Street Corp. and BlackRock:
- State Street Corp. identified 400 companies in 2017 with men-only boards and pressed for leadership gender diversification by electing to vote against the most senior member of those boards’ nominating and governance committees 7.
- BlackRock disclosed, in enhancements to their 2018 proxy voting guidelines for US securities, an expectation of at least two women directors on every board. In their Europe, Middle East, and Africa (EMEA) guidelines, where countries, such as Belgium, Germany, France and Italy, have legislated quotas for women on boards, a “sufficient gender mix” is expected 8.
Given the trend to penalize companies that fail women in leadership metrics through proxy voting or divestment, there could be significant financial impacts if other gender metrics are not adopted to accommodate more comprehensive GLI strategy targets.
Current challenges in adopting those metrics are the absence of disclosed gender data, data infrastructures, and dedicated resources needed to support the evaluation of investment decisions. Many wealth and asset managers do not have existing resources or infrastructure. An opportunity exists for wealth and asset managers to actively build a stronger foundation of more holistic gender metrics so they can achieve operational gains and increase financial opportunities.
Opportunities for wealth and asset managers
To maximize the benefits of GLI, we need to expand access to gender data and improve its quality. Additional quantitative information needed to support that expansion does exist, but right now the pressure for change is limited.
Some regions are addressing this lack of pressure through regulatory change. Several countries in Europe have had board representation gender quota legislation for almost a decade, but a recent example of new regulation that tackles other areas of GLI is the UK’s Equality Act 9. This mandate requires companies of a certain size to report their gender pay gap data.
Wealth and asset managers are well-positioned to push companies to provide additional gender data as part of the due diligence process. This information can be coupled with the data outputs of regulatory mandates to create stronger and more robust GLI assessments. As investors turn to products and strategies that prove strong financial as well as gender impact returns, the development of accessible and meaningful gender metrics becomes that much more fundamental to revenue growth.
Existing gender data methodologies and suggested performance evaluation metrics lack a comprehensive GLI scope. The MSCI Workforce Gender Diversity Methodology 10 provides a starting point to expand beyond women in positions of leadership by also including the percentage of women employees in the total workforce, but still neglects considerations for pay gaps or quality of employment opportunities. Institutional Shareholder Services Inc. (ISS) provides a retrospective review of the trend of gender diversity on boards, but there is little evaluation into how to effectively gather additional data to support the continued growth of this trend. (11) Targeting these gender data gaps through revised investment assessments and due diligence processes could improve GLI methodologies and evaluations for the entire financial industry.
Wealth and asset managers can also achieve operational efficiencies by expanding their data storage and analysis capabilities. As gender metrics become better defined, cutting-edge data infrastructures will be fundamental in supporting their analysis alongside other traditional investment data points.
Better disclosure of gender data can create opportunities for improving investment standards. Furthermore, qualitative and quantitative GLI assessments can be balanced with other traditional investment criteria and governance frameworks to evaluate products and industries. When both the quantitative and qualitative GLI assessments fail, wealth and asset managers need to take action. Similar to approaches taken by State Street Corp. and BlackRock, supplemental gender pressures can be used. Existing investments can be reassessed or revalued with the added layer of other gender considerations. When quantitative thresholds are not met by investment companies, qualitative analysis can be performed to identify the viability of those underlying investments.
Creating relationships across a variety of quantitative and qualitative GLI criteria can extend financial opportunities beyond their traditional boundaries. The same industry growth or return strategies for all varieties of clients could be achieved with a gender lens. Neglect from wealth and asset managers in playing an active role to develop a broader and more modern approach to GLI limits its potential.
Leveraging GLI in the future
The methods and principles of applying GLI must continuously evolve to increase financial and social outcomes.
GLI can span a wide range of gender issues, investor classes, markets, and products. It continues to grow within the wealth and asset management industry — not only from an investment perspective but also from an operational perspective. It can influence how firms accommodate their female clients, employees, and leaders. Gender considerations should be applied as an additional lens on current investment strategy analysis rather than as a replacement.
GLI is still in its infancy, with potential for managers and clients to grow together. Advocacy, transparency, and development of accessible and meaningful gender metrics are the next steps to achieving that potential, and capturing the wealth of evolving investor needs as they look to help address gender equality worldwide.