10 minute read 7 Mar 2019
Gender lens investing: more than women on the board

How a more modern approach to gender lens investing can promote equality and boost the bottom line

Cassie McCarthy

Manager, Wealth & Asset Management Consulting, Ernst & Young LLP

Transformational leader. Committed to advancing diversity, equity, and inclusion. Avid reader. Halloween enthusiast.

EY FS Insights

Minds Made for Financial Services

10 minute read 7 Mar 2019

Gender lens investing (GLI) is an opportunity for wealth and asset management firms to promote gender equality on a global scale. Right now, its full potential is far from being realized.

For wealth and asset managers to maximize GLI’s potential, a broader and more modern approach to this form of investing needs to be defined. At present, a small subset of gender-based criteria — primarily women on the board — is being used as the main, if not only, investment metric. This is partially due to a lack of data and transparency needed to inform more holistic GLI strategies. Quantitative data supporting other gender-based criteria, such as distribution of workforce and pay gaps, exists within many companies but is not readily disclosed to or requested by investors.

There is a significant lack of industry pressure to change the GLI landscape; however, an anticipated rise in demand from evolving investors for more holistic product offerings will push the importance of GLI to the forefront for wealth and asset managers in the coming years. This will force them to adapt their investment approaches, or risk potential operational and financial impacts.

What is GLI?

GLI is a growing trend in the wealth and asset management industry. It already affects the management of over US$132 billion in money manager assets and US$397 billion in institutional investor assets. 1 Coined in 2009, GLI is defined by the Criterion Institute as “the incorporation of gender analysis into financial analysis in order to make better investment decision”. 2

GLI in wealth and asset management covers areas such as women investors, women in positions of leadership, financial products with gender considerations, and the quality of employment opportunities for women. A common misconception of GLI is that it means only investing in products that explicitly target women and girls. Financial products that address gender inequality certainly fall within the GLI remit, but the term applies to a much broader playing field.

The core principles of GLI are attractive to wealth and asset managers because they can be adapted to different investor types irrespective of their gender or financial goals. As investors draw their attention toward a more gender-equal society, investment approaches must evolve to capture their wealth.

When combined with existing traditional products and services, the following four core principles make GLI an extremely powerful tool:

  • Understanding the power of women as an investor group

    Women are on the cusp of immense investing power. The wealth of women is expected to grow to US$18 trillion by 2021, which is greater than the combined gross domestic product (GDP) growth of China and India during the same period, according to the CFA Institute 3. To accommodate this growth, wealth and asset managers should adapt their approaches to women as an investor class with unique goals, strategies and needs through tailored products and services.
  • Supporting women in positions of leadership
    In 1993, Linda Pei launched the Women’s Equity Fund — one of the first public market mutual funds focused on coupling GLI strategies with strong financial returns 4. The fund’s main positive screening criteria for investment are advancing women to top executive positions, and female representation on the board of directors and in senior management. These positive screens have become one of the strongest foundational pillars of modern GLI criteria.

    As global female labor force participation rises 5,  companies and governments are also encouraged to have more women in positions of leadership to facilitate and perpetuate more diversity in decision-making.
  • Improving the quality of employment opportunities for women
    Beyond senior leadership, a complete picture of the growing female workforce is important for building gender-conscious investment strategies. As of 2017, women account for 45.4% of the global workforce 6. As the operational impact of GLI grows, so does the need for better-defined due-diligence questions from gender lens investors — How many women are in the pipeline to continue supplementing leadership roles? What percentage of employees is female? Of that percentage, how many are in non-administrative roles or roles that strongly impact the financial performance of the company? These gender-inflected questions are needed to expand the reach of GLI criteria.
  • Diversifying products to positively impact women
    There are no limitations on the type of product or industry that investors can use to positively impact women. Public and private market products are where GLI can start to distinguish itself across a wide range of investment criteria and industry sectors. Examples of current GLI products include debt funds, mutual funds, exchange-traded funds (ETFs), separately managed accounts, proprietary strategies and private equity funds. The range of product options is constantly expanding in response to investor needs and demands.

Many different industries are addressed by GLI products, the top four being technology, health care, clean tech, and environmental. These diversified products and industries are supported by considerations for women’s leadership, services and capital for women, and enhanced gender equity criteria, such as health care policies, educational services, and pay gaps — thus creating the very backbone of GLI, the “lens.”

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.


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About this article

Cassie McCarthy

Manager, Wealth & Asset Management Consulting, Ernst & Young LLP

Transformational leader. Committed to advancing diversity, equity, and inclusion. Avid reader. Halloween enthusiast.

EY FS Insights

Minds Made for Financial Services