We have received several inquiries recently about socially responsible investing (SRI), impact investing (II) and more specifically about gender lens investing (GLI). We’ve spent a number of hours researching GLI and we would like to share some initial thoughts on the subject.
Investment analysts research a wide range of factors in an attempt to identify those that contribute to positive performance relative to an index or benchmark. Nobel prizes in economics have been awarded to several researchers who identified value and company size as factors associated with outperformance over market cycles.
For corporations, McKinsey & Company have identified nine factors, or dimensions as they refer to them, that they think impact performance.
McKinsey & Company’s Nine Dimensions of Organizational Performance:
Direction
Accountability
External Orientation
Coordination and Control
Leadership Team
Capabilities
Innovation
Motivation
Work Environment and Values
In a 2007 study, they “found that companies with three or more women on their executive committees scored higher, on average, on each of the nine dimensions than companies with no women at the top.”
In 2010 “The Women’s Empowerment Principles – Equality Means Business” initiative was set forth by the partnership of UN Women and the United Nations Global compact.
These Principles “provide a set of considerations to help the private sector focus on key elements integral to promoting gender equality in the workplace, marketplace and community…current research demonstrating that gender diversity helps business perform better signals that self-interest and common interest can come together.”¹
Indeed, the McKinsey study showed that companies in the top quartile for female representation in executive committees outperformed those with no women by 42% in average return on equity and 55% in average EBIT margin.²
Investors have been attempting to capture the so-called “gender dividend” since as early as 1993.³
Today there are a variety of publicly available mutual funds, exchange traded funds and notes as well as separately managed accounts.
Unfortunately, the vast majority of these have very short track records and limited assets under management. As a result, it is extremely difficult, at this time, to determine if the corporate performance advantage translates into an investment performance advantage. Time will tell, but keep in mind that most factors wax and wane in terms of performance advantage and the gender factor is unlikely to be an exception to this rule.
As fiduciaries, our first responsibility is to optimize investment performance without regard to non-financial considerations. That said, if we can isolate environmental, social or governance (ESG) factors that have been shown to generate superior risk adjusted returns, we will consider including them in our security selection criteria.
Sources:
¹ McKinsey & Company, “Woman Matter: Time to accelerate, October 2017
² United Nations Global Compact, UN Women: “Women’s Empowerment Principles – Equality Means Business”, Second Edition 2011
³ https://www.veriswp.com/wp-content/uploads/2018/02/GLI_Investment_Options_In_Public_Markets_2017.pdf
