ESG Investing

Gender-Focused ESG Mutual Funds Gain Steam, but Equity Continues to Lag

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Gender lens investing is yet to hit its peak, according to the November 2021 report Gender Lens Investing Q3 2021 Review from gender lens finance advocate Parallelle Finance (PF). At the same time, the report also shows that such investments lag behind other issues in their share of ESG mutual funds.

The same can be said about female representation on boards. Although asset managers are improving in this regard, the report finds that much more work remains to be done with respect to equity in the workplace.

Tracking the Growth of Gender Lens Equity Funds

PF’s report shows that assets under management by publicly traded gender lens equity funds (GLEFs) grew 35% in the first three quarters of 2021. This growth represents a positive bellwether—in addition to holding broader policies concerning pay equity and gender equality, such ESG mutual funds typically require a certain percentage of gender diversity or minority representation within the board of directors and executive-level positions.

Other data in the PF report backs this up. Women have made strides in securing positions on boards of directors of financial institutions, increasing from 18.7% representation in 2015 to 26.5% in 2021.

Such investors measure a company’s commitment to gender equity by more than the number of women on the board of directors.

Serving a Small Piece of the Sustainability Pie

Although promising, this growth in GLEFs is hampered by the fact that they make up a tiny portion— $3.6 billion—of the more than $330 billion in sustainable funds reported by Morningstar. This underscores how much work remains to expand gender lens investing. For example:

  • Worldwide, 14% of fund managers are women, a figure that has remained largely unchanged over the past 20 years.
  • All-women fund management teams represent only 2% of all equity, fixed income, and allocation funds in the United States, down from approximately 6% in 2001.
  • Only 6% of companies on the S&P 500 and 8% of the Fortune 500 companies have women as CEOs.

Improving Gender Equity

Investors are interested in supporting companies with greater representation for women as well as general policies that support gender equity, particularly in the wake of the #MeToo movement, high-profile sexual harassment cases, and the fallout of the COVID-19 pandemic. Increasingly, such investors measure a company’s commitment to gender equity not only by the number of women on the board of directors but also by:

  • Access to benefits
  • Pay equity
  • Pay gap disclosures
  • Diversity of supply chains
  • Availability of paid childcare
  • Anti–sexual harassment policies

Refocusing on such metrics fosters gender equality as well as benefits companies that undertake such measures. A wide body of research indicates that companies with a focus on gender equity issues experience higher share price performance, better risk management, and less fraud.

Thus, Glenmede researchers warn in their January 2021 report—Gender Lens Investing in Public Markets: It’s More Than Women at the Top—that “companies who fall short in this area may face unexpected risks, hampering long-term growth opportunities and weakening their bottom line.” Investors who embrace this credo may consider a similar focus on equality in the workplace to maximize impact.

Any company, security, fund or other investment identified herein is provided solely for illustrative purposes and should not be construed as a recommendation or solicitation for the purchase or sale of any such investment. By clicking on a weblink included in the above article, you may access a website operated by a third-party. Please review the website’s terms of use and privacy policy upon entering the site. We are not responsible for any content, links, products or services available on third-party websites.

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