Gender Lens Investing: Uncovering Opportunities for Growth, Returns, and Impact
Joseph Quinlan & Jackie VanderBrug
214 pages, Wiley, 2017
"Fearless Girl" faces Wall Street's “Charging Bull.” (Photo by dnorton via Flickr)
On the evening of March 6, 2017, in advance of the 103rd annual International Women’s Day, a large asset manager clandestinely placed a statue, “Fearless Girl,” on Wall Street, facing the infamous “Charging Bull.” Immediately viral, the statue marked a commitment to advancing the role of women on boards. But for many, it drew attention to the essential and often unseen roles of women in a healthy global economy.
Gender Lens Investing: Uncovering Opportunities for Growth, Returns, and Impact tells stories of thriving women entrepreneurs, corporate executives, and family breadwinners around the world. Simultaneously, we highlight the costs of women’s struggle for basic rights to be fully productive, gender-based violence, the absence of women’s legal rights, and persistent wage gaps between men and women, among other challenges.
The paradox of women’s economic advancement and the stubborn gender equality gap leads many to advocate for gender lens investing, which we define as “deliberate incorporation of gender factors into investment analysis and decisions.”
Many Wall Street and mainstream investing leaders, statues notwithstanding, are skeptical about whether using a gender lens is helpful, believing that efficient markets should overcome any biases and move capital to the best opportunities. Those focused on women’s rights, economic empowerment, or gender-focused philanthropy also are skeptical: Their distrust of capital markets runs deep, and investing jargon can be mystifying and off-putting.
We seek to bridge these perspectives, demystifying the process of employing a gender lens and illustrating where it currently may be useful. As you read, we hope you see how a gender lens can add to, rather than replace, traditional methods of investment analysis. —Jackie VanderBrug & Joseph Quinlan
The evidence is insurmountable. The case has been made. Women are hugely important to the global economy. The obvious next step is to pair economic reality with the significance of women in investment analysis, or to delve deeper into gender lens investing. The latter lacks a consistent definition and board understanding, and is replete with misconceptions, including the following: that gender lens investing is only about investing in women; will ultimately underperform major benchmarks; is mostly about microfinance; and is just another approach to negatively screen for stocks. Reality is different.
Simply put, gender lens investing is the deliberate incorporation of gender factors into investment analysis and decisions. A lens brings out indirect and understated aspect of gender that otherwise would be missed or misunderstood. You might, for instance, be reading this with the benefit of a pair of glasses. Imagine that out of one lens you see particular realities, needs, participation and perceptions of women and out of the other you see the realities, needs, participation and perceptions of men. When you look through both lenses you see the realities (obstacles and benefits) for everyone, with fresh eyes. With gender lenses applied you see clearly and differentially.
Or think about pointing the lens of a camera, and the way in which you can open and close the aperture to control the depth of field and the light. In this sense, one gender may move into the foreground or become background or blurred, depending on how you manipulate the aperture. Either way, a gender lens helps you frame the context, the issues, and the response more accurately. Elayne Clift, a gender scholar and writer, describes how “One’s vision becomes refined…” and “often it is more compassionate and humanistic.” That compassion and humanity help to illuminate factors one might not have otherwise considered and ensure a comprehensive understanding of the opportunities and risks therein.
It is through such a lens that Janet McKinley, a co-founder and principal of Advance Global Capital, figured out she could apply the age-old lending practice of factoring to make it easier for entrepreneurs to get financing. With a gender lens she saw an opportunity to design the processes specifically for underserved, underfunded, promising women entrepreneurs, who she knew were also likely to be profitable customers. Based on her experience in microfinance, McKinley knew women often have lower default rates than men. She also knew women who grew businesses beyond microfinance were less successful than men at obtaining commercial bank loans. When McKinley looked at collateral requirements in multiple countries, she confirmed that women were unlikely to own property, which is often the best source of collateral. Advanced Global saw factoring—a form of debt finance that enables small businesses to sell their invoices to a third party (the factor) at a discount—as the best avenue. The factor pays the invoices and the business increases its working capital so it can grow. “You don’t know anything personal about the person—not gender, not race, not age, not material status, not religion,” says McKinley. “You only know a company sells eggs to a supermarket every month, and the supermarket pays the invoice.”
A gender lens may also reveal information or patterns that expose investment risk. Investors understand the market risks they are compensated for, such as illiquidity and volatility, but generally know less about the intangible corporate operational, reputational, and litigational risks, or ORLs. A firm with a history of legal complaints around pay equity or sexual harassment could be a ticking ORL time bomb. When a crisis goes public, the reputational risk often directly affects sales and the ability to recruit until the storm has passed. Investors use a gender lens to look at factors such as hiring patterns and lawsuits for this reason. Similarly, a gender lens scanning across a global multinational’s supply chain could shine a light on and correct damaging human rights violations before they are publically exposed, and more costly.
It’s easy to take potshots at high-profile conferences for too much talk and too little change. Davos, Milken, Skoll, and others create remarkable forums raising global issues and reviewing them from all angles. Often it can feel like a year later the same conversation occurs, albeit with different panelists. But sometimes more happens. Sometimes an exchange begets an idea and connection leads to a new reality. This is what happened when State Street Global Advisor (SSGA) Executive Vice President Kristi Mitchem and CalSTRS CIO Chris Ailman shared the stage at the 2015 Milken Institute’s annual conference. CalSTRS had for years supported gender diversity in corporate America. In pursuit of this goal, they had advocated for the business case, and even supported a database of women candidates for boards. But the numbers didn’t move. The picture was the same for women in senior leadership. CIO Ailman had a hypothesis that investment capital was the lever for change. He was ready to test it.
Mitchem agreed. Focusing on institutional investors, they saw an opportunity to create a new gender-lens product that was transparent, liquid, and sector neutral. But they needed reliable historical data. They found this in the nonprofit governance organization BoardEX’s database on women in senior management. CalSTRS provided the seed capital and with SSGA’s corporate support they were able to design and register a product in just a few months. The SPDR® SSGA Gender Diversity Index ETF (Ticker: SHE) launched in March 2016.
The ETF tracks the performance of the SSGA Gender Diversity Index, comprised of US large cap companies excelling in board and management gender diversity. Mitchem’s goal is to shine a beacon on the strong performance of companies with diverse teams and their best practices; to make the Index an aspirational club other companies would want to join. Many firms have significant opportunity to improve, and might find real-world solutions from their peers. Mitchem notes that SHE isn’t a women’s index—it is an index that celebrates the power of diversity. That’s something that both sexes can get behind. Or put another way—there is HE in SHE—these are companies with 30 percent women and 70 percent men in senior leadership. Conversations focus on the excess return component that can come from better decision making. Diversity of perspective allows for active challenge mechanisms. Companies that lack diversity are likely allowing errors into decisions around people—as well as other places. “I have never seen our organization so excited about a product. Gender is intrinsic to who people are—and if you are not a woman there is certainly a woman you love in your life, daughter, wife, mother—it is such an accessible concept that it ignited a fire within our organization that was palpable,” Mitchem says.
For Ailman SHE is good investment and good for the country. It is an “opportunity to make the core work harder, with the added benefit of driving fuller engagement of women in the economy, which may raise the value of our entire portfolio over the long term.”
Financial investment fads and products come and go. The churn is constant. What is hot today can be terribly cold tomorrow. By contrast, gender lens investing is no such fad. Gender lens investing is neither a theme nor a product. It is a process conceived at the intersection of capital and culture. It is designed to cultivate financial and social value. And it is here to stay. Because investments have always, and will always, have an impact on gender equality: good, bad or ugly. Recognizing women as an economic asset, and learning how gender affects our lives, is moving from the periphery to the core of the policies, strategies, and practices of nations, enterprises, and investors with each passing year. Arguably, the world has been on this path for as long as we have been alive, if not longer. One reason is the United States. As we wrote at the beginning of this book:
“The U.S. economy has stood on the shoulders of women through two world wars, the oil shocks of the 1970s, and multiple recessions. Whatever the challenge or crisis, American women have been part of the solution.”
The gender-equality growth agenda is not only gaining acceptance among government leaders globally, but also among corporations. In the capital markets, all things gender are being recognized as important metrics in evaluating business risk, value, and returns, as well as assessing mega trends such as climate change and changing workforce demographics.
We don’t subscribe to the thesis that capitalism has reached the end of its run. Far from it. In 2008, Gurcharan Das, a former P&G executive in India reflected on the “Dharma of Wall Street.” He wrote: The “successes of capitalism produces over time enervating influences…. Ferocious competition is a feature of the free market and it can be corrosive. But competition is also an economic stimulant that promotes human welfare.” We see gender capitalism emerging as a socio-economic stimulant to reinventing capitalism. We also see it building the world’s capacity for intergenerational sustainable development as it was defined by Gro Harlem Brundtland, the former (and first female) prime minister of Norway, at the first Earth Summit in 1992. New forms of ownership, lending, legal rights, and protections are defining a business subculture around gender thanks to the ingenuity and tenacity of women and men from many countries. In the end, how we deploy capital shapes where it grows and how it grows and the world we live in. It shapes who has the power to solve problems, which problems are solved, and which are left unexplored. That’s something any smart investor should be a part of.
Few people realize the exciting and varied nature of applying gender considerations to investment decisions. The research base investors demand, coupled with increasing availability of data, has fostered an array of investment vehicles. You will find mainstream exchange traded funds tracking global indices and online loans with no interest. Investors who penned the Women’s Empowerment Principles working alongside those newly committed to the power of gender analysis. Skeptics are dipping in toes and advocates are building completely new models. Yes, there is still more discussion than investment, but the field now has a breadth and set of vehicles that deserve to be showcased, invested in, and replicated.