Gender Lens Investing: Providing Tools for Women’s Economic Empowerment

Introduction

Before Jane Austen wrote Sense and Sensibility, the majority of experiences of women in novels were written from the perspective of men. In her novels, Ms. Austen not only provides insight into the social and familial expectations of women in the early 1800s, but she also directly addresses the economic realities facing them. Indeed, in the time of Ms. Austen, property rights for women – especially married women – were fairly nonexistent across the globe. 

It continues to be a long road toward fully realizing women’s economic empowerment, even though it has been more than 200 years since Ms. Austen wrote her novels. Yet there seems to be a fundamental shift underway globally, where business leaders and policy makers acknowledge the socioeconomic value-add in supporting gender equality and economic opportunity for all, and there is an opening to seize this momentum to take action. To quote Sense and Sensibility,

It isn’t what we say or think that defines us, but what we do.

In a historical context, it may have seemed to make sense that issues of gender equality and women’s economic empowerment were driven by the traditional realms of governments and nonprofits to address. Today, however, there is an increased sensibility that the private sector can play an important role to positively drive these trends. An emerging tool for advancing women’s economic empowerment is the use of gender lens investing strategies — an approach that explicitly incorporates gender factors into investment analysis and asset allocation decisions.

An Evolving Landscape

Even though women account for nearly half of the world’s population, data from the World Bank and International Labor Organization show women currently represent about only 39% of the total labor force.^[1] The International Monetary Fund suggests the lack of gender equality around the world hampers strong economic growth. In fact, if women played an increased role in labor markets, some researchers estimate it could possibly add $12 trillion to global GDP over the next decade.^[2] And the World Economic Forum suggests at the current rate, it could take up to 202 years to close the overall gender gap with regard to economic opportunity.^[3]

In our view, increased female participation in the labor force is unlikely to yield inherently better outcomes for the lives of women and girls across a variety of dimensions. Around the world, women and girls still face tremendous challenges to accessing financial resources and participating fully in economic life.

It would make sense, then, to rethink the traditional approaches to tackling such systemic problems. 

In 2015, diverse stakeholders across all sectors of the economy, including government agencies, nongovernment organizations, academics, private philanthropies, and business, came together and put forth a shared call to action to combat issues such as poverty, climate change, and inequality. The resulting framework, the Sustainable Development Goals (SDGs; see below graphic), calls for innovative solutions to global challenges and includes an explicit commitment to make progress toward gender equality and women’s empowerment.

View accessible version of infographic.

Responsible Investing

Since the development of the SDGs, the private sector has become more engaged in conversations related to issues such as poverty alleviation and gender equality, supporting the work of governments and philanthropic organizations that historically tackled these and other challenges largely on their own. The UN Conference on Trade and Development (UNCTAD) estimates SDGs will require $3.9 trillion per year in global investment to achieve the goals by the UN’s target date of 2030 — far more than what the traditional sources from government and philanthropy can likely provide. In fact, the UNCTAD projects current funding levels will fall short by a staggering $2.5 trillion every year,^[4] further emphasizing the importance of bringing business and investment communities to the table. 

We believe such a shortfall highlights the important role global capital markets can play in helping achieve the SDGs.

This recognition also coincides with more and more private sector investors deciding to invest their money in pursuit of social and environmental impact — an approach called responsible investing (RI). RI is generally defined as an “approach to managing assets that sees investors including environmental, social, and governance [ESG] factors.”^[5]

At PNC, RI generally takes three forms:

• excluding or restricting areas based on certain values;
• assessing and engaging on ESG-related factors; and/or
• defining a specific, targeted impact and allocating capital toward that objective.

We see RI as a goals-based strategy, one that can be incorporated into investment portfolios in a variety of ways across asset classes. This is because the strategies are intended to reflect each investor’s unique goals and values; just as different asset classes lend themselves to different risk-return profiles, diverse values-based goals lend themselves to diverse RI strategies. Some investors may choose to avoid companies that do not reflect their values, others may elect to benefit a specific stakeholder group, while others may invest to directly contribute to defined impact objectives.

Gender Lens Investing

Individuals and institutions specifically looking to use their investment capital to positively affect the lives of women and girls can take a similar approach that deliberately incorporates gender factors into investment analysis and decisions. This approach is called gender lens investing (GLI).^[7]

For gender lens investors, UN Sustainable Development Goal 5 (SDG5) can serve as a useful tool to articulate gender lens investment goals.

While SDG5 encompasses numerous aspects of gender equality, it explicitly aims to provide women equal opportunities in economic life, including equal rights to resources, ownership, and access to financial services. Nevertheless, it can be difficult to implement a gender lens strategy in an entire investment portfolio without carefully considering the unique contributions of each asset class. 

GLI takes many forms, including investing in companies, funds, and other investment vehicles that consider gender in one way or another. At the individual stock level, investors often assess the following criteria: 

• Women in leadership: considers investing in companies with women on the executive board and/or women in senior leadership positions;
• Gender diversity: considers the composition of a company’s employee base to promote gender diversity at all levels of the company;
• Women founders and fund managers: considers investing in women-founded companies and/or considers investing in vehicles with female portfolio managers; 
• Policies and practices: considers companies implementing organizational policies and practices that advance gender equality (for example, gender pay equity); 
• Women-majority enterprises: considers investing in companies established to hire women as a means for enhancing economic opportunity (especially in emerging and frontier markets) for its employees; and
• Products and services: considers investing in companies that provide products or services specifically tailored to the needs of and impact on women and girls as a consumer segment. 

At PNC, we see a number of common GLI approaches implemented in multiasset class portfolios, but even within the strategies outlined above, investors might find multiple standards to navigate. For instance, a landscape analysis of investable products that self-identified as using a gender lens grouped the funds into the following three categories: 

• Gender consideration: Investors consider gender as one factor of analysis. It does not necessarily mean that gender serves as “gating criteria”^[8] for final decision making. For example, investors might report the number of women on company boards within a portfolio, but it does not influence which companies ultimately receive investment.
• Gender mandate: Investors use positive screens on gender-related metrics as part of stated investment criteria. For instance, an investor might only consider investments into companies that employ women in executive positions or into funds with female portfolio managers.
• Quantified gender mandate: Investors use a positive screen with quantifiable thresholds on gender-related metrics as part of stated investment criteria. For example, an investor could look for a company that has at least three women on its board of directors.^[9]

The survey results do not suggest a ranking of “goodness” across each category; rather, they reflect how different investment managers take gender into consideration across a spectrum of styles. The table below illustrates how the women in leadership strategy might vary in practice, even among two peer companies within the same industry, depending on the prioritization of the criteria considered at the individual company level.

Table 1: Gender Mandate and Quantified Gender Mandate: What “Women in Leadership” Criteria Resonate with You?

Company	Female Chief Executive Officer	Female Chairperson	Female Board Percentage
Alaska Air Group, Inc.	0	0	50%
Delta Air Lines, Inc.	0	0	15%
Lockheed Martin Corporation	1	1	36%
Northrop Grumman Corporation	1	1	29%
Coca-Cola Company	0	0	38%
PepsiCo, Inc.	0	0	23%
Ulta Beauty, Inc.	1	0	50%
Estee Lauder Companies, Inc.	0	0	47%
TJX Companies, Inc.	0	1	22%
Netflix, Inc.	0	0	36%
Walt Disney Company	0	0	44%

Source: FactSet Research Systems Inc., as of 11/14/19

Beyond the Board Room

In addition to the GLI strategies mentioned, investors can dig deeper into the policies and practices of both public and private companies, going beyond broader issues around diversity at the board level or in top management. Indeed, we believe gender lens investors can also consider the effect of the company’s operations on its female employees.

The Wharton Social Impact Initiative created a framework called “Four for Women” that explores the criteria to evaluate if a company is likely to have a positive impact on its female employees.

View accessible version of infographic.

*Image reproduced with permission from the Wharton Social Impact Initiative.

While the framework may seem like common sense, the researchers identify metrics that serve as evidence-based proxies for each category that companies can track and investors could use in their analysis. 

• For instance, under Representation, data include responses to questions such as: What is the gender breakdown of the workforce within each major division of the company? Are women represented throughout all types of occupations at the company?
• For Pay, data include responses to questions such as: What is the mean and median hourly pay by gender? What is the gender disaggregated mean and median pay by each major job category? 
• Under Health, data include responses to questions such as: Is there an employer-sponsored health insurance plan? How many workplace injuries or illnesses have there been by gender? How are policies around employee experiences of sexual harassment implemented and enforced?
  
• For Satisfaction, data include well-known employee satisfaction surveys that ask questions such as: On a scale of 1 to 5, how satisfied are you with your job in general?^[10]
  

Of course, there are many other strategies, including examining gender factors throughout a company’s supply chain, but the data could be less reliable and more difficult to capture. The strategies outlined above provide a snapshot of the current landscape of GLI, with new technologies and voluntary disclosure consistently providing more valuable data that may help facilitate a gender lens analysis for investment decision making.

Gender Lens Approaches across Asset Classes 

Investors looking to execute a gender lens strategy in their portfolios have a range of solutions from which to choose, but implementing them requires an understanding of the degree the strategy connects to the desired outcomes of each investor. 

Following are illustrative examples for how a gender lens might appear in different types of investments.

Equities

For investors using a gender lens in their public equities portfolios, the predominant strategy is accounting for women in leadership, even though some investment managers are also evaluating policies and practices of companies in a more nuanced way.

There is also a strong case for active ownership as a way to express investor values through public equities investments. Engaging with companies’ boards of directors and management teams, as well as voting proxies on business practices relating to gender diversity, equity, and inclusion, can be powerful tools for investors. 

Equity Example: PAX Ellevate Global Women’s Leadership Fund (Impax Asset Management)

A mutual fund that employs a “women in leadership strategy,” investing in companies that exhibit gender diversity on their boards and in executive leadership.

Some investors may consider ESG issues when assessing their long-term risk exposure. The Sustainable Accounting Standards Board (SASB), a tool for businesses to “identify, manage, and communicate financially material sustainability information to investors,” includes gender criteria as part of several areas of its Materiality Map^®.^[12] The SASB includes gender considerations for material risks associated with human and social capital across many subindustries.^[13]

Fixed Income

As evidenced by mainstream credit rating agencies buying stakes in ESG data providers, there is a growing recognition among fixed income investors that incorporating ESG factors can help assess the creditworthiness of potential investments. However, we believe the most straightforward way to incorporate a gender lens strategy within fixed income might be to look at the recipient of capital and use of proceeds of the investment.

Like public equities, investments in taxable corporate bonds tend to focus on high-level themes like board and executive management diversity. However, some managers dig deeper to consider Four for Women-like policies that benefit female employees. 

Fixed Income Example: Qualified Investment Fund – CRA Class (Community Capital Management)

A mutual fund that makes investments that are Community Reinvestment Act-qualifying, such as single-family, multifamily, and economic development loan-backed securities.

Fixed income investments into projects financed by government entities (such as agencies or municipalities) can often offer externalities that benefit the lives of women and girls. For example, investments in affordable housing can disproportionately affect outcomes for women and girls, as female-headed households far exceed their male counterparts across all housing assistance programs.^[14]

Private Investments

Private investment vehicles may also be an avenue for gender lens investors, and many of the same approaches listed above can apply. For example, some GLI strategies could include investing in private debt funds that lend to women entrepreneurs or in funds that use a gender mandate in their investment selection process.

Private Investment Example: SocialAlpha Investment Fund – Bastion (AlphaMundi)

A Swiss-based private debt fund that includes gender analysis into its investment process and invests in companies that produce goods and services that benefit women.

Private debt and equity investments, as well as real estate funds, might also lend themselves to a stronger link between improved outcomes for women and girls vis-à-vis the products, projects, or services among a fund’s underlying investments. For example, funds that invest in companies that increase access to education, financial services, or health care would likely help contribute to achieving SDG5.

Conclusion

There are both challenges and opportunities for private sector capital to contribute to the SDGs.

Using a GLI strategy toward achieving SDG5 — gender equality and women’s empowerment — may seem quite sensible, but it is important to remember that GLI is not a one-size-fits-all approach. Matching intentions with investment solutions is a deliberate process that should not be oversimplified.

Investors are taking greater interest in:

• accounting for women in leadership positions; 
• actively engaging to enhance the policies and practices of the companies they own; and
• evaluating the impact of a company’s products on the lives of their female customers.

Regardless of the approach, we are here to help our clients integrate their values into an investment solution that makes sense — and cents — for them.

 

TEXT VERSION OF GRAPHICS

Sustainable Development Goals

1. No poverty
2. Zero hunger
3. Good health and well-being
4. Quality education
5. Gender equality
6. Clean water and sanitation
7. Affordable and clean energy
8. Decent work and economic growth
9. Industry, innovation, and infrastructure
10. Reduced inequalities
11. Sustainable cities and communities
12. Responsible consumption and production
13. Climate action
14. Life below water
15. Life on land
16. Peace, justice, and strong institutions
17. Partnerships for the goals

Four for Women

A Framework for Evaluating Companies' Impact on the Women They Employ

1. Representation
A good employer for women employs a large percentage of women at every level and in every unit of the company.

2. Pay
A good employer for women pays its employees at least enough to avoid poverty, pays equally for equal work, and has no gender pay gap. 

3. Health
A good employer for women supports and protects the health of the women it employes (and the men, too).

4. Satisfaction
A good employer for women provides satisfying working conditions for women (and for men, too).