Gender Investing (GLI) is an objective environmental, social and governance (ESG) strategy inspired by Women in Leadership (WIL) and related gender equality standards.
GLI’s publicly traded equity funds available to retail investors include 12 global funds and 16 regional funds that together closed 2020 with $2.67 billion in assets under management (AUM). Overall, they weathered this year’s economic storms well, with only one fund closing and three new funds launching.
In fact, the performance of GLI equity funds was in line with the broader market. Although there are no clear sector winners in terms of gender equality, information technology and financial services hold the first and second places, according to a weighted asset allocation analysis, despite well-documented gender gaps. The United States dominates the country weights with 58% followed by Canada and several European allotments,
Despite continued demonstration of benefits for WIL, progress has been agonizingly slow, especially for women of color. Gender equality must be inclusive of racial, ethnic, social and economic diversity.
Stakeholders are beginning to address the disappointing pace of change. In the UK, the government-backed target of a third of women on the board of directors by the end of 2020 for all FTSE 350 companies has been met by the index’s constituents. In the US, Nasdaq made a groundbreaking proposal to the Securities and Exchange Commission in December that would require board diversity for new listed companies.
How do GLI equity funds reflect the ESG approach and how well has it worked?
WIL’s investment philosophy is rooted in corporate leadership and related measures that promote inclusive gender diversity. This captures the governance aspect – G of ESG – in relationships with internal stakeholders. Some GLI funds also focus on supplier diversity and product safety, which implement a social element, or S in ESG, with external stakeholders.
But what about E? How do GLI equity funds perform environmentally? These are crucial questions given how starkly disproportionate environmental crises affect women.
The disproportionate toll from weather disasters, rising sea levels, and other climate change-related events has been well researched by women, particularly in developing countries. Women are more likely to live in poverty, less likely to own land, and more likely to lose education and livelihoods due to the climate crisis. Discriminatory laws, lack of access to financial services, and burdens of unpaid caregiving only add to the unequal gender burden caused by climate change.
One of the fruits of this is the greater role that women play as factors in climate solutions. In developing economies, women are leading many societal efforts to address local climate impacts. Empowering women and girls ranked second among dozens of solutions to global warming. In developed markets, studies show that women are relatively more focused on climate change, and many eco-friendly products are marketed to women.
At least four of the 28 GLI stock funds are fossil fuel-free, indicating they are compatible with the climate component of the ESG. These include the PAX Ellevate Global Women’s Leadership Fund, the Desjardins SocieTerra Diversity Fund, and the Adasina Social Justice All-Cap Global Exchange Traded Fund (ETF).
In addition, Robeco, the RobecoSAM Global Gender Equality Fund Manager, announced that all of its funds will be free of fossil fuels by the end of 2020. Five GLI equity fund managers have recently pledged to align with Paris Agreement emissions targets.
Where are the opportunities for these funds to invest in women in climate leadership? An estimated 32% of renewable energy jobs are held by women, compared to 22% of all energy roles. But most of these positions are lower-paying management roles rather than the higher-paying STEM-related jobs. But strong job growth is expected in the renewable energy sector in the coming decades, so clean energy industries will have the opportunity to promote inclusive gender equality and reap the benefits of diverse leadership.
The 28 GLI stock funds held 155 of the top 10 unique holdings at the end of the fourth quarter. The chart below shows the clean energy companies within those ranks and their WIL data.
The clean and renewable energy companies in GLI’s top 10 stock fund holdings, listed alphabetically
|a company||nation||a description||Women in leadership positions?||Female representation on the board of directors|
|Enbridge||Canada||Power transmission provider and natural gas utility. portfolio of renewable energy projects.||coo||36%|
|Enphase energy||we||Energy technology provider. A world leader in micro inverters for solar energy.||no one||14%|
|First Solar||we||The leading global provider of solar energy systems.||no one||20%|
|Meridian Energy||New Zealand||New Zealand’s largest renewable energy generator from wind farms, hydro plants and solar arrays.||no one||50%|
|Orstad AS||Denmark||State-owned energy producer. 100% renewable, including wind, solar, and renewable hydrogen.||Chief Financial Officer vice president||22%|
|SolarEdge Technologies||Israel||Develops energy technology solutions for the residential, commercial, energy storage and network services markets.||no one||14%|
|Vistas Wind Systems||Denmark||It designs, manufactures, installs and services wind turbines worldwide.||Chief Financial Officer||33%|
Source: Parallelle Finance, as of December 31, 2020
Of course, there is another side to the equation: How do environmental, social and corporate governance investments incorporate a gender lens philosophy? After all, various ESG reporting standards vie for leadership in this area.
Ultimately prevailing frameworks must include comprehensive metrics on inclusive gender equality. In fact, all ESG reporting standards and requirements must be filtered through a gender perspective. Leading benchmarks tend to focus on the relative importance of ESG metrics by company and industry.
However, the ongoing research on the benefits of gender-diverse leadership—and the costs of being left behind—is not sector-specific.
ESG standards should measure all businesses on a G of overall internal gender equality, diversity and fairness in external relationships, and an E of addressing the gender-unequal impact of climate change and the environmental crisis.
ESG funds must then weigh their investments against the leaders in these metrics.
For more analysis from Marypat Smucker, CFA, visit Parallel Finance.
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All posts are the opinion of the author. As such, it should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of the CFA Institute or the author’s employer.
Photo credit: © Getty Images / Watchara Kokram / EyeEm
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