How gender diversity affects your portfolio
Former UN Secretary General Ban Ki-moon said in 2015 that the world will never realise 100% of its goals if 50% of its people cannot realise their full potential.
“When we unleash the power of women,” he said, “we can secure the future for all.”
Closer to home in 2021, I have read the growing discourse amongst Australian financial advisers regarding the mission to develop stronger pathways to a professional community that better represents a more diverse and inclusive modern Australia.
The recent article by Fitzpatricks’ chief executive Jodie Blackledge “Enriching the Enricher” in Money Management (26 August) captured part of the challenge – and the essence of the benefits – of greater diversity, in this case attracting more females to the advice sector. It wrote:
“I get asked often: How do we attract more women to advice? It is an excellent question, and the truth is I can already see in our network the emergence of a strong female adviser cohort, offering specialised advice to clients who seek a female adviser from a profession where women are traditionally underrepresented.”
Diversity and equal representation of our society across its broad spectrum of social, cultural, political, economic and almost any other measure is important. But as the words of Ban Ki-moon remind us, unleashing the benefits of gender equality, not just for the financial planning profession, but across the entire nation and indeed our global community is massive.
Globally, there is a growing body of evidence showing that diversity more generally – of which gender is just one indicator – improves the likelihood of greater financial returns, generates higher ‘innovation revenues’ and tends to improve environmental, social and governance (ESG) performance. Gender diversity is really just one step towards achieving greater cognitive diversity on our boards and in our executive teams.
Moreover, as a professional investor, the natural inclination is to avoid the noise of gender politics and focus on the numbers and data: quantifying the investment benefits of gender balance and inclusion. Because gender equality, or lack thereof, affects the performance of my portfolio. It also helps me determine how to construct my portfolio.
Defining gender equality
According to the United Nations Entity for Gender Equality and the Empowerment of Women gender equality “…refers to the equal rights, responsibilities and opportunities of women and men and girls and boys.
Equality does not mean women and men will become the same but that women’s and men’s rights, responsibilities and opportunities will not depend on whether they are born male or female.
Gender equality implies that the interests, needs and priorities of both women and men are taken into consideration, recognising the diversity of different groups of women and men.
Gender equality is not a women’s issue but should concern and fully engage men as well as women. Equality between women and men is seen both as a human rights issue and as a precondition for, and indicator of, sustainable people-centred development.”
Apart from that definition being out-of-touch with the non-binary community, the central premise that a person’s gender, of any variety, should not determine their rights, responsibilities and opportunities is a sound one.
Gender inequality is often characterised by the pay gap between males and females, differences in parental leave and allowances and unequal career opportunities. It is also exemplified through stereotypes, domestic violence, unequal representation in the political economy, lack of legal protections and uneven access to education and medical care. Again, barely scratching the surface.
Gender equality and investors
Why should investors care about gender equality? Because inequality is a massive economic drag, at all levels. According to the World Bank, “…global wealth could increase by $172 trillion, and human capital wealth could increase by about one-fifth…” if women and men had the same lifetime earnings.
Intuitively, it makes sense that if broadly half of the world’s population is not granted the same rights, responsibilities and opportunities as the other half there are bound to be productivity losses. In fact the United Nations sees gender equality as such a central way to “end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity” that one of the 17 Sustainable Development Goals is to “achieve gender equality and empower all women and girls”.
But there are even more direct reasons for investors to care about how gender inequality manifests itself in their own portfolios.
As an example, the Australian Government’s Workplace Gender Equality Agency (WGEA), in partnership with the Bankwest Curtin Economics Centre, released research in July showing that “more women on boards and in senior leadership positions drives better company performance, greater productivity and greater profitability”. And yet only 17% of company chief executives are women and 14% being chair of the board. Food for thought when directors are up for re-election or when looking at the gender make-up of senior management. Also, the report found that:
- An increase in the share of female ‘top-tier’ managers by 10 percentage points or more led to a 6.6% increase in the market value of Australian ASX-listed companies; and
- In Australian ASX-listed companies, having a female chief executive led to a 5% increase in their market value. These same companies also had a greater likelihood of outperforming the sector on three or more profitability and performance metrics.
Where to invest my affirmative capital?
Although a relatively new and niche area of investing when compared to the headline ESG theme of climate change, gender equality-related thematic investments are gaining traction. Names like Artesian, Fidelity, Impax, Lyxor, State Street or UBS are testimony to this growing impact. These all offer some form of fund, strategy or exchange-traded fund that is focused on investments with good gender equality performance and/or investments that support progress towards gender equality.
Current investments too good to give up but not demonstrating or supporting gender equality? Then engage, vote or collaborate alongside other investors.
In Australia, there are a growing number of gender- and diversity-focused collaborative initiatives – such as the 30% Club, 40:40 Vision and the Financial Services Council (FSC) Diversity Working Group – all of which are focused on improving diversity within Australian corporations, particularly at the more senior levels.
The Australian chapter of the 30% Club had the initial goal of 30% women on all ASX 200 boards. With that goal achieved in 2019, the group now has its sights set on the ASX 300 boards as well as individual ASX 200 boards that have not reached that 30% target.
The 40:40 Vision, sponsored by industry superannuation heavyweight HESTA, has gone one step further and is asking those same companies to achieve gender balance – taken as 40:40:20 – in executive leadership by 2030, set interim goals on how they will achieve this and to publicise their progress.
Research houses such as Institutional Shareholder Services (ISS) are now also offering proxy voting policy settings that take into account the make-up of the board when formulating voting recommendations for the election or re-election of directors.
Finally, in thinking about equality and representation, why the focus on gender? What about other traits such as race, ethnicity, sexual preference, religion, disability and age?
Various identity traits significantly influence our life experiences and add a breadth of knowledge and perspective to corporations well beyond what could be offered by the historically prevalent ‘pale, male and stale’ boards and executive teams of yesteryear. Perhaps these traits are harder to measure – there are many environments, including the workplace, in which people may feel anxious about revealing such traits. Yes, here in Australia too. Perhaps gender is just the first step towards greater equality across a wider spectrum of humanity and human experience.
So, to be clear: gender inequality affects at least half of the world’s population. This makes gender one of the largest ‘minority’ issues facing communities. Although gender inequality presents differently in different cultures, the negative impacts are most commonly experienced by women and gender non-binary people. However, gender inequality affects everyone to varying degrees – just ask any client who may be a non-female new parent about their leave entitlements. Or a female retiree about their super balance.
Fiona Manning is portfolio manager at Apostle Funds Management.
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