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29 Mar 2023 - How can investors help close the gender wealth gap?

By: Channel Capital

How can investors help close the gender wealth gap?

Channel Capital

March 2023


Investing in companies and strategies that support gender equity can lead to better outcomes for women - without the need to sacrifice returns. 

How close is Australia to closing the gender gap for women in economic, health, and leadership opportunities? Not as close as we could be, it turns out.

Australia ranked 43rd in the World Economic Forum's Gender Gap Index in 2022 - well behind New Zealand (4) and the Philippines (19) and trailing Ecuador and Bulgaria (41 and 42 respectively).ⁱ

When it comes to economic participation and opportunity, Australia ranks 39 out of 145 - not even in the top quartile.ⁱ

This underperformance is fuelled by a persistent gender wage gap and superannuation gap.² That superannuation gap is exacerbated by a superannuation system designed for full-time participation over a lifetime, when the reality is many women take time out of the paid workforce to look after their families.

And despite growing numbers of women accessing financial advice, women still score lower than men in financial literacy overall.³

There are a range of strategies to address financial gender equity - from financial literacy training and mentoring to providing better parental leave schemes in the workplace. Another valuable tool that can help close the gender wealth gap is investing with gender equity in mind. So what does this mean and how does it work?

INVESTING THROUGH A GENDER LENS

Gender lens investing aims to consciously promote gender equity by driving gender-informed investment decisions. It looks at how the entire investment process - from due diligence to ongoing management and then to exit - could affect gender issues. Ideally, gender lens investing should also be intersectional, considering factors such as race, class, LGBTIQA+ and ability.⁴

With gender lens investing, investment funds may put their capital into enterprises that promote gender equity. This could include investing in businesses that are owned or led by women, or which have gender targets for their board, management team, staff and supply chains.

A great example is the success story of employment services provider APM, founded by an aspiring female leader, Megan Wynne. Revolution Asset Management's flagship Australian and New Zealand private debt strategy has backed the business for many years by providing funding and enabling its growth. APM started in 1994 as a small team in Perth. Today, APM is an ASX listed international human services provider with locations across Australia, New Zealand, United Kingdom, Europe, North America, and Asia, supporting more than 2 million people each year of all ages to find employment and live a better quality of life, and in turn, making a real difference in the communities it serves.

Investment funds may also focus on enterprises that aim to better the lives of women and girls, or address issues that particularly affect women and girls. For example, in Australia, an increasing number of women are facing homelessness. Dedicated impact investment fund manager Conscious Investment Management's Impact Fund, seeks to address this inequality by investing in social and affordable housing.

In addition, investment funds may analyse potential investments by examining a company's vision or mission, organisational structure and culture, and how they encourage gender equity. They may screen investments using metrics such as gender quota targets for the board and management. And many take a thematic approach to investing that includes gender-equity goals.

Bell Asset Management has identified a KPI to measure and track progress of gender diversity within its portfolio versus its benchmark, as part of its ESG factors. As of 31 December 2022, 71.6% of its portfolio had more than 30% female representation on the respective boards of its portfolio companies, relative to the index having 58.6%. The global equities manager also engages directly with companies regarding gender diversity via proxy voting, which has the potential to improve the performance of the companies they invest in. Studies have shown that companies with more diverse boards tend to perform better financially than those with less diverse boards.

GOOD FOR EQUITY, GOOD FOR RETURNS

Gender-lens investing isn't only good for promoting equity. It's been shown to be positive for investment returns, too.

A recent study by McKinsey & Company found that enterprises with strong gender diversity are 25% more likely to be more profitable.⁶ Other studies confirm that businesses with gender-diverse teams tend to provide better returns and profits.⁷

Companies that actively seek to employ more women have a larger pool of talent to draw on. And workplaces with diverse teams tend to be more motivated and have better outcomes in retaining staff.⁸  

As an increasing number of women become investors⁹  - and with women more likely to choose values-based investing than men*  - it makes very good sense for companies to focus on gender equity. It's the right thing to do and could help drive better results for the business, investors and women more generally.

Equality or equity - is there a difference?

Equality is about treating everyone the same. But it doesn't recognise that many people start at a disadvantage due to factors including poverty, racism and sexism. In other words, not everyone has the same access to education, information, wealth and resources to succeed.

Equity on the other hand, aims to provide everyone with the resources they need to succeed. This can be achieved by strategies such as investment in education, housing and health for disadvantaged groups, increasing financial literacy among women, or supporting enterprises that champion an inclusive culture.


Sources:

1 World Economic Forum, Global Gender Gap Report 2022.

2 WGEA, Gender Equality Scorecard 2022.

3 Professor Alison Preston, Insights from HILDA Data, UWA Business School 2020.

4 Abhilash Mudaliar, More than a zero sum game: Gender lens investing means we all do better. ProBono Australia

5 Source: Bell Asset Management, 31 December 2022.

6 McKinsey & Company Diversity wins: how inclusion matters, 2020.

7 Michele Lerner, Future returns: Gender diversity offers investment strategy for impact and gains, Penta, 15 November 2022.

8 Global Impact Investing, Network Gender lens investing initiative, 2019

9 ASX, Australian investor study 2020

*Cerulli Associates, Asset Owners See Diversity and Inclusion as the Most Critical Component of ESG Measurement among Managers, 17 November 2021.

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