Investors who include GLI in their overall strategy often find that:
- The addition can help them identify investment opportunities, generate alpha, lower risk and build stronger and more diversified investment portfolios.
- By investing in companies that are making gender progress, or by avoiding or divesting from those that are not, they can give companies a financial incentive to change.
- More equality and diversity can help improve national and global economies, and in turn benefit billions of people, women as well as men.
Gender lens investing is important because it can help foster gender parity in the workplace, in part by giving companies a financial and ethical incentive to hire with equality in mind. That’s not to say parity will come easy. For starters, corporate bias against women, a leading cause of gender inequality, remains deep-seated and tenacious, even in the face of a growing body of evidence suggesting that adding more women at various levels, including the executive suite, can potentially benefit companies in a number of areas.
Indeed, think how many more of the best and brightest people companies could attract and keep by offering equal opportunity and equal pay. Equality is especially important to the millennial cohort. Born between the early 1980s and early 2000s, millennials are now the largest generational bloc in the workforce, and many say they prefer working at companies that hold values of diversity and gender equity. In other words, equality may be a key driver to attract top talent.1
What would a world free of gender-based discrimination look like? Companies would no longer operate with the kind of bias, explicit or implicit, that can create patterns in hiring and promotion that favor men, the workplace would support the talents and contributions of men and women in equal measure, giving them the same access to jobs, similar membership on corporate boards and equal pay for equal work. Such a world would benefit all of us, not just women. For the 36 countries in the Organisation for Economic Co-operation and Development (OECD), for example, the income loss associated with gender discrimination is estimated at up to US$12 trillion, or 16% of the world’s income.2 A gender bias-free world may be some way off, however. At the current rate of progress, it will take more than a century to close the global gender gap, according to the World Economic Forum.3 Three core drivers of current and future parity progress — education, employment and entrepreneurship — provide insights as to how GLI potentially benefits investors — and also how it may accelerate change.
Education
Gender parity in education is not only a moral imperative, but an economic one as well. A 2018 study by the World Bank found the global losses from low educational attainment for women are estimated at between $15 trillion and $30 trillion.4
Progress
Almost 90% of girls around the world are enrolled in primary education.5 Even in some developing nations, where enrollment rates are far lower, progress has been made. About 42% of the 72 countries in the Global Partnership for Education improved on an educational equity index between 2010 and 2016.6 In the United States (U.S.), women are now in the majority at all levels of higher education, attaining 64% of bachelor’s degrees, 57% of master’s degrees and 53% of doctoral degrees.7
Persistent Gaps and Opportunities
Beyond primary education, stark inequity remains on a global basis. Only 66% of girls enroll in secondary education,8 and only 45% of countries have reached gender parity in lower secondary education.9 The United Nations underscored the need for progress in their 2018 Progress Report, saying, “Disparities in education along the lines of gender, urban-rural location and other dimensions still run deep, and more investments in education infrastructure are required, particularly in LDCs [Least Developed Countries].”10*
While they are the majority of degree earners in U.S. colleges, women still lag men in the vitally important areas of science, technology, engineering and mathematics, or STEM. In 2015, men earned the vast majority of bachelor’s degrees awarded in STEM areas such as engineering, computer sciences and physics, and more than half of the degrees in mathematics and statistics.11 An area of acute inequality, women’s share of computer sciences associate’s degrees, dropped precipitously from 42% in 2000 to 21% in 2015.12 What’s more, many of the women who do graduate with a STEM degree may fail to move onto a STEM career.13
Employment
Gender parity in business is important for a variety of reasons, including: GDP boost: Research company McKinsey estimates that global gender parity could boost global gross domestic product (GDP) by $12–28 trillion.14 Attracting employees: According to research firm Deloitte, millennials and Gen Z want to work for diverse companies that have a forward thinking mindset.15 Improved business data: Research suggests that while performance results have varied over time, companies with better scores on board diversity and management diversity saw consistently higher future return on equities (ROEs) than counterparts with lower scores.16
Progress
Women now represent 54% of breadwinners in American households.17 Women also make up 47% of the total U.S. workforce and 52% of management, professional and related occupations.18 Among companies in the Russell 3000 Index in 2018:19
- Women held nearly 18% of board seats, up from 16% in 2017.
- 43% of Russell 3000 companies have 20% or more of their board seats filled by women, up from 37% in 2017.
- Companies with no women on their boards dropped from 22% in 2017 to 17%.
Persistent Gaps and Opportunities
Progress has been made but much remains to be done to even come close to full gender equality. For example:
- Women make up just 19% of software developers, 28% of chief executives and 40% of physicians and surgeons, typically higher paying jobs. At the same time, they make up 90% of registered nurses and 79% of elementary and middle school teachers.20
- Over 2.7 billion women face legal restrictions that prevent them from having the same choice of jobs as men, such as being able to hold a job without their husband’s approval.21
- Women are paid 80.5 cents for every dollar earned by men, a gender wage gap of 19%. This disparity is reinforced by the persistent belief among more than a third of Americans that the gender wage gap is fictional.22
- At the current rate of progress, the gender pay gap will likely not close until 2059 for white women, and it will take over a century for women of color.23 A 2018 study by Columbia Business School shows that requiring gender pay gap transparency may help close the pay gap by 7%.24
- Over 1 in 5 small cap companies have no women on their board.25
- In the U.S., women do almost two-thirds more unpaid work than men.26
Entrepreneurship
Entrepreneurship is, by almost any measure, the backbone of the U.S. economy. Some 15 million Americans are self-employed full time and small business contributes 44% percent of U.S. economic activity.27
Progress
Over 40% of total U.S. businesses are owned by women, with 1,821 women-owned business launched daily, on average.28 The number of women-owned firms has increased at a pace nearly five times that of all firms in the past 11 years.29 Research found that startups founded or co-founded by women generated 10% more revenue than male-founded startups over a five-year period, despite receiving significantly less than half as much in investments.30 All Raise, a nonprofit founded by 34 senior female investors, set a goal of increasing the percentage of venture funding going to companies with a female founder to 25% in the next five years, and doubling the percentage of female partners in ten years.31
Persistent Gaps and Opportunities
Women globally have lower rates of entrepreneurship than men, and the consequences can affect not only women’s incomes but also the performance of their companies and the types of products and services they create. Gender gaps cause an average income loss of 15% in OECD countries, and 40% of that shortfall is due to entrepreneurship gaps, where women are once again underrepresented.32
Only about 9% of general partners at U.S. venture capital firms are female and only 2% of global venture capital dollars go to female founders.33 The World Bank estimates a $300 billion shortfall in access to credit for women-owned small businesses.34 Disparity emerges early, in networking and the request for funding (“the pitch”). When interviewing men, venture capitalists focused on hopes, achievements, advancement and ideals. When interviewing women, they were more concerned with safety, responsibility, security and vigilance.35
Gender Lens Investing Picks Up Steam
Gender lens investing has become a more commonly used strategy in the past few years. Reports from 2018 found 35 public market and 87 private market GLI funds with $2.4 billion and $2.2 billion in assets under management respectively (AUM).36,37 These funds often reference their gender lens or even specifically brand themselves as ‘gender lens strategies’ and may use different but overlapping approaches, including:
- Gender mandate strategies are those with an overarching hypothesis around gender equality — in areas such as capital access, leadership, policies, workforce composition or products — as a driver of long-term performance.
- Gender advocacy strategies use a shareholder engagement strategy, such as voting against all-male board slates or pushing for positions on equal pay.
- Gender systems strategies seek to address social challenges that disproportionately affect women, such as low income housing (given that women are disproportionately poor, single heads of household, when compared to men), health care or transportation.
In addition, an important trend is traditional and broader sustainable funds that are newly incorporating gender as one of the many factors in their employment practices, sourcing and portfolio construction. While these funds may not specifically brand themselves as gender lens investments, the incorporation of gender as a material factor represents progress.
Bottom Line
Gender parity, once little more than a dream for countless women and girls around the world, now seems like an achievable goal — as it should be. But parity will take time — likely decades — and be realized in different countries, regions and industries at different paces. With the rise of movements such as #MeToo and #TimesUp, a much needed spotlight has been shone on some of the inequities women continue to face. As we have seen, gender lens investing may be one way to speed up the journey to equality, as it gives investors the potential not only to diversify their portfolios while seeking competitive, risk-adjusted returns, but also may offer corporations financial incentives (that is, broadly speaking, by investing in or divesting from them) to improve their position on the issue. From an investor perspective, women and millennials favor sustainable and impact investing, which includes gender lens investing, far more than other investors.38 We believe investors should take time to learn about the potential benefits, as well as the potential risks, of gender lens investing, as the journey to gender parity stands to improve the lives of women and men, girls and boys, in the U.S. and around the world.
It is important to recognize that strategies such as gender lens investing do not eliminate the risks involved with investing. All investments, including gender lens investing, carry some degree of risk and can lose some or all of their value. Investment value might rise or fall because of market conditions, for instance, or corporate decisions or political or economic events (to name a few).
If you are considering investing with a gender lens, be sure to talk with your advisor about your plans and understand how gender lens investing may align with your overall investment strategy, investment timeline and appetite for risk. Though the field is continually evolving, we believe that the economic drivers fueling its growth remain sound. Your questions and interest may become part of the movement.
Endnotes
1 Deloitte. 2018. “2018 Deloitte Millennial Survey”.
2 Ferrant, Gaëlle, and Alexandre Kolev. 2019. “Does Gender Discrimination in Social Institutions Matter for Long-Term Growth?: Cross-Country Evidence”. Paris: OECD Publishing.
3 World Economic Forum. 2019. “Global Gender Gap Report 2018”. World Economic Forum.
4 Wodon, Quentin, Claudio Montenegro, Hoa Nguyen, and Adenike Onagoruwa. 2018. “Missed Opportunities: The High Cost of Not Educating Girls”. The World Bank.
5 Global Partnership for Education. 2018. “Global Partnership for Education Results Report 2018”. The Global Partnership for Education.
6 Global Partnership for Education. 2018. “Global Partnership for Education Results Report 2018”.
7 Okahana, H., & Zhou, E. 2018. “Graduate Enrollment and Degrees: 2007 to 2017”. Washington, DC: Council of Graduate Schools.
8 “Education Statistics – All Indicators”. 2019. The World Bank – Data Bank.
9 “Gender Disparities in Participation and Completion Vary by Country Group and Education Level”. 2017. Global Education Monitoring Report.
10 “Sustainable Development Goal 4: Targets and Indicators”. 2019. Sustainable Development Knowledge Platform.
11 National Science Board. 2018. “Science & Engineering Indicators 2018”.
12 National Science Board. 2018. “Science & Engineering Indicators 2018”.
13 “Statistics: State of Girls and Women in STEM”. 2018. National Girls Collective Project.
14 McKinsey and Company. 2015. “The Power of Parity: How Advancing Women’s Equality Can Add $12 Trillion to Global Growth”.
15 Deloitte. 2018. “2018 Deloitte Millennial Survey”.
16 BofA Merrill Lynch Global Research. March 6, 2019. “Thematic Investing: The She-conomy”.
17 Prudential. 2018. “The Cut: Exploring Financial Wellness within Diverse Populations”. 2018 Financial Wellness Census™.
18 U.S. Bureau of Labor Statistics. 2018. “Women in the Labor Force: A Databook.”
19 2020 Women on Boards. 2018. “Gender Diversity Index”. 2020 Women on Boards.
20 U.S. Bureau of Labor Statistics. 2018. “Women in the Labor Force.”
21 World Bank Group. 2019. “Women, Business and the Law 2019: A Decade of Reform”. Washington, DC: International Bank for Reconstruction and Development / The World Bank.
22 Gebhardt, Jillesa. 2019. “On Equal Pay Day 2019, Lack of Awareness Persists”. Surveymonkey.
23 Institute for Women’s Policy Research. 2018. “The Gender Wage Gap: 2017.”
24 Bennedsen, Morten, Elena Simintzi, Margarita Tsoutsoura, and Daniel Wolfenzon. 2018. “Do Firms Respond to Gender Pay Gap Disclosure?”.
25 2020 Women on Boards. 2018. “Gender Diversity Index”.
26 Organisation for Economic Co-Operation and Development. 2019. “Time Spent in Paid and Unpaid Work, by Sex”.
27 Office of Advocacy of the U.S. Small Business Administration. 2019. “Small Businesses Generate 44 Percent of U.S. Economic Activity”.
28 American Express. 2019. “The 2018 State of Women-Owned Businesses Report”. American Express.
29 American Express. 2019. “The 2018 State of Women-Owned Businesses”.
30 Hu, Elisabeth, and Ruqayyah Moynihan. 2018. “Startups Founded by Women are Given Less Investment but Generate More Revenue”. Business Insider.
31 “A New Version of Visionary”. 2019. All Raise.
32 Cuberes, David, and Marc Teignier. 2016. “Aggregate Effects of Gender Gaps in the Labor Market: A Quantitative Estimate”. Journal Of Human Capital 10 (1). doi:10.1086/683847.
33 PitchBook and National Venture Capital Association. 2019. “Venture Monitor: 1Q 2019”. PitchBook Data, Inc.
34 International Finance Corporation. 2014. “Women-Owned SMEs: A Business Opportunity for Financial Institutions”. Washington, DC: International Finance Corporation.
35 Kanze, Dana, Laura Huang, Mark A. Conley, and E. Tory Higgins. 2017. “Male and Female Entrepreneurs Get Asked Different Questions By VCs — And it Affects How Much Funding They Get”. Harvard Business Review.
36 Biegel, Suzanne, Sandra M. Hunt, and Sherryl Kuhlman. 2019. “Project Sage 2.0: Tracking Ventuer Capital with a Gender Lens”. The Wharton Social Impact Initiative.
37 Veris Wealth Partners. 2018. “Gender Lens Investing: Bending the Arc of Finance for Women and Girls”.
38 US Trust. 2018. “2018 Insights on Wealth and Worth®”.
Important Disclosures
This material was prepared by the Chief Investment Office (CIO) and is not a publication of BofA Merrill Lynch Global Research. The views expressed are those of the CIO only and are subject to change. This information should not be construed as investment advice. It is presented for information purposes only and is not intended to be either a specific offer by any Merrill or Bank of America entity to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available. Global Wealth & Investment Management (GWIM) is a division of Bank of America Corporation. The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for GWIM clients, is part of the Investment Solutions Group (ISG) of GWIM.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
All recommendations must be considered in the context of an individual investor’s goals, time horizon, liquidity needs and risk tolerance. Not all recommendations will be suitable for all investors.
Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.
Merrill, Bank of America, their affiliates, and advisors do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions. Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Investments in foreign securities involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. Impact investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating.
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