Harnessing the Capital Markets for Gender Equality

Authors

• Jessica Davis Pluess

  Former Manager, BSR

Jessica Davis Pluess, Manager, Partnership Development and Research, BSR

Nearly 1 billion women are poised to enter the global economy over the next decade. These women will shape business decisions as employees and producers, business owners and executives, consumers, and political leaders. Yet despite their strength in sheer numbers, women still face significant barriers to realizing their potential as contributors to inclusive economic growth.

Mainstream investors are starting to recognize the incredible opportunity presented by advancing women through their investments. In response, the capital markets are offering an increasingly diverse set of investment tools and products that promote gender equality and align with individual investment goals.

New, compelling evidence shows that, as an article in the Stanford Social Innovation Review put it, “Gender is material to financial outcomes, and financial outcomes are material to gender.” According to a recent Credit Suisse report, companies with greater gender diversity in senior management have higher returns on equity, higher valuations, better stock performance, and higher payouts of dividends. Joseph Keefe of Pax World Investments and a leader in advancing corporate diversity argues, “When women are at the table, the discussion is richer, the decision-making process is better, management is more innovative and collaborative, and the organization is stronger.”

Investing in women also opens up significant new business opportunities. Data show that in the United States, women are starting new businesses at 1.5 times the national average, represent 85 percent of all consumer purchases, and outnumber men in the attainment of college degrees. Moreover, unlocking women’s full potential also has multiplier effects on families, communities, and economies as a whole.

“Investing with a gender lens,” which includes investing directly in women as well as investing to reshape systems and structures to help women succeed, is part of a broader shift in the understanding of how investors can protect and generate long-term value by integrating environmental, social, and governance (ESG) factors into investment decisions.

Over the last six months, BSR has been working with BNY Mellon, a leading investments company, to identify opportunities to engage mainstream investors more effectively in social finance. Through our research, which included interviews and focus groups with more than 50 experts, we define social finance as any investment activities that consider both financial returns and social and environmental impact. We estimate that current social finance activity is upward of US$20 trillion.

While there are no specific estimates on how much of this is allocated toward advancing gender equality, it is likely fairly small. However, if the 25 board diversity shareholder resolutions filed so far this year are any sign, a movement is emerging, and any mainstream investor would be smart to get ahead of the curve.

A growing number of pioneers such as Calvert Investments, the Criterion Institute, and the World Bank are helping bring these opportunities to mainstream investors by creating new investment products across asset classes to appeal to different investor goals and risk/return profiles. Leading examples include:

• Mutual funds that promote women in leadership, such as the Pax Ellevate Global Women’s Index Fund, which selects companies according to the representation of women in senior management roles, board diversity, and a company’s commitment to the UN Women’s Empowerment Principles.
• Letter writing and shareholder resolutions filed by coalitions, such as the Thirty Percent Coalition, which seeks to attain 30 percent female representation across public-company boards by the end of 2015.
• Results-based financing instrument, such as the innovative Development Impact Bond developed by Instiglio, UBS Optimus Foundation, and others to support girls’ education in India and deliver a financial return once the social outcomes are achieved.
• Community investment notes, such as the Calvert Foundation’s Women Investing in Women Initiative, which invests in organizations and enterprises that create and distribute clean cookstoves, solar lighting, and other clean energy products to improve the health of women in developing countries.
• Microfinance funds that offer loans and other financing to microfinance institutions, such as the US$100 million Global Commercial Microfinance Consortium II established by Deutsche Bank to support female-run social businesses in developing countries.

Translating this movement into significant capital allocation will take time, but the capital markets appear to be headed in the right direction. Women are slated to inherit 70 percent of the US$41 trillion in intergenerational wealth transfer in the next 40 years. The latest research shows that women investors are more interested in investments that have a positive impact on society than their male counterparts—a reason to be optimistic that we will mobilize significantly more capital toward advancing gender equality and supporting inclusive economic growth in the next half century. Forward-looking mainstream investors are getting ahead of this trend not only because it’s good for society but because it makes good investment sense.