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Peter Krull, CEO of Earth Equity Advisors

Portfolio > Portfolio Construction > ESG

How Gender Lens Investing Can Help You Attract and Retain Clients

By Peter Krull

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What You Need to Know

  • Gender lens investing is possibly one of the biggest missed opportunities in responsible investing.
  • Rewarding companies for doing the right thing could also reward your clients.
  • As an advisor, it’s important to understand the coming great wealth transfer and how it will likely shift your book of business.

Amid all the negative rhetoric surrounding environmental, social and governance investing lies the truth that many retail investment clients want to align their investments with their values. They’re tired of the business-as-usual paradigm from both a climate and environmental perspective and a social perspective.

While the climate and environmental aspects should be obvious to most folks, the social perspective can be less straightforward. Some investors may focus on the positive, such as corporate community involvement or charity work, while others may want to avoid sin stocks like gambling, alcohol and tobacco.

But what many investors miss is possibly one of the biggest opportunities in responsible investing: gender lens investing. Simply put, gender lens investing adds a layer of due diligence to the research process including a company’s overall gender diversity, its leadership and board makeup, and gender-friendly employee policies.

The Economic Argument

There is a strong foundation underpinning the adoption of gender lens investing. A May 2020 McKinsey report details the financial advantages of having a diverse workforce. It says, “Our latest report shows not only that the business case remains robust but also that the relationship between diversity on executive teams and the likelihood of financial outperformance has strengthened over time.”

The report goes on to say that companies with the most diversity are more likely to be more profitable than their less diverse peers.

The McKinsey analysis found that “companies in the top quartile for gender diversity on executive teams were 25% more likely to have above-average profitability than companies in the fourth quartile.”

In 2020, Glenmede published a white paper that included a study of Russell 1000 companies and found that firms with greater gender diversity experienced excess returns of 1.1% with 2.2% less risk. A 2019 Credit Suisse report further solidifies the point, saying, “Companies with more diverse management teams have generated sector-adjusted outperformance approaching 4% a year compared to those displaying below the average.”

But gender lens investing goes beyond the accountable bottom line. The Glenmede white paper describes additional benefits: “Gender equity means bridging the historical gaps in gender equality through policies such as maternal care, resources like management training and programs that foster a culture generally more supportive of women.”

Ultimately, the advantages of incorporating gender lens investing into your asset allocation should outweigh any concerns you may have. Rewarding companies for doing the right thing could also reward your clients with potential above-average returns.

Client Demand

So, as a financial advisor, how can you best use gender lens investing to both attract and retain clients? First of all, it’s important to understand the coming great wealth transfer and how it will likely shift your book of business.

Another report from McKinsey from July 2020 says, “By 2030, American women are expected to control much of the $30 trillion in financial assets that baby boomers will possess — a potential wealth transfer of such magnitude that it approaches the annual GDP of the United States.” Do you think that these investors will likely see the value in investing in diversity and inclusion after having been shut out of the decision-making process up until recently? Absolutely!

Not only are women going to be inheriting these assets, but millennials will be as well. According to a Morgan Stanley report, 99% of millennials are interested in sustainable investing — while not exactly the same as gender lens investing, there is a similar values-based orientation and a direct link between sustainable investing and gender lens investing.

Betsy Moszeter from Green Alpha Advisors wrote in a white paper, “Women bear the heaviest burdens of climate crisis [effects] … Investing in solutions to mitigate the climate crisis and resource degradation disproportionately benefits women to the equal and opposite extent that failing to address the crisis disproportionately harms women.”

Strengthening the Client Relationship

It’s important to spend time to learn about gender lens and sustainable investment options. Look underneath the hood of clients’ investments to ensure they are actually what they promise to be. Outsource to specialists when necessary. And don’t be afraid to talk to your clients about values-based investing. Explain what it is and ask them about causes that are important to them.

The Morgan Stanley report says that 40% of clients have never been asked about nonfinancial values that are important to them. The market and demand for responsible investments continue to grow. Don’t let the opportunities pass you by.

For Women’s History Month this year, consider gender lens investing. Not only could it have a positive effect on your client’s portfolio, but it will also strengthen your relationship with them and ensure you’re in the running to retain their assets. The next generation of investors are passionate about creating impact and supporting important social issues, and gender lens investing will give you a leg up on the competition.

(Pictured: Peter Krull)

Peter Krull is the partner and director of sustainable investments at Earth Equity Advisors, a Prime Capital Investment Advisors company. He was a 2021 ThinkAdvisor LUMINARIES winner in Thought Leadership & Education.

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