Market view e Insights
Why society better starts making full use of all the available human capital, and why "gender lens investing" pays out for investors.
If you want your investment to have a positive impact on society, statistics show that you should focus on women: for every US dollar that women earn in emerging markets, they statistically spend 90 percent on health, nutrition or education for the family. Men spend just 30 percent of their salary in these areas. But placing a greater focus on women pays off from more than just a societal point of view.
Female entrepreneurs and economic stakeholders face a broad range of societal barriers, especially in developing countries: they often have less access to education, technology, financial resources and legal protection. The World Economic Forum started to publish its annual Global Gender Gap Report in 2006. The report measures where women lag behind in areas such as economic participation, educational attainment, health, survival and political involvement. In 2017, the figures declined for the first time, but in 2020, the report once again recorded improvements.
At the beginning of this year, 49.5 percent of the global population was female, and thus potentially affected by discrimination and economically worse off than men who live in the same environment. The need to promote and invest in women – as well as the potential for positive impact – is therefore enormous. An American magazine even declared women to be the biggest growth market in the history of the world.
It is against this backdrop that so-called "gender lens investing" has been attracting increasing attention in recent years. The factors considered before making this type of investment include: what is the percentage of women in the company? Do the company’s product or service and activities benefit women? Are the founders female? Are other investors female? Is the company’s mission in the interests of, or does it directly promote, gender equality?
Taking such"gender" factors into account pays off for investors: a 2016 study found that the return on investment of companies with at least one woman in their executive team was 3.3 percent higher per year in the decade prior than a group with no women in senior management. And an executive team with a 15 percent share of female executives statistically results in 50 percent higher profitability than one with less than 10 percent. Among Fortune 500 companies, those with the highest share of women on their boards are significantly more successful than the others. In 2018, Harvard Business Review reported that companies led by women generate an average of 10 percent higher profits in just five years, but that on average, investments in companies founded by females amounted to only half of the investments made in companies founded by males.
Women are also making huge gains in the group of self-made billionaires. In 2020, the list included 100 women. It is with good reason, therefore, that investment legend Warren Buffett has been saying for years that society must stop making full use of only 50 percent of the available human capital, and that women will be the driving force of the future..
Women not only lead differently, they also invest differently. In 2019, the share of women in management positions in the financial sector was around 22 percent. In private equity, this figure was below 10 percent in 2018. However, the fact that the financial sector is considered a male domain does not appear to be due to a lack of talent among women. On the contrary, investing "like a girl" can mean being more successful as an investor. On average, women tend to be more thorough in their research, take fewer risks and work more successfully in teams. In addition, they are usually not as erratic as their male colleagues, and tend to be more patient, less susceptible to peer pressure and focus more on sustainability.
Fidelity Investments caused a stir in 2017 with the results of an analysis of more than 8 million individual investment accounts. It found that not only do female investors save more, their investments earn more annually.
And yet the stereotype that women are less capable when it comes to financial matters seems to be stubbornly entrenched in many people’s minds. In a survey conducted by Fidelity, 91 percent of respondents said they thought men were the more competent investors.
The fact that women invest their wealth not only competently but also differently than men could take on increasing importance in the coming years. It is estimated that over the next four decades, around USD 41 trillion of wealth will be transferred to the next generation around the world. A whopping 70 percent thereof will be inherited by women.
Those who want to think ahead should therefore also consider female preferences: for example, 70 percent of women today change financial advisors within the first year of becoming a widow. Wealthy women are dissatisfied with what the financial sector has to offer so far. This is partly because they are not solely interested in maximizing profits. 76 percent of all women are interested in sustainable investments. This preference is also reflected in the fact that women are showing increased interest in “gender lens investing”.
So can female entrepreneurs hope for a future in which they no longer have to resort to drastic measures and, for example, have to communicate under the pseudonym of a fictitious male co-founder in order to be taken seriously? In which two X chromosomes might even be perceived as a positive characteristic? Some cautious optimism would seem appropriate.