Women and Sustainable Investing Part 1

By Julie Fox Gorte and Heather Smith—Julie is senior vice president for Sustainable Investing and Heather Smith is lead sustainability analyst at Pax World Investments.

The days when the best advice women received with respect to assuring their financial future was “get married” are over for good. Today, women are increasingly likely to be breadwinners, and increasingly likely to be responsible for some, if not all, of the financial decision-making for their families. According to the Pew Research Center, four in ten households with children below the age of 18 are headed by a mother who is the sole or primary earner.1

The Business Case

Not only do women have a greater stake in our economy, but the literature suggests that our businesses may be stronger as well with more women in leadership positions. For example, based on a study of 2,360 companies over a six-year period, a 2012 report from Credit Suisse found that “it would on average have been better to have invested in corporates with women on their management boards than in those without…[C]ompanies with one or more women on the board have delivered higher average returns on equity, lower gearing, better average growth and higher price/book value multiples over the course of the last six years.”2

The report also advances several reasons why this might be so, including the fact—supported by many academic studies—that heterogeneous groups tend to do a better job of decision-making than homogeneous ones. Women tend to be more diligent, or at least they bring that quality to the boards they serve regardless of personal persuasion. Boards with more women on them also tend to be more careful and exacting monitors of management, which is exactly what boards are supposed to do.

Women As Decisionmakers

One of the more intriguing subplots in the Credit Suisse report is that almost all of the outperformance came after 2008—that is, during the great recession. We don’t really understand completely why that is, but it is consistent with some of the other literature on the effect of having women in the decision-making structures of companies: women tend to be somewhat more conservative than men when it comes to finance and investment, which might make them less prone to taking risks. And that, in turn, shows up in financial results: two studies reported that companies with more women in senior management have higher earnings quality as well.3 Financial markets tend to prefer companies whose reported earnings are both trustworthy and conservative.

Women also appear to be more interested in sustainability, both as investors and as decisionmakers. A study published last year showed that women retail investors are more interested than their male counterparts in corporate social responsibility.4 At the company level, firms whose management structures—boards and executive management—include women tend to have superior environmental performance than companies with male-dominated decisionmakers.5

Tango Anyone?

None of this means that women are better than men. It really does take two to tango; women and men together do a better job on a whole lot of things than either gender alone. But women have been largely excluded—or at least discriminated against—for so many decades in corporate management and investment that sometimes it seems like finance and economics were an exception to everything else in nature, where both genders have critical things to contribute to overall success. Things are perhaps improving, though arguably at a glacial pace. Between 2009 and 2012, the share of board seats held by women globally barely moved from 9.3% to 11% across over 4,300 companies in 45 countries.6 In its 2012 Census of Fortune 500 companies, Catalyst reported that women held just 16.6% of board seats in 2012 compared to 16.1% in 2011, and data on female executives and top earners indicates that women have made little progress over the past seven years.7

Part 2 of Women and Sustainable Investing considers the key role investors can play in advancing gender equality and women’s empowerment, particularly in places where regulatory requirements to drive progress are not and are not likely to be enacted, like the U.S.
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1 Catherine Rampell, “U.S. Women on the Rise as Family Breadwinner,” New York Times, May 29, 2013.
2 Credit Suisse Research Institute, “Gender diversity and corporate performance,” August 2012.
3 Linda M. Parsons and Gopal V. Krishnan, “Getting to the Bottom Line: An Exploration of Gender and Earnings Quality,” Social Science Research Network, January 2006; and Ferdinand A. Gul, Bin Srinidhi and Judy Tsui, Do Female Directors Enhance Corporate Board Monitoring? Some Evidence from Earnings Quality,” September 2007.
4 Leda Nath, Lori Holder-Webb and Jeffrey R. Cohen, “Will Women Lead the Way? Differences in Demand for Corporate Social Responsibility Information for Investment Decisions,” Social Science Research Network, November 18, 2012.
5 Amanda Kimball, Donald Palmer and Chris Marquis, “The Impact of Women Top Managers and Directors in Corporate Environmental Performance,” Social Science Research Network, October 4, 2012.
6 “2013 Women on Boards Survey,” Governance Metrics International, April, 2013.
7 “Census of Fortune 500 Women Board Directors, Executive Officers and Top Earners,” Catalyst, December 2012.

RISK
Equity investments are subject to market fluctuations, the fund’s share price can fall because of weakness in the broad market, a particular industry, or specific holdings. Emerging market and international investments involve risk of capital loss from unfavorable fluctuations in currency values, differences in generally accepted accounting principles, economic or political instability in other nations or increased volatility and lower trading volume.

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