Advancing Women Through Sustainable Investing
By Jennifer Coombs, College for Financial Planning
Although we are two decades into the 21st Century, there is still not much discernible difference between the demographics of the financial services sector compared to forty years ago. One could argue that the main difference between now and then, is why women are taking a far more active role in the financial services space, both as advisors and investors. The rise of sustainable, responsible and impact investing strategies, has led many firms and their investors to seriously question the importance and prominence of gender diversity in leadership positions. Although the financial services sector is still very much a male-dominated industry, considerations regarding environmental, social and governance (ESG) issues have provided an avenue to bring more women to the table.
The Sustainable Finance “Wedding Cake”
Much of the focus regarding ESG factors is fixated on the “E” component, which makes perfect sense. Human rights and equality, which constitute the bulk of the issues with the “S” component, are often overlooked because they are sometimes difficult to measure and justify. However, a strong society where all participants are treated fairly and equally is essential before a country can truly realize a strong and sustainable economy. Dutch professors Dirk Schoenmaker and Willem Schramde of the Rotterdam School of Management and authors of Principles of Sustainable Finance,1 frequently describe the fundamentals of sustainable finance as a wedding cake: the bottom layer represents the environment, the middle layer represents society, and the top layer represents the economy.
The top layer cannot exist without the bottom layers to support it; so an economy cannot exist without a properly functioning society, and society cannot exist without a thriving environment. However, many still overlook the fact that a strong, thriving economy cannot exist in a scenario when half of society is being marginalized. Therein lies the issue that needs to be addressed for women in 2021 and beyond: how much more optimal would our economy be if all members of society could benefit equally?
Advancing Women Makes Economic Sense
While it should not be too shocking that a society where all participants can actively contribute to the economy will grow and thrive, there are still quite a few skeptics as to what kind of importance gender diversity would provide for corporate profitability.
Many research studies have been conducted in recent years making the business case that providing a level playing field and expanding employment and leadership opportunities for women not only improves societies but also drives a more sustainable economy. US SIF, The Forum for Sustainable and Responsible Investment,2 cited a number of these studies in their 2020 report, Investing to Advance Women, and among these studies were:
- McKinsey’s 2018 whitepaper, Delivering Through Diversity, which confirmed their original findings from a 2015 study noting a statistically significant correlation between the diversity of leadership teams and financial performance. In fact, the top 25 percent of companies with the most gender diverse executive teams were 21 percent more likely to be more profitable and 27 percent more likely to contribute greater value to the firm.
- In 2015, MSCI ESG Research found that companies listed in their MSCI World Index with strong female leadership – denoted as three or more women on their board of directors or representation above the national average in the country of origin – achieved higher returns on equity and stronger stock valuations.
- A 2014 study from The Peterson Institute for International Economics found that a company that went from having no women in corporate leadership to a 30 percent proportion, saw an increase in corporate net margins of one-percentage point, or in other words, a 15 percent increase in corporate profitability.
As much as we would like to think that definitive proof of the importance of equality would be reflected across our society, we are far from this reality. US SIF also notes in this report that in 2018 only about 26.9 percent of CEO positions are held by women despite the fact that women held about 46.8 percent of the civilian workforce. Also in 2017, at all levels of education, full-time employed women earned only about 80.5 cents for every dollar their male counterparts earned, which is only slightly better than the 77 cents in 2012. In other words, there is still a lot of ground to cover in order to achieving meaningful gender equality.
While 2020 should have been a year to continue this advancement, COVID-19 has resulted in a major setback which ultimately hit working women harder than working men. Women are far more likely to work in industries hardest hit by the pandemic, work in occupations that do not easily allow for telecommuting, and unlike times of national strife, like World War II, access to childcare has dwindled, leading many women to choose between staying home with their children and helping with schooling, or continuing their work.3 This hole that COVID-19 has caused for women has resulted in a setback, but recognizing the shortcomings can lead to meaningful change in 2021 and beyond.
Rights are not Pie
Actively seeking equality should not be a revolutionary idea, and yet there is this misconstrued assumption that somehow human rights are like a pie: the more people who come to the table to have dessert, the smaller each person’s piece becomes. The simple truth is human rights are not pie. Human rights are like air. Rights, like air, exist in abundance and nothing is lost if you help more people get to a place where they can easily breathe.
Far more women advisors are seeking to help women investors in the sustainable investing space, which is quite apparent in my interactions with students in the Chartered SRI Counselor (CSRIC) designation program. Sustainable investing, which includes screening investments for positive environmental factors and focusing on human rights is no longer a way to simply feel good; it makes logical sense from a business perspective.
Don Phillips, managing director at Morningstar, summed up the use of ESG quite nicely when he said “ESG is a great and powerful movement, not because it rights some wrong inherent in business, but because it removes obstacles that keep people from investing.” 4 If you want to bring more investors to the table, you simply make the table longer. By encouraging women to invest in a manner that advances important causes, this in turn will lead to a far more equitable society and subsequently a far more efficient economy.
Article by Jennifer Coombs, associate professor at the College for Financial Planning and the founder of the financial blog, GradMoney. She is the creator, lead author, and lead instructor for the Chartered SRI Counselor™ (CSRIC™) designation program, and serves as a subject matter expert on a number of the College’s investment courses.
Prior to joining the College, Jennifer worked for several different Wall Street firms in such varied roles as technical and fundamental analysis, equity research, trading, and portfolio management. The knowledge gained in these roles has led to her passion for educating the public. To this end, Jennifer has given TED talks on the topic of sustainable and responsible investing: “Investing for a Better World: Using Wall Street to Implement Social Change” (November 2015 at TEDx Jersey City), and “Stopping the Rebuttal: Millennial Investors and the Future of Sustainability” (April 2018 at TEDx Clarkson University). She has also given presentations and interviews on “Dollars & Change” Wharton Business School Radio on Sirius XM, Bank of America/Merrill Lynch Wealth Management, Garrett Planning Network, Society of Financial Services Professionals (FSP), The CFA Society of New York, US SIF Annual Conference, SRI Annual Conference, and Advisor Group. Jennifer is also sought out for her expertise on environmental, social, and governance (ESG) analysis for sustainable investing, and has been quoted in The New York Times, The Associated Press, MarketWatch, Investment News, Wealth Management, Financial Advisor IQ, RIABiz and Proactive Advisor Magazine.
Jennifer earned her Master of Science in Finance (MSF) from the College for Financial Planning, and graduated with distinction (cum laude) from Clarkson University, where she earned a Bachelor of Science with majors in financial information analysis and political science, and minors in economics and law. In addition to her degrees, Jennifer holds the Chartered SRI Counselor™ (CSRIC®), the Chartered Retirement Planning Counselor™ (CRPC®) designation, the Financial Paraplanner Qualified Professional™ (FPQP™) designation, and is a Certified Financial Education Instructor (CFEI) through the National Financial Educators Council. Jennifer is also a proud member of US SIF and the Financial Plan