Sustainable investing – where investors focus on socially conscious investments that aim to build a better world – has been gaining traction over the past few decades.
In 2016, one dollar in every five was invested ethically, totalling $8.7 trillion (Dh31.95tn), according to the SIF Foundation, the Forum for Sustainable and Responsible Investing based in Washington.
And there is a healthy appetite for investments that focus on ESG - environmental, social and governance - investments in the UAE. According to a 2018 UBS Investor Watch study of high net worth investors, 93 per cent of respondents in the UAE believe they are not giving up performance by choosing a sustainable investment, against a global average of 82 per cent.
Within the broader sustainable category are specific themes such as gender lens investing, which involves companies with a healthy workplace diversity or that focus on products, services or social programmes that help women and girls.
A 2017 sustainable investing study from Swiss bank UBS found that companies in the FTSE Developed World Index where women made up at least 20 per cent of the board and senior management had higher returns than their less gender-diverse peers. In addition, firms that retained more than half of their female managers through to senior management had higher returns than those that lost more than 50 per cent of their women in management.
Here, Rachel Whittaker, head of sustainable investing equities and strategist in the Chief Investment Office at UBS who was in Dubai recently, explains why there is value in considering gender diversity in investment decisions.
What is sustainable investing?
In very simple terms it’s any investment approach that is looking to incorporate either personal values or societal values – so environmental and social impacts and benefits into the investment decision. But it’s still very much investing – it’s not philanthropy – we’re still looking to generate a financial return and to manage the risk and add this third dimension where it’s an environmental or social benefit.
Is it growing in popularity?
Yes. It’s not new; it’s been around for decades. In the 1970s it was very much based on exclusion-based approaches, so avoiding investing in either very traditional sin sectors - tobacco, alcohol, weapons, gambling and adult entertainment - or anything the investor did not like. Over time we’ve seen this shift towards more of an integration approach and a lot of the academic research equates to a correlation between the companies that are good at managing their environmental risks and opportunities and a corporate financial performance. It helps you to avoid investing in companies that are at risk of a big environmental fine or a big reputational problem – that kind of thing can have an impact on your share prices and on your business’ value.
How does an investor zone in on gender lens investing?
A thematic approach to sustainable investing is very common so you see many environmental investment strategies out there and many climate change focused ones. Gender equality is a theme I’ve had a particular interest in for several years, but it's unlikely you would tailor your portfolio under one theme. Sustainability covers so many different themes so taking just one of them could potentially result in problems with diversifying.
How does an investment qualify as a good gender lens investment?
Criteria like the number of women on executive boards has been around for a long time and is quite easy to get hold of; the first strategies that incorporated gender diversity tended to look at that. What we now see is a desire to look at diversity across the organisation and ideally through the value chain; you want to have an insight not just into how many women are on the board but the number of women in the organisation. Is the company able to retain those women from early in their career through middle management to senior management? It’s all very well having 50 per cent of women in your workforce but if all of them are at the bottom of the pyramid and it’s all men at the top that’s not a very diverse organisation. The textiles sector for example employs huge numbers of women but they are often very low-income women in developing countries, and thinking about how you meet the needs of those women and those employees is really critical to having a really well-managed supply chain.
What’s driven the ability to have this type of investment?
The increase in transparency; this is the same for many sustainable investments. The more we know about companies and how they are managing these issues, the more able we are to build a portfolio that reflects those values. I would even say that the increase in transparency, disclosure and openness to talk about these issues is one of the positive impacts that the sustainable investing community has had over the last few decades.
How do you measure how gender diverse a company is?
We’ve seen the emergence of data and scorecards that try to address all of these things. One organisation is an NGO called Equileap – they gather data from public companies and have a scorecard that rates public companies on things such as whether they have policies that address diversity or whether they report on the number of women in the workforce.
How can companies score highly on such a rating?
A company would need to have maternity leave that is beyond the legal minimum; parental leave that is beyond the legal minimum; flexible programmes that allow part-time or working from home or career gaps. They would also look at having policies that address harassment and discrimination in the workplace or supply chain policies that try to ensure diversity.
Also, the sheer numbers of women at different levels - so making sure you have women represented at senior levels as well as lower levels and that you try to retain those women throughout their career. Those are the key things.
How does a healthy gender balance level affect returns?
When we started looking at diversity and how the concept of how well those companies retain women – you compare the performance of companies that tend to be better at it and those that tend to be worse. We found the companies better at managing diversity - as evidenced by the actual data from their workforce – tended to have better returns than those with lower diversity.
So can you expect comparable returns to traditional investments?
You can expect comparable risk return expectations for sustainable investments as with conventional investments. A meta study done a couple of years ago looked at over 2,000 academic studies over the last 30 or 40 years. All the evidence pointed towards this correlation between managing sustainability issues well and financial returns. But a subset of that was about 330 studies that specifically looked at having a sustainable angle in investing – to figure out what effect that would have on returns. Over 90 per cent of those 330 studies found there was either no impact or a positive impact on returns. We often get the question, 'Are you giving up returns for sustainability?' And the answer is no. You may not be gaining returns – we are not going to promise that – but we don’t see any evidence that simply applying a sustainability lens – whether it’s a broad based one or a single theme - automatically means you give up returns.
How can a client adopt a gender lens investment strategy?
There are investment products in the market and different ways of addressing it; so if you have an equity manager, this might be one of their screens or one of the criteria they look at to find well-managed companies to have in their portfolio. If you had a passive strategy, you could build a benchmark of the companies that are the best performing in all of these criteria and then you could have an ETF that tracks that benchmark. You can take the best companies in the whole world or look at it from a regional basis – there is a difference between regions at how good companies are at managing diversity.
Is it mainly women that invest this way?
The interest comes from both men and women and in particular men who have daughters. There’s an idea that sustainable investing appeals particularly to millennials and women and various surveys that suggest this. Yes, there is more of a tendency there but I see people across all ages, all genders and all types.