Gender-lens investment funds improved in Q1 2024, even as heavy outflows and political scrutiny increased uncertainty about the future of ESG.
Assets under management in gender lens investment funds (ETFs made up of companies committed to advancing gender equality in their workforces, products and services) grew 9.5% compared to the previous quarter. Publicly traded gender lens investment funds had $4.6 billion in assets under management as of March 31.
The strategy behind the Gender Lens Investment Fund grew out of research that found that having women in corporate leadership positions can be financially and operationally beneficial for companies.
“Research shows that having women on boards means ESG issues are raised more frequently, and that certainly applies to environment and sustainability, so ultimately including women is just a smart investment strategy,” said Kristin Hull, founder and chief investment officer at Near Impact Capital, a women-led asset manager based in Oakland, California.
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According to research from Parallel Finance, a firm focused on research, analysis and advocacy for gender lens investing, gender lens investment funds are defined by the percentage of female managers at a given company, transparency around pay equality, and policies that promote the retention and advancement of female managers.
“The research we’re doing confirms that there is a desire for differing views, differences of opinion and different approaches to risk management and other activities as part of the leadership team,” said Angela Atherton, principal of operations and strategy at Parallel Finance.
Of the 42 gender-lens investment funds currently available to investors, more than half underperformed the broad market index in the first quarter of 2024. Six outperformed the market index and seven matched the market index’s performance.
“This asset class requires broadening investment reach and we believe the continued growth of the Corporate Equality Index provides an opportunity for these funds to outperform,” the report said.
Hull pointed to the student protests taking place across the country in response to the war between Israel and Hamas as a movement that could help spur the growth of gender lens investing.
“And these are very relevant to the gender lens, because these movements are calling all of us to ask, ‘What do I have in my portfolio? Do I have fossil fuels? Do I have anything else?'” she said. “And then we can start asking, ‘Do I have women managers? Do I have women managers?’ So I thank all of those who are trying to ask, ‘What am I investing in?'”
Atherton noted that young people are also driving demand for impact investing strategies.
“In general, I think if you communicate the opportunity to invest money in a way that aligns with your values, you get more investors interested, especially younger investors and female investors,” she said.
The increased interest in gender-lens investment funds reflects a broader trend of growing demand for ESG funds, which accounted for $900 million in assets under management in the first quarter.
The growth may be part of a resurgence in ESG funds, which have been hit by outflows following criticism from Republican politicians like Florida Gov. Ron DeSantis, who called ESG an attempt to “inject woke ideology into global markets.” States such as Texas have also enacted or are considering laws banning banks and asset managers they deem too ESG-focused. Others have passed laws banning investments in companies that manufacture guns or drill or refine oil.
Between 2021 and 2023, assets under management in ESG funds will fall by 930% globally, with the asset class facing its first ever net outflows of $13 billion in 2023.
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Marketing firm AKQA, UN Women Nederlander and investment research platform Thematic have introduced the Pink Chip Equity Index, a non-profit initiative to measure female leadership in companies, similar to the Blue Chip and Green Chip indexes that were introduced in early May, which track sustainability and reputation, respectively. The index, which tracks publicly-listed U.S. companies with a market capitalization of more than $2 billion, includes 44 companies.
Gender Lens Equity funds, as well as Gender Bonds, with $18.5 billion in assets under management, also saw growth. These funds saw 4.1% quarterly growth in assets under management. Gender Bonds and Sustainability Bonds performed best in Q1. Six Gender Bonds matured during the period.
Emerging markets accounted for the largest share of gender bonds, most of which were from the World Bank.
“We see women-owned businesses of all sizes as an opportunity for investors in developed and developing countries alike,” the report said.
While the report focuses on a gender perspective, many of the fund’s strategies are driven by other ESG-based perspectives, such as sustainability, DEI or diversity, equity and inclusion.
“If we incorporate a gender perspective early on and women seem to be really paying attention, they will be less likely to want to throw things into rivers and oceans,” Hull says. “There do seem to be some differences between the sexes, with women understanding the circular economy better and not taking as many shortcuts when it comes to the environment as men.”
DEI funds, which invest based on companies’ diversity indicators, also saw improvement. These funds had total assets under management of $2 billion, up 7.1% from the previous quarter.
“If you’re interested in ESG, and you can include equality rights as part of your screening and investment qualifications when constructing your portfolio, I see no reason not to do that,” Atherton said.
