Women Taking Lead in ESG Investing

A recent report by Morningstar India said 13 per cent of the overall mutual fund industry’s AUM (Assets Under Management) is managed by women fund managers. However, there is one area where women are taking the lead - ESG investing.

ESG in India & Across the World

As the world struggles with multiple crises in the current time – coronavirus, climate, and social unrest – as an investor, perhaps the most impactful thing one can do right now is to focus their investments around sustainability. Across the globe, we are seeing tremendous growth in sustainable investing. It initially was driven by institutional investors but is gaining traction amongst retail investors too.

A number of asset management companies have launched specific ESG funds – an acronym for Environmental, Social, and Governance. Within our Indian mutual fund industry, until the start of 2020, there were mere three ESG-focussed funds and currently, there are about 10.

Corporate India has enough success stories on ESG where management has shown deeper commitment towards all stakeholders. Companies following sustainable ESG practices build a long-term enduring business model, which leads to superior risk-adjusted return.

On the other hand, companies that are weak on ESG due to irresponsible business practices expose investors to higher risks and greater potential for sudden shocks or losses over the long term.

Women and Economic Growth

A study by S&P Global Market Intelligence found that firms with female CFOs ( Chief Financial Officer) are more profitable and have produced superior stock price performance compared to the market average. The research also showed that firms with high gender diversity on their board of directors have been more profitable than firms with minimal gender diversity.

S&P Global found women to be the most underutilised source of growth, one that could send global market valuations soaring. In the US, about 30 out of the S&P 500 companies are headed by women and they have outperformed those led by their male counterparts by 1.2 per cent as of March 2021. If we exclude women CEOs who took over in 2020 and 2021, the average outperformance to S&P 500 has been an annualised 3 per cent. This means that if one had invested in an S&P 500 company when a woman took over as the CEO, the person would have beaten the S&P 500 by 3 per cent annually. Even the best fund managers find it hard to beat the index consistently!

Women as ESG Investors

A recent survey conducted by RBC Wealth Management shows that 74 per cent of women were interested in increasing their share of ESG investments in their current portfolios and were significantly more likely than men to have an interest in learning more about ESG investing. According to Green Money Journal, 90 per cent of millennial women say social and environmental issues are very important to them and drive their decision-making.

Now, the Securities and Exchange Board of India (Sebi) is taking cognizance of the fact that investors are now investing mindfully and the new disclosures by the top 100 listed companies about healthcare benefits to women, the composition of women employees as per skillset, percentage of women employees earning less than median wage will nudge the companies to assess their business from a different perspective.

ESG’s Future

Women now control 32 per cent of the world’s wealth and are adding $5 trillion to wealth globally every year. McKinsey reported that working towards advancing gender equality could add $13 trillion to global GDP in the next 10 years. Financial advisors and asset managers should take note that the time to recognise and include this powerful group of decision-makers is now.

This figure will only increase as women continue to gain financial wealth and independence. Women’s inclination for caregiving and their desire to make investment decisions that are not only financially sound but also make a measurable impact in society and the environment will be instrumental in moving ESG investing from far-flung philosophy to a conventional strategy.

The author is Founder, LXME 

DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.