Bank of America Merrill Lynch

Matters That Matter

Gender lens investing: Why it’s good for the world and investors

The movement toward greater gender equality is creating benefits at every level of society—and investors are taking note.

With gender equality and diversity under increasing scrutiny today, a growing number of people are investigating how to create gender-related change through their investments. Many are turning to an approach called gender lens investing. Others may have heard about it but are unsure what it is and what potential investment advantages it might offer.

According to Jackie VanderBrug, investment strategist and co-chair of the Impact Investing Council in Bank of America Merrill Lynch’s Global Wealth and Investment Management Chief Investment Office, gender lens investing is the integration of gender into investment analysis, with two main goals in mind: to make the world a more equitable place and to make a profit. “It’s a way to leverage the market to support progress towards gender equality—in the workplace, the supply chain, the consumer market, and elsewhere,” she says. “And simultaneously it’s a way to identify areas of opportunity in the search for enhanced investment returns, sustainable growth and lower risk.”

It’s more than philanthropy

Perhaps it’s no surprise that some investors equate the idea of investing to improve society with philanthropy, which generally does not involve financial returns. So, when it comes gender and investing, it’s important to stress the “making a profit” side of the equation. Indeed, gender lens investing is considered to be a subset of impact investing, which itself is often described as “doing good while doing well.” That is, investing to make a positive social or environmental change while receiving a return on your investment.

Investors and companies are responding

We’re hearing more about gender lens investing today because there is a growing interest among consumers and investors to support gender equality as a fundamental human right.” —  Jackie VanderBrug, Investment strategist, co-chair Impact Investing Council, Bank of America Merrill Lynch GWIM CIO

This is reflected in increasing calls for equal pay for women, more diversity in upper management, the production of consumer products beneficial to women, and in other areas. And the investment industry and corporations alike are taking note of this burgeoning interest.

Gender diversity yields many benefits

Equally important, research indicates that a company’s gender diversity can be a fairly reliable indicator—along with traditional metrics such as return on equity and debt free cash flow—of its potential for investment outperformance relative to the broader market. Some studies suggest that superior performance may derive, for example, from better decision-making by a more diverse group of directors—including those that have a greater representation of women. Outperformance may also be tied to greater gender diversity among senior leadership and the rest of the workforce, which may in turn be correlated with reduced turnover and higher employee engagement. Leadership behaviors more often applied by women may reinforce a company’s organizational performance on several dimensions, and gender diverse teams may make better decisions.

While the advantages of women in the boardroom and executive suite are reasonably well documented, the benefit of adding women extends across an entire company or organization, from every level of the workforce and all the way down the supply chain.” —  Jackie VanderBrug, Investment strategist, co-chair Impact Investing Council, Bank of America Merrill Lynch GWIM CIO

And with women making a clear majority of consumer decisions, companies are finally looking beyond “pink products”—the color is usually associated with support for breast cancer awareness but may also be used more broadly to show support for women—to design items specifically for the female consumer.

The future of gender lens investing

Going forward, the quality and quantity of gender-related data and research should continue to expand, making it increasingly easier for investors to consider gender-related issues in making investment decisions. The use of gendered data promises advances in fields from life sciences to software, with innovations standing to benefit not just women but all consumers. Opportunity can also be found in investing in products that address global issues disproportionately affecting women, such as maternal mortality, clean water, indoor air pollution, safety and human trafficking. Bottom line, investing with a gender lens can help scale up the companies that significantly improve the lives of women and girls.

Impact investing and/or gender investing has certain risks based on the fact that gender criteria excludes securities of certain issuers for nonfinancial reasons and therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.

The views and opinions expressed are those of the author, are subject to change without notice at any time, and may differ from views expressed by Merrill Lynch or other divisions of Bank of America Corporation. These materials are provided for informational purposes only and should not be used or construed as a recommendation of any service, security or sector.