Profiting from the Gender Lens

Story vom 13. März 2020
Martina Bahl, CFA

Making better decision

Women make up 49.585% of the world population (source: Worldbank). They hold 40% of global wealth (Credit Suisse Global Wealth Report 2018) and 43% of women in OECD countries nowadays obtain a tertiary degree before they turn 30, compared with 29% of men (OECD Indicatiors Education at a Glance 2018).

And yes, there IS a difference between men and women. Whatever the reason, most women consider investments, decisions and risk differently from men. Women on average accumulate less debt than men. They are less likely to fall behind on payments, and when they do get in trouble, women are double as likely to seek debt counselling than men. At the same time, women hold more of their assets in non-financial forms and less in financial assets (Credit Suisse Global Wealth Report 2018). Results from microfinance institutions also show that there may be a gender specific factor. In microfinance, a higher percentage of female clients results in lower portfolio risk with fewer write-offs. At the same time, taking risks is an important element in business and finance. So what if we could combine both, risk and caution, in the best possible way?

Good news! There is a new investment approach that captures the return potential of gender diversity: Gender Lens Investing. It is based on the believe that gender balanced teams will make better investment and business decisions. That gender balanced teams will lead to higher risk adjusted returns and more solid and sustainable growth compared to unbalanced or pure male or female only teams. It is based on the idea of male and female views, backgrounds and ways of thinking complementing each other, leading to higher quality decisions.

The not so good news: Gender lens investing is far from trivial. It is more than just a number crunching exercise to figure out the number of female CEOs and board members in a company or industry. Gender lens investing is a holistic approach. It not only focuses on the investment target, but includes the entire investment process and the surrounding economic and social environment. It is a mind opener and game changer, and it carries significant return opportunities. Be aware that by applying gender lens investing to your firm, you will significantly impact the way you invest, the way you think and act, and ultimately your company culture. In a positive way!

Gender lens investing is all about making better decisions. The process digs deep into the hidden structures of investment decision making and a company’s decision dynamics. By taking gender analysis one step further, by understanding and correcting misled power games and imbalances, and by including unseen factors such as hidden oppression, ability, religion, ethnicity and economic status into the financial analysis process, firms can improve their investment decision process. The reward will not only be higher profitability, but also higher team satisfaction, lower employee fluctuation, a better understanding of complex risk dynamics and a broader view of opportunities.

Diversity and gender equality lead to better results, not only in finance. Higher gender equality results in more happiness of both men and women, according to a 2019 study by Professor Benjamin Radcliff of the University of Notre Dame. For the investment process this means you not only need to consider where you invest, but also how those investment decisions are made. What is the structure of your investment committee? Who takes decisions, and may those decisions be biased due to unbalanced structures and team compositions? How are relationships being built, and are there any patterns to it? How is power expressed in those relationships? May there be unconscious bias in how new team members are recruited?

Why not take a fresh look at the financial instruments you are working with? Do they work for everyone, and how is gender analysis included in your risk assessment? Not all financial instruments and finance processes appeal to women, and not every investment suits the gender lens approach. What if you could not only design investments and investment processes that appeal to women, but that also included women and made an impact, albeit earning a better return? Welcome to the new world of gender lens investing!

A 360° reflection on your policies, strategies, processes and activities is no easy exercise. It requires senior leadership commitment and at times painful reflections on who you are, how your organization currently works and the will to improve aspects that may not reflect the gender lens approach. The reward will be a better, stronger and more stable corporate culture rooted in equality and sustainability.