It’s the understatement of the year to say that in 2021, things are changing. (But let’s do it anyway.)
Not only has COVID-19 altered the business landscape (not to mention our social fabric), but some of the fundamental tenets of capitalism are being challenged as well. Companies are under increased pressure from investors, shareholders and the general public to not only do good business, but “do good” as well – especially in respects to sustainability, diversity and inclusion.
One of the ways companies are responding to this sea change is by pledging adherence to ESG principles. ESG, which stands for ‘environmental’, ‘social’ and ‘governance’, is generally viewed as a forward-thinking and attractive set of attributes for business focus, and also an investing strategy that historically has shown solid financial performance.
From an individual investor’s perspective, not only does ESG consider an investment’s financial returns, but its overall impact. Although personal value systems are unique, many investors use ESG as their way to support business efforts they perceive to be sustainable, ecologically-friendly and social justice-oriented.
In keeping with the views of social justice, many feel that one of the best ways to distribute wealth, opportunities and privileges within a society is to hire, promote and reward more women in the workplace. As such, public companies are facing growing investor pressure to not only improve the number of women in their workforces, but also improve diversity among their director ranks1.
Let’s take a look at how women not only factor into the materiality of a company’s ESG, but also how women investors are leading the charge, and the ways in which women can impact and enjoy this movement.
HOW WOMEN DRIVE PERFORMANCE:
So, we know about ESG in a general sense. We know it’s growing. And we believe it to be good. But how is it objectively measured? And how, exactly, do women impact a company’s ESG?
According to Refinitiv, ESG scores are designed to transparently and objectively measure a company's relative ESG performance, commitment and effectiveness across 10 main themes, based on publicly available and auditable data.
There are a number of auditors, consultants and operators ready to help companies measure and improve their ESG scores – and implement these practices.
One way to improve ESG is to increase female C-suite and directorship, as companies with diverse boards receive higher scores on ESG.
What’s more, it’s increasingly being shown that increasing female presence in boardrooms can not only help a company increase its bottom line, but have positive material impact on a company’s bottom line.
Researchers have found substantial evidence that supports this:
-Firms with a female CEO have a better stock price, according to CNBC4. Why? It’s believed that companies empowering women will welcome diversity in thought and empower stakeholders irrespective of their gender, race or ethnicity, leading to better-run organizations that have products and services spanning demographic silos.
-Firms with female CFOs are more profitable and have produced superior stock price performance, according to S&P Global Market Intelligence1. And similar reports found that female CFOs drove more value appreciation, better defended profitability moats, and delivered excess risk-adjusted returns for their firms
-There is substantial evidence connecting increased gender diversity at the top with enhanced environmental, social, and governance standards, according to the International Finance Corporation5.
HOW WOMEN ARE LEADING IN ESG, AND INFLUENCING ECONOMIES:
We’ve established that strong female leadership at the top of the org chart can have profound financial effects. Not only do women make up a growing cohort of executives, they’re a force multiplier in the global economy, in the work place and as retail investors.
One place we see this evident is within the financial field itself. In fact, a majority of the newly-appointed heads of ESG at major investment groups are women. One of these executives offered the explanation that “women are attracted to the space, because it provides an interesting angle on finance, where you don’t think about financing in isolation but how it can impact climate or biodiversity in a positive way.”
According to certain studies, women control $14 trillion in personal wealth in the U.S. Nearly half of American women are the primary earners in their homes, and are projected to control two-thirds of all wealth in the U.S., and are.
What’s important about all of this? Their values tend to align with ESG values. In fact, according to Green Money Journal, 90% of millennial women say social and environmental issues are very important to them, and drive their decision-making.
It’s believed that women are known to make financial decisions based on what’s best for their children and family at large, as well as investments they feel will benefit their community.
And especially following the events of 2020, factors including systemic racism, inequality in access to health care, legal justice and education as well as extreme wealth imbalances, are certainly on everyone’s mind.
Some more staggering, compiled facts on women and ESG:
-67% of women investors want to see their investments ‘do good’
-Women control 32% of the world’s wealth
-Women are adding $5 trillion to wealth globally every year.
-On average, women save 9.0% of their salary, in comparison with 8.6% for men
Take heed, take notes, take stock: this powerful group of of decision-makers is here to stay. And they’re making dang sure their future is sustainable
It’s our mission to provide investment resources and strategies to clients and financial institutions, helping them develop a greater knowledge and passion for sustainable, responsible and impact investments.
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Socially Responsible Investing (SRI) / Environmental Social Governance (ESG) investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.
The return may be lower than if the adviser made decisions based solely on investment considerations. All investing involves risk, including loss of principal. No strategy assures success, or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.)
The financial advisors at Signet Strategic Wealth Management are registered representatives with and offer securities and advisory services though LPL Financial, a registered investment advisor. Member FINRA/SIPC.
Source 1.) “How Gender Fits Into ESG?” – S&P Global
Source 2.) “Women Shattered the ESG Glass Ceiling, Now the Men Want In” – Bloomberg
Source 3.) “IWD: More women invest with ESG in mind than men” – ESG Clarity
Source 4.) “Firms with a female CEO have a better stock price performance, new research says” – CNBC
Source 5.) “Women in Business Leadership Boost ESG Performance: Existing Body of Evidence Makes Compelling”
Source 6.) “How To Boost Your Company’s ESG Profile” – Forbes
Source 7.) “Refinitiv ESG company scores” – Refinitiv
Source 8.) “Responsible investing is a rare field of finance led by women. Now it’s hot – and men want in.”