There’s growing attention on the issue of gender equality, but many individuals and institutions are at a loss for how this can be translated into action. A rising trend in Canada is offering a solution: impact investing with a focus on gender diversity. Experts from BMO Global Asset Management weigh in on why it’s not only a powerful tool for change, but also a sound investment.
By Marie Moore
Over the past few years, the issue of gender equality has been moving into the spotlight, with growing media coverage, action by the government and private sector, and grassroots initiatives taking on everything from the wage gap to world politics.
We know that women have made incredible strides from an education, work, and wealth perspective. We also know that there’s still a long road ahead, which includes Canada, where women’s participation in the labour market may be growing, but a man is still two to three times more likely than a woman to hold a senior management position, according to a report from The Conference Board of Canada.
Like the Fearless Girl statue staring down Wall Street’s bull, this heightened awareness isn’t going away. So how do we satisfy the desire for change? Some individuals and institutions are choosing to put their investment dollars behind their beliefs.
The method is impact investing. It’s similar in definition to responsible investing (RI), which incorporates environmental, social, and governance (ESG) factors into the selection and management of investments. But it takes the idea a step further, investing in companies, organizations, and funds with the aim of creating a measurable social and environmental impact. While RI follows the principal “don’t cause harm,” impact investing aims to “do some good.”
In the context of gender diversity, investing in companies that support women in leadership roles not only brings more awareness to the issue, it also shifts investments away from businesses that are behind in women’s advancement, and lack a gender diverse leadership team. It can be a powerful tool for change, and in recent years the investment industry in Canada has begun to step up. In fact, BMO was the first Canadian bank to launch a mutual fund focused on gender diversity.
“Investing in companies that support women in leadership roles not only brings more awareness to the issue, it also shifts investments away from businesses that are behind in women’s advancement, and lack a gender diverse leadership team.”
Launched in April 2016, the BMO Women In Leadership Fund (the “Fund”) invests in North American companies that have a female CEO, or a board of directors with at least 25 per cent female representation. It is comprised of large, well-recognized North American companies, which includes BMO Financial Group, thanks to their board being 36 per cent female. According to Lisa Catherwood, VP of Sales Strategy and Support with BMO Global Asset Management, it was the bank’s own commitment to gender diversity that led to the decision to launch the Fund.
“We, as a firm, recognized that women were underrepresented in senior leadership roles. The need was there, the opportunity was there, and we wanted to be at the forefront,” Lisa says. “Plus, BMO holistically has taken on the initiative to be the bank for women, so from an asset management perspective, a retail solution was really a natural extension of that.”
It’s easy to have a positive outlook when looking at the various studies linking gender and cultural diversity to a greater capacity for creativity and innovation; greater employee productivity, commitment and satisfaction; and a stronger focus on responding to customer needs.
“When we launched the Fund, one of our objectives was to give investors the ability to align their social values with their investment goals,” says Mckenzie Box, Senior Product Manager, BMO Global Asset Management. “When clients look at the Fund, they see that it’s full of household company names with strong fundamentals. It gives them the opportunity to participate in driving social change while also seeking financial returns.”
This applies to socially responsible investing beyond gender as well. There’s growing evidence that the prudent management of ESG issues, as well as the following of best practices in these areas, can have an important impact on the creation of long-term investor value by reducing risk. So as long as you are meeting your investment objectives, Mckenzie sees impact investing as a great choice, and advises individuals to talk to their advisor to find out if it’s right for their portfolio.
Jennifer So, Canadian Equity Analyst at BMO Global Asset Management, also notes that from an investment perspective, one of the key considerations they assess before investing in a company is the quality of the senior management team and the board of directors, and one of the factors that goes into the quality assessment is diversity. “A team with different perspectives and experience often results in a better run company, which translates into shareholder value,” Jennifer explains. “The world is changing quickly, and having a broader thought base and idea base in strategy is increasingly important.”
Jennifer also notes that there are many ways to define diversity, “but with women representing 50 per cent of the population, that’s a big bucket to draw from.”
With more and more products available each day, if investors look around, they can find things that will resonate with them. According to the Responsible Investment Association the responsible investing industry in Canada has grown tremendously over the past two years, coming from both institutional investors such as pensions funds, and also from individual retail investors.
A study by the Morgan Stanley Institute for Sustainable Investing shows the demand is being driven by two key groups: millennials and women. Millennials, the generation born in the last two decades of the twentieth century, are twice as likely to invest in companies or funds that support specific social and environmental goals, and 84 per cent are open to sustainable investing. Comparably, 76 per cent of women show an interest in it — as opposed to just 62 per cent of men — and they are nearly twice as likely to consider the impact of their investment alongside the rate of return.
The younger generation of investors will be an increasingly important demographic for the investment industry going forward, as they are set to inherit billions over the next few decades. According to figures compiled by research group Investor Economics, women already control about $1.1 trillion in personal wealth, and a study from the Boston College’s Center on Wealth and Philanthropy found that seven out of every ten dollars will be inherited by women. Needless to say, the outlook for impact investing is looking up.
“In places like Europe, ESG and socially responsible investing is already well established,” Lisa points out, “and at BMO globally, we have a thirty year legacy and strong expertise in responsible investing. But from a Canadian perspective, we feel this is only the beginning.”
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