Matthew Winkler and Angela Sun
(With assistance from Shin Pei)
The World Economic Forum recently released the most comprehensive report to date on global gender equality. It showed that women will get equal pay – in 170 years.
While the news may be disheartening for women and gender equality advocates, it’s particularly grim for another audience: investors.
Demand for socially-responsible investment strategies has grown exponentially over the past decade. Today, $21.1 trillion – or one out of every six dollars – is invested in assets that incorporate sustainable investment strategies. This growth reflects mounting evidence that sustainable investment strategies outperform traditional benchmarks. One gender focused strategy investing in S&P 500 companies with the most women in board, management and workforce roles has outperformed the benchmark by 141 percent over the past 10 years. Shares of women-led companies outperformed the S&P 500 Index by 7 percent, improving on their prior 12 month advantage by 3 percent. These and similar outcomes are driving a growing focus on diverse leadership – and the kind of data investors can use to build parallel investment strategies.
Environmental, social and governance (ESG) data was originally conceived for socially-conscious investors, especially those engaged with mutual funds and exchange traded funds. Since then, it’s become an essential tool to help investors determine which companies are managing their operations most effectively, with the best sustainable returns.
The ESG criteria included in the database of S&P 500 firms reveals 22 major companies led by women. According to data compiled by Bloomberg, companies led by women Chief Executive Officers who have held their position for at least two years appreciated 37 percent since the fourth quarter of 2014. The S&P 500 advanced 21 percent during that same time period. The average annual gain for women CEOs during their tenure is 30 percent compared with the 17.5 percent average annual increase for their (male) predecessors.
The tenures of Denise Morrison and Marillyn Hewson tell a similar story. Morrison became CEO of the $16.7 billion Campbell Soup Co. five years ago. Since then, Campbell shareholders received an average annual total return (income plus appreciation) of 16 percent, or four times what her predecessor Doug Conant provided during his decade at the helm.
Hewson managed a similar leap when she became CEO of $70.4 billion Lockheed Martin Corp. in 2013, rewarding stockholders with an average annual total return of 32.5 percent – three and a half times the returns under prior CEO Robert Stevens.
Investors are paying attention – and as they’ve begun to analyze the gender gap, they’ve uncovered a data gap. The markets show that more data around gender equality improves investor confidence. Look no further than General Motors and Mary Barra, who in 2014 became the first woman CEO of an automobile manufacturer. Everyone’s shares throughout the automotive industry have slumped in recent years. But GM under Barra is outperforming 40 global auto makers where it counts most, according to data compiled by Bloomberg. The verdict on Barra’s leadership comes from Warren Buffett, chairman and CEO of Berkshire Hathaway Inc., which doubled its GM holding to 50 million shares since 2012.
Fortunately, several organizations have launched studies, grants and other initiatives aimed at providing gender equality advocates and investors with more robust and extensive data. Earlier this year, the Bill & Melinda Gates Foundation announced an $80 million grant in support of United Nations sustainable development goals “to close gender data gaps and help accelerate progress for women and girls around the world.” And an October 2016 study from McKinsey & Co. focused on the United Kingdom recognized a business imperative for achieving parity in the workforce. Investors are reaching the same conclusion, with firms like KKR offering generous benefits to new parents in an effort to make finance more family-friendly. Bloomberg is also contributing through its Financial Services Gender Equality Index, launched earlier this year in response to demand from clients, exchanges and investors.
Companies are increasingly focused on managing operational risks – including the recruitment and retention of diverse and talented employees – and attracting investor capital. Better data will shed light on the practices and policies important to both issuers and investors, help investors make more informed decisions and allow organizations to more effectively target investors focused on socially-responsible investment strategies. More data will also provide the C-suite with benchmarks to better execute their talent and staffing plans against. And it just might mean we’ll reach pay equality before that 170 years is up.
