Under the ESG umbrella, there is another category that pertains more to the ‘S’ and ‘G’ letters – gender equality.
Given the rise of movements like MeToo and TimesUp, there is increased recognition and acceptance of gender equality and diversity at work. And thanks to UK government-backed initiatives like the Women in Finance charter, the Alexander Hampton review, which aims for 33% women on boards of all FTSE 350 companies by 2020, as well as mandatory gender pay gap reporting for companies with more than 250 employees, gender equality has become less an esoteric aim and more mainstream.
More than $2.4 billion is now invested globally in financial products with a gender lens. ETFs play a big role in this trend. In December 2016, State Street Global Advisors launched the SPDR SSGA Gender Diversity ETF (SHE). The fund tracks 144 of the largest 1,000 US companies that have the best ratios of women to men in senior positions. SHE raised the most money out of all new ETFs that year, mostly due to seed investment by the largest public pension fund in the US.
Since 2016, more gender equality-focused funds have launched, and with more nuanced strategies. In Europe, there is around £200 million across three such ETFs and one passive index tracker from Legal & General Investment Management.
The three ETFs are from Lyxor, UBS and iShares, with annual fees spanning between 0.20% and 0.25%. The funds might have launched in a relatively short period of time, between late 2017 and late 2018, but they are different in terms of strategy.
While Lyxor tracks 150 leading companies around the world that rank well in terms of gender equality, UBS tracks just 100 global companies. Interestingly, both funds use Equileap data. Equileap is a social enterprise which researches around 3,500 companies around the world and analyses them based on 19 criteria, from supply chain diversity and female representation to paternity leave and anti-sexual harassment policies.
iShares has opted for data from Thomson Reuters. The iShares Thomson Reuters Inclusion and Diversity UCITS ETF tracks an equally weighted index of 100 companies, selected from a pool of 2,000, and based on 24 metrics in four categories: diversity, inclusion, people development and controversies that hit the news.
There’s no doubt that, while the SHE ETF in the US with around $300 million AUM has more assets than all such gender equality passive funds in Europe combined, gender lens investing is nonetheless gaining traction.
There are several issues that still need to be improved in the meantime.
One is the quality of data available. Fund and index providers are reliant on data from the underlying companies themselves or whatever is already in the public domain. This is a challenge to address topics like the gender pay gap, with the UK being the only country to require larger firms to annually report the percentage salary difference between female and male employees. Equileap found in its latest global report that disclosure in other countries is very low. In fact, 88% of researched companies did not provide any data on this topic.
And from an investor standpoint, the funds need to gain more investment and thereby improve their liquidity. Although the fees are relatively low, the funds are less than three years old and we would like to see a longer track record to judge their performance.
However, as research often links a gender-equal workplace to profit, it makes sense that investors are increasingly viewing their portfolios through an ESG and gender lens. While not currently included in our Earth portfolios, gender lens investing is a space that we will watch with interest.