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Investing in Women, Investing in the Environment: Not Necessarily Two Different Things

// April 20, 2020

Climate change is one of the biggest issues humans face. Investing in women may be the answer for environmental sustainability.

Headshot of Julie Gorte

We’ve all heard a lot in the investment world about gender lens investing – or investing in companies that invest in women. There are some of us in the investment world that saw gender balance as a smart business objective for decades, and then there are most investors who really leaned into this idea in the last few years. Regardless of the vintage of your commitment, gender lens investing is hot, reaching $3.4 billion by mid-2019, a jump of about 36 percent in just one year.

Diversity equals good business

There are lots of reasons to invest in women who have historically been under-represented among top decision makers and top earners in business. Diversity, it turns out, is associated with good business outcomes—everything from superior performance in things such as financial measures, return on investments, and stock price performance, to access to capital and risk-adjusted returns. Why? Because diverse groups tend to produce better outcomes than homogeneous groups. That’s a key concept; it’s not that women are better than men at business or finance, it’s because diversity is a better fulcrum for decision-making than homogeneity. Diverse groups are less subject to the perils of groupthink – they surface more options for solving problems and investigate options more thoroughly. There’s a lot of academic and financial research that shows the benefits of diversity empirically.

Diversity can also equal environmental sustainability

Diversity is also, as it turns out, good for other things as well. Specifically, more diverse decision-making groups (by that, I mean women in management and women on boards) tend to do a better job environmentally as well as financially. This Earth Day, that’s a good thing to know. A recent study from the proxy advisor ISS showed that companies with three or more women on boards tend to have higher rankings for sustainability, and firms that had two or less women on boards were three times more likely to have sustainability ratings of D- than firms with more than two women on the board. Good news. And it specifically holds for environmental ratings as well.

Greater diversity correlates with better E&S performance bar graph

Source: ISS-oekom, ISS Analytics

One study, of course, does not necessarily constitute a compelling case. But there’s a variety of evidence showing similar outcomes. Another recent study found that companies with higher proportions of women on their boards had fewer environmental lawsuits. Older work is also consistent with this theme. A paper from two women scholars at UC Berkeley’s Haas Business School showed that companies with more women on boards were more likely to: invest in renewable power generation, measure and reduce carbon dioxide emissions of their products throughout their value chains, and develop products that help their customers reduce climate risk.

Diversity works on the ground, too

The benefits of diversity aren’t limited to the rarefied atmosphere of the boardroom or executive suite. The environmental bonus of diversity works on the ground as well. Work published in the journal, Nature Climate Change, showed that more gender balanced groups making local decisions about forest use in Indonesia, Peru, and Tanzania tended to conserve more trees and share payments for ecosystem services more equally than groups that were dominated by one gender. From the forest floor to the corner office, gender diversity not only provides financial benefits, but environmental ones as well.

Investing in women is a good way to protect the planet

We’re going to need that. Our planet is big and bountiful, but it’s finite. We can’t keep exploiting it as we have and continue to enjoy the immense gifts it gives us: clean air, clean water, and the richness of biodiversity. Investing in women is a good way to help protect the planet that Carl Sagan once described, in a memorable photograph from Voyager, as a “mote of dust, suspended in a sunbeam…the only home we have ever known.”

Julie Gorte is the co-chair of WFCO’s programmatic investment committee and senior vice president at Impax, about the business benefits of investing in women. Her team was instrumental in the development and 2014 launch of the Pax Global Women’s Leadership Index, a custom index calculated by MSCI. The Pax Ellevate Fund makes up a portion of WFCO’s 100 percent gender lens portfolio.

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