Gender lens investing in the United States was really an invention of the late, great Linda Pei and her business partner, Leslie Christian. These two pioneers founded FEMMX Financial Co., which launched the Women’s Equity Fund in 1993. At the time, there was scant research backing their investment thesis – the first studies linking gender diverse corporate leadership with financial results were published by Catalyst in 2004 and 2007 – but Linda and Leslie believed that women’s contribution to the bottom line would be measurable and accretive over time.
I had a hunch that they were right. When I became President of Impax (then Pax World) in 2005, one of the first things I did was reach out to see whether they might be interested in partnering, or even selling their business. I had just finished reading The Wealth and Poverty of Nations by historian David E. Landes, in which he wrote: “The best clue to a nation’s growth and development potential is the status and role of women.” I recall thinking that if gender equality contributes at the macro-economic level, it likely contributes at the micro-economic level as well. If it is good for countries, then it must be good for companies.
Prior to joining Impax, I had already been involved in co-authoring, along with Julie Gorte and Nikki Daruwala, the Calvert Women’s Principles – the first global code of conduct on how companies should treat, advance and empower women.
The United Nations, which had embraced David E. Landes’ thesis that gender equality can help lift countries out of poverty, was so enamored that they adopted them as the UN Women’s Empowerment Principles. I was later honored to co-chair the Leadership Group of the Women’s Empowerment Principles for several years.
Impax purchased FEMMX in 2006 and began offering what is today called the Impax Ellevate Global Women’s Leadership Fund. So far as we know, this was the very first strategy to apply a gender lens and today is one of the largest investment vehicles in the gender lens space.
In 2014, in partnership with Sallie Krawcheck and Ellevate, we adopted a more systematic investment approach that we believed would better isolate the contribution that what we call the ‘gender factor’ can make to company performance. We hoped to make an apples-to-apples comparison between gender diverse companies and the broader market, and to prove that companies with greater gender equity outperform less enlightened competitors and the overall market over time. I believe we have met that burden of proof.
In the meantime, those early, lonesome Catalyst studies are now bolstered by decades of research demonstrating that gender diversity and equity are correlated with stronger financial performance. In my view, the research at this point is beyond compelling; it is overwhelming.
My colleague, Julie Gorte, publishes an annual review of the research linking gender equity, and diversity, equity and inclusion more broadly, with financial performance. Her most recent paper, “The Financial Impact of Diversity and Culture” was published in August 2023. In it, Julie not only reviews the literature on board diversity and management diversity, but on diversity and innovation, measured by such things as the number of patents, patent citations, research and development spending, and profits derived from new products. She also reviews the research linking diversity with sustainability, with better HR policies and increased productivity, and with stronger corporate cultures.
Suffice it to say that the literature supports a positive correlation between diversity – particularly gender diversity in executive teams – and better corporate financial performance. A strong relationship between corporate culture and human resources policies, and their correlation with financial performance, is another emerging theme. Finally, Julie finds that diversity supports both environmental and social aspects of the transition to a more sustainable economy, as it is positively correlated with more robust financial accounting and better sustainability outcomes, including environmental reporting and climate disclosures.
What’s more, Impax’s own proprietary research aligns with trends Julie captures in her paper. In 2014, we created a proprietary tool, the Impax Gender Score, from a custom data set regarding both gender-diverse leadership and other measures of gender equity, that we add to as more company information becomes available. We use this to rank each company in the MSCI World Index, from which we construct the Impax Ellevate Global Women’s Leadership Fund’s investment universe.
The Gender Score has Two Aspects:
- Leadership factors: Women in executive management; women on boards; female CEO, CFO or board chair.
- Workplace equity factors: pay equity initiatives; disclosure of demographic data; diversity targets; diverse talent pipeline initiatives; signatory to UN Women’s Empowerment Principles (yes, the Women’s Empowerment Principles remain relevant to this day!).
An Impax team, led by portfolio manager Christine Cappabianca, recently conducted a quantitative study of each element of the Gender Score to determine whether the companies we consider leaders in promoting gender equity – both in leadership and in workplace practices – have better prospects for delivering alpha, or excess investment returns.
As you can see in the chart above, one leadership factor — women in management — has been a particularly significant contributor to alpha and indicator of company outperformance.
Our analysis reveals that corporate culture matters, too.
Based on newer datasets that only go back to 2020, we found that workplace equity factors — specifically pay equity and diverse talent pipeline initiatives — emerged as significant gender-related factors correlating with company performance over this three-year period. Moreover, companies with three or more of these indicators tend to outperform those with two or fewer. In other words, specific practices advancing gender equity provide a window into culture, and stronger cultures contribute to better performance.
Our research reinforces that inclusive cultures and purpose-driven business practices can be contributors to outperformance. Although the Impax Ellevate Global Women’s Leadership Fund has faced some performance headwinds over the past few years – particularly being fossil-fuel-free at a time when the energy sector outperformed and not owning certain technology stocks – our approach of investing in gender leaders and avoiding gender laggards has consistently added value over time, certainly since 2014. Inclusive companies tend to attract and retain talented employees from diverse backgrounds who can then drive innovation, productivity, customer loyalty and resilience.
Linda Pei and Leslie Christian were right. The United Nations was right. Impax is right.
Investing in gender equity, and in diversity, equity and inclusion more broadly, is simply smart investing. It’s about investing in leaders rather than laggards, the future rather than the past, which is what investing is all about.
Finally, while the Impax Ellevate Women’s Leadership Fund may focus on gender diversity, we fully understand that diversity is a broader concept and category, and that gender is a broader concept and category as well. We anticipate and look forward to more research over time underscoring that it is people, in all their diversity and variety, who make the difference, and that organizations with people-focused cultures will make the strongest contributions over time as we transition to a more sustainable and inclusive economy.
Article by Joe Keefe, President of Impax Asset Management. Based in the Portsmouth, NH office, he is responsible for distribution of Impax’s full capabilities across North America.
Prior to joining the firm in May 2005, Joe was President of NewCircle Communications, a strategic consulting and communications firm specializing in corporate social responsibility and public policy communications. He served as Senior Advisor for Strategic Social Policy at Calvert Group from 2003-2005 and as Executive Vice President and General Counsel of Citizens Advisers from 1997-2000. He is a former member of the Board of Directors (2000-2006) of US SIF, the trade association representing asset managers and investors engaged in sustainable investing throughout the United States. Before entering the investment management industry, Joe worked in private law practice for 16 years.
Joe holds a Juris Doctor from the University of Virginia School of Law and a Bachelor of Arts in philosophy from the College of the Holy Cross.
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RISK: Equity investments are subject to market fluctuations, the fund’s share price can fall because of weakness in the broad market, a particular industry, or specific holdings. Emerging market and international investments involve risk of capital loss from unfavorable fluctuations in currency values, differences in generally accepted accounting principles, economic or political instability in other nations or increased volatility and lower trading volume. The Fund does not take defensive positions in declining markets. The Fund’s performance would likely be adversely affected by a decline in the Index. There is no guarantee that the objective will be met and diversification does not eliminate risk. The investment techniques and decisions of the investment adviser and the Fund’s portfolio manager(s), including the investment adviser’s assessment of a company’s ESG (Environmental, Social and Governance) profile when selecting investments for the Fund, may not produce the desired results and may adversely impact the Fund’s performance, including relative to other Funds that do not consider ESG factors or come to different conclusions regarding such factors. Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. Companies that fail to meet certain ESG or sustainability thresholds, including companies involved in the manufacture or sale of weapons, the manufacture of tobacco products and companies significantly involved in the extraction and/or refining of fossil fuels are excluded from the Fund.
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The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States.
Indexes are unmanaged and not available for direct investment.
The Impax Gender Score broadly seeks to measure a company’s performance on issues related to gender diversity and equality. The Impax Gender Analytics team conducts in-house gender research and assigns the Impax Gender Score, a rating for each company in the MSCI World Index universe, that is based on the following gender leadership criteria: representation of women on boards of directors and in executive management, the hiring, promotion and retention of women, gender pay equity, a company’s ability to proactively issue and/or meet gender goals, or be a signatory to the Women’s Empowerment Principles (a joint initiative of the UN Global Compact and UN Women), as well as a company’s transparency about gender diversity data. These criteria are given different weights, with representation by women on boards and in management receiving the highest weightings. The final gender ranking is calculated by blending the scores over time to capture consistency of gender leadership. Companies are scored from 1-100, and a lower score indicates a higher ranking, with 1 being the highest score and 100 being the lowest score.
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