Is ESG a woman’s thing?
By Rebecca Rogers
Plenty of people appear to think so. I was one of them when
I thought of writing about women and ESG investing, but deeper research into the data revealed a major
discrepancy between those who want their investments to have a positive impact
on the world, and professional investors working in the ESG sector. Both groups
are catered for by Virtuvest and so I will address the gender dynamics of each.
Retail and potential investors
Studies[1] show that, within the general public, women care more than men about the ESG issues surrounding their investments. With over 60% of the UK’s wealth expected to be owned by women by 2025[2], this demand is only going to increase. However, the same studies that show women care more than men about investing responsibly also show that they are less confident when it comes to rating their understanding. Part of this could be ascribed to the well-researched tendencies of women to underestimate their ability versus men’s to overestimate[3] (also known as the confidence gap), but it’s also likely due to the fact that women still invest less of their wealth than men (the investment gap) and have simply not heard the jargon before.
The need to educate potential investors on ESG terminology and processes is, therefore, great. Even the term itself, ESG, is unfamiliar to a mass consumer audience.
I personally believe that it is the responsibility of us as investment managers, financial advisors, sales people and fund managers to remove the jargon and impart clear information about responsible investing to retail investors.
We also have a large incentive. The 2019 Kantar report “Winning over Wealth” spells out the potential: “if investment providers were able to engage more meaningfully with women, increasing their level of financial engagement and confidence to the next decile, the results could generate a further £12.4 billion from millennial women and £24.4 billion from Gen X women.”
A campaign called “Advise her” was launched on Valentine’s day this year by Parmenion, part of Aberdeen Standard Investments, urging advisers to do just that. Emma Thomas, Parmenion CFO, was quoted in the FT Advisor as saying “advisers must start talking in a way that gives women confidence that their wealth needs are being understood.” Indeed, there have been shown to be significant differences between the goals of women and men when it comes to investing[2], and large numbers of women have felt patronised or put off by financial advice they have received in the past, often from men.
Investment professionals
I say ‘often from men’ because women are still extremely underrepresented in the financial services industry. This brings me to addressing the gender dynamics of professional investors in the ESG sector. It would be easy to think, if you googled “Women and ESG”, that women dominate this relatively niche area of finance. Indeed, women make up a majority of Virtuvest members at 56%, which is significant given that only 17% of FCA approved individuals are women, a figure that has barely budged in fifteen years.
For years, ESG investing was considered, quite frankly, to be boring. It was a sleepy backwater of the financial services ecosystem, that offered little to the (predominantly male) cohort of ambitious young career-builders.
Consequently, roles within it were often filled by junior women who were drawn to the idea of creating a positive impact with their work. Anecdotally, I can attest to seeing women who specialised in the area being derided for doing so. This has dramatically changed. In January 2020 BlackRock announced it would redirect its roughly $7trn AUM toward sustainable investments and CEO Larry Fink devoted his annual letter to his chief executives to climate change, adding “I believe we are on the edge of a fundamental reshaping of finance.” ESG investing is hot and men want in.
Although it appears women are unusually well-represented in this area of finance, only 19% of dedicated investment or financial product roles are held by women[4]. A survey by Responsible Investor and the Sustainable Finance Network found that men were twice as likely to be paid over $197,000 for their roles in the sector, and a recent study compiled by Citywire shows that the most popular ESG funds held in wealth management portfolios are all entirely run by men (or at a minimum have a man as the named manager)[5]. Further, as this study points out, not all are top performers over a three-year period. Thus we cannot make the case that investors are simply selecting the best ESG products available to them, and that these just happen to be run by men.
Firms would be wise to make more use of the deep ESG knowledge and experience held by the women in their employ, and also to recognise the opportunity to improve the gender pay gap by promoting these women into well-deserved leadership positions.
Encouragingly, this appears to be happening in places, with women in senior ESG positions at JPMorgan, Invesco, BNP Paribas, Impax, Aberdeen Standard and Morgan Stanley.
Finally, the link between the higher proportion of women concerned with the impact of their investments and the lower proportion of women working in the ESG investment sector can best be drawn by considering Greenwashing (Virtuvest’s blog post on this topic can be found here). The number of firms and funds claiming to have always operated with an ESG focus does not match up with the anecdotal evidence regarding the derision with which the sector was historically regarded.
Retail investors with a commitment to ESG investing might also be surprised by the gender and diversity figures of the companies that manage their money. It is our industry’s responsibility to be upfront about these figures, so that our clients can make informed decisions with their savings.
[1] Gabriel Research & Management on behalf of Aberdeen Standard Investments Aug 2018
HM Government “Investing in a better world” Sept 2019
[2] The Wealthiher Report 2019
[3] “How chronic self-views influence (and potentially mislead) estimates of performance” Ehrlinger and Dunning, 2003.
[4] Acre Resources reporting to Bloomberg, 2019.
[5] https://citywire.co.uk/wealth-manager/news/the-top-esg-funds-in-wealth-model-portfolios/a1421509