Management Perspectives

Sustainability. Corporate responsibility. Business purpose. Social responsibility. Call it what you like; competent boards can no longer afford to put ESG—environment, social, and corporate governance—issues on the back burner.

Not long ago, these subjects—ranging from freak weather events to demands for a higher minimum wage and the diversity of board members—were widely considered to have no place on a board agenda. Now, however, directors ignore them at their peril.

The concept of ESG (environmental, social and governance) and sustainable investing has been around a while, but it has taken time for it to enter into mainstream discussions. That moment has arrived now. ESG is all the rage in both the institutional and retail investment worlds, with more and more investors looking at how we can use our investment decisions to bring about positive change in the world.

The good news is that this mainstreaming of sustainable investing is increasingly welcomed with open arms. That said, we still have miles to travel and challenges to overcome—particularly when it comes to fully activating retail investors. However, as we look ahead, one of the most significant and exciting trends points to the role that women are playing in driving ESG and sustainable investing forward. Female investors are potentially the game changers in the field and are driving whole-scale change in the investment landscape.

Sustainable investing defined
Sustainable investing is a discipline that considers environmental, social, and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact. Various other terms, such as responsible or impact investing, even ethical investing, are often used. While there are nuanced differences, it is fair to say that the commonality is to achieve positive change, invariably with a social or environmental dimension.

Most big investors now believe sustainable investing is good risk management, leveraging the practice to help manage risk in uncertain times. Just take a look at what has happened since the COVID pandemic swept the world in 2020. Initially, many sustainable investors held their collective breath, collectively fearful of what it would mean for its impressive growth. But the worse did not happen—in fact, it turns out that companies and funds that manage sustainability risks better also manage other risks better. These companies and funds tended to outperform their peers through the fallout of the pandemic.

Why are women the potential frontrunners?
Increasingly, women are creating, controlling, and influencing a huge amount of wealth. As investors, women’s proportion of private wealth is growing, with this trend set to continue at speed. At the same time, many women care about where their money is invested.

It is true; we have overwhelming evidence that women are highly motivated to think about impact and non-financial returns in their investment and financial decisions. Research surveys from across the world consistently report this finding. For example, research from Moxie Future found that 83 per cent of the women surveyed care about where their money is invested and 69 per cent of women feel a sense of urgency to invest sustainably.

Unleashing the power of financial feminism
This is where financial feminism comes in to play. Of course, financial feminism is about the financial equality of women, reflecting the harsh reality that many women face huge financial gaps in comparison to men—from the pay gap (where women earn less than men) to the investing gap (where women are simply not investing as much as men, resulting in a financial shortfall in later life).

But financial feminism is not just about women earning and investing on a par with men. Rather, if we recognise how women are engaging with ESG and sustainable investing, financial feminism also represents the opportunity for women to use their financial power to build the kind of world that they want to live in. Sustainable investing presents them with a lever of change and one that women across the globe are seeking to use as they become increasingly financially empowered.

For proponents, understanding these emerging investment needs of female investors is critical to moving capital at scale towards sustainable companies and assets. As women increasingly own more of the world’s private wealth, the potential for sustainable investing’s trajectory is massive. What we need to do now is determine what action must be taken to support women on their ESG and sustainable investment journey.

So with this momentum, what is holding women back?
Unfortunately, the financial industry has not done a great job at connecting with its female clients. Many women report feeling disengaged from personal finance, less confident about managing money, and often patronised or talked down to by financial advisors. In part, we need to encourage more women to work in the industry itself. Better gender balance is critical because diversity of thought, experience, and action are core components of what the financial services industry needs to be fit for the future. This includes being more closely aligned with the needs of female clients such as offering more ESG products and services.

We should also consider how we communicate with women about investing, given that many hold the self-perception that ‘investing is not for them’. This is no surprise when you look at the way that both the industry and mainstream media communicate with women about money. Research indicates that we often portray women as excessive spenders, in need of guidance to help them save and restrict. Perhaps, knowing that many women want to consider the impact of investments, we should reflect this in our media and advertising.

Looking ahead
One good thing to come out of the pandemic is that many women are more focused on their financial futures. For example, a survey on women and money from UBS found that 63 per cent of women felt that COVID has affected how they think about money, and they’re more likely to discuss issues such as financial reviews and investing with their spouses and children. In a study by Fidelity Investments, 67 per cent of women interviewed said they were more engaged in managing their money and have expanded their efforts to help shore up their finances.

Reflecting on this trend, and with women now owning over a third of the world’s private wealth, their direction of travel has the potential to completely reconfigure the investment industry. For female investors, through driving capital towards the companies and sectors they want to succeed, as active, sustainable investors, women are asserting their view on what the world should look like—cleaner, fairer, equitable, and sustainable.