Sustainable investing – where investors focus on socially conscious investments that aim to build a better world – has been gaining traction over the past few decades.
In 2016, one dollar in every five was invested ethically, totalling $8.7 trillion (Dh31.95tn), according to the SIF Foundation, the Forum for Sustainable and Responsible Investing based in Washington.
And there is a healthy appetite for investments that focus on ESG – environmental, social and governance – investments in the UAE. According to a 2018 UBS Investor Watch study of high net worth investors, 93 per cent of respondents in the UAE believe they are not giving up performance by choosing a sustainable investment, against a global average of 82 per cent.
Within the broader sustainable category are specific themes such as gender lens investing, which involves companies with a healthy workplace diversity or that focus on products, services or social programmes that help women and girls.
A 2017 sustainable investing study from Swiss bank UBS found that companies in the FTSE Developed World Index where women made up at least 20 per cent of the board and senior management had higher returns than their less gender-diverse peers. In addition, firms that retained more than half of their female managers through to senior management had higher returns than those that lost more than 50 per cent of their women in management.
Here, Rachel Whittaker, head of sustainable investing equities and strategist in the Chief Investment Office at UBS who was in Dubai recently, explains why there is value in considering gender diversity in investment decisions.
What is sustainable investing?
In very simple terms it’s any investment approach that is looking to incorporate either personal values or societal values – so environmental and social impacts and benefits into the investment decision. But it’s still very much investing – it’s not philanthropy – we’re still looking to generate a financial return and to manage the risk and add this third dimension where it’s an environmental or social benefit.
Is it growing in popularity?
Yes. It’s not new; it’s been around for decades. In the 1970s it was very much based on exclusion-based approaches, so avoiding investing in either very traditional sin sectors – tobacco, alcohol, weapons, gambling and adult entertainment – or anything the investor did not like. Over time we’ve seen this shift towards more of an integration approach and a lot of the academic research equates to a correlation between the companies that are good at managing their environmental risks and opportunities and a corporate financial performance. It helps you to avoid investing in companies that are at risk of a big environmental fine or a big reputational problem – that kind of thing can have an impact on your share prices and on your business’ value.
How does an investor zone in on gender lens investing?
A thematic approach to sustainable investing is very common so you see many environmental investment strategies out there and many climate change focused ones. Gender equality is a theme I’ve had a particular interest in for several years, but it’s unlikely you would tailor your portfolio under one theme. Sustainability covers so many different themes so taking just one of them could potentially result in problems with diversifying.
How does an investment qualify as a good gender lens investment?
Criteria like the number of women on executive boards has been around for a long time and is quite easy to get hold of; the first strategies that incorporated gender diversity tended to look at that. What we now see is a desire to look at diversity across the organisation and ideally through the value chain; you want to have an insight not just into how many women are on the board but the number of women in the organisation. Is the company able to retain those women from early in their career through middle management to senior management? It’s all very well having 50 per cent of women in your workforce but if all of them are at the bottom of the pyramid and it’s all men at the top that’s not a very diverse organisation. The textiles sector for example employs huge numbers of women but they are often very low-income women in developing countries, and thinking about how you meet the needs of those women and those employees is really critical to having a really well-managed supply chain.