The gender investing gap includes the difference between the number of females and males who engage in investing activity. Historically, women haven’t invested at the same rate as men. This is for a mix of reasons such as lower risk tolerance, lack of confidence or education. Often, women prioritise supporting families and saving for the future.
The tide on the gender investing gap’s slowly turning. With it, comes the opportunity to speed up impact investing. In 2022, BNY Mellon calculated that if women invested at the same rate as men, there would be an extra $3.22 trillion of global assets under management available to invest. Women display preferences for sustainability considerations when investing. A 2020 survey found that only 19% of women said they would invest in a company that wasn’t considered socially responsible. This is compared to 51% of men. So, what could this mean for allocating money to funds and businesses addressing the world’s great social and environmental problems?
Closing the gender investing gap will have a positive impact for economic growth and female entrepreneurship. Below we explore the gap through a climate and social impact lens. We take a look at the positive effect that would take place when women are empowered and given the right tools to invest at the same rate as men.
The gender investing gap
How has the gender investing gap evolved over the last few decades? A study by the University of California-Berkley found that in the 1990s men traded 45% more than women. A FinanceBuzz survey revealed that 60% of men check their investment portfolios once a week. By comparison, only 41% of women do.
These patterns have shifted since the outbreak of COVID-19. Women faced more job losses due to caregiving responsibilities and loss of income. This has rolled back some of the economic gains made by women in recent decades. The pandemic also prompted more open conversations about investing amongst women. These focused on how they could protect and increase their family finances during uncertain times.
The female investing mindset’s likened to women’s approach to business practices which have been found to value honesty and transparency. This combined with a long-term outlook, has the potential to contribute to a new era of impact investing that looks beyond financial returns.
How closing the gap will drive impact investing
At an overarching level, impact can be positive or negative, intended or unintended, and direct or indirect. Impact investing as a strategy aims to address social and environmental problems, alongside financial gains. Examples range from renewable energy projects to microfinance initiatives, regenerative agriculture programmes, affordable housing and the supply of healthcare and education, to name but a few.
Investments falling under the ‘sustainable’ umbrella continue to grow. At the beginning of 2020, the value of sustainable investment in major financial markets globally stood at $35.3 trillion.
This is only set to rise under the influence of policies that have set out a pathway to decarbonise the global economy. This is alongside the appetite of investors who recognise the transitional, legal and reputational costs of business as usual. So, how will the closing of the gender investing gap contribute to this?
Women outperform men and have a longer-term mindset
Evidence from many studies suggests that when it comes to investing, women tend to outperform men. Warwick Business School found that women outperformed men by an average of 1.8% over a three-year period. With a higher rate of return, think about how that money could be allocated to impactful causes. In the same study, it was found that women only traded their investments nine times a year, versus men at 13 times a year.
Data from RBC Wealth Management notes that women are less likely to prematurely sell assets during periods of major market volatility. They’re also around 25% less likely to withdraw their investments than men. Similarly, N26, a group of European investors, found that only 23% of women prioritise short-term wealth gains compared to 43% of men who have long-term wealth as their investment priority. Such a position could be beneficial from a climate standpoint, as even if profits for a business they’re invested in decline, female investors are unlikely to sell. Instead women might instead focus on a company’s climate and social agenda.
Legacy’s another important piece of the puzzle. Female investors have been found to focus on future generations. They have a desire to pass down wealth to their children for safety and confidence. This ties into the principles of sustainable development, i.e. meeting the needs of the present without compromising the ability of future generations to meet their own needs - as set out in 1987 by the United Nations Brundtland Commission.
Female investors display an affinity for sustainability
By unlocking the opportunities for more women to invest, we could witness a rise in impact investing. This is driven by higher interest and preferences by women for sustainability. In 2017, Morgan Stanley asked investors how interested they were in sustainable investing or other investment funds that pursue positive social and environmental impacts, without impacting potential financial returns. 84% of women said they were interested versus 62% of men.
More recently, a 2022 sustainable investing report by Boring Money, which interviewed over 4,500 UK citizens and 1,500 retail fund investors, found that seven in 10 women agreed that they could achieve better returns with sustainable funds, compared to six out of 10 men. The results also revealed that 48% of women chose climate change as an area to focus on, compared to 42% of men.
Whilst not the same as sustainable investing, the female affinity to ESG as a framework for risk assessments shows that closing the gender gap in investing could lead to wider adoption of processes for investment screening that incorporate more than financial performance.
From their ‘Women and investing: reimagining wealth advice‘, UBS found that 71% of women were making investing decisions with sustainability considerations in mind, compared to 58% of men. That, combined with women investing at the same rate as men, could mean there is over $1.87 trillion flowing into more responsible investing. This would be enough to fund regeneration and decarbonisation initiatives aplenty, not to mention projects dedicated to eradicating poverty and gender inequalities.
Unlocking the impact of female entrepreneurship
Empowering female investing can have a positive ripple effect on female entrepreneurship and with that, the opportunity to support enterprises and funds focused on socio-economic equality and supporting women.
Vice Presidents of The European Central Bank (ECB) have called for an increase in the number of female fund managers and decision-makers in venture capital funds to positively impact women and the sustainability agenda. As it stands, only 5% of managing partners in EU venture capital funds are women which could, in part, explain why women-led businesses continue to report struggles on gaining investment from VCs.
A European Parliamentary report entitled ‘Closing the gender investment gap for a more resilient, innovative, inclusive and balanced economy’ has weighed in on the contribution female investors can provide to female entrepreneurship. It states, ‘We know that 30% of entrepreneurs are women, but they receive 2% of the financing available and with the pandemic, this figure has even dropped to 1%.’ The paper highlights that the rise in female investing to fund entrepreneurship can make climate action more impactful through solution-based businesses focused on innovation and equality.
Creating a conversation that’s representative and inclusive of all genders, ages, races and backgrounds can help ensure that female investing with an impact focus includes voices in South America, Central America, Africa and Asia and furthers the climate agenda. By empowering female investors, we can help protect those who are most vulnerable to climate change, especially women and girls.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Amy Nguyen is a Strategist, Researcher and Writer focusing on corporate sustainability, global value chains, finance and fashion. Amy is the Founder of Sustainable & Social, a platform dedicated to deconstructing complex climate issues for a millennial audience.