5 ESG experts break down the business case for gender equality in the workplace, and explain why companies could suffer for decades when it is ignored

• Gender-lens investing has gained a fair amount of traction during the past couple of years.
• Research shows that gender equality helps drive higher returns and improve corporate performance.
• If gender is ignored, corporate problems could magnify and delay workforce progress for decades.

A growing number of people are making investment decisions with the intention of triggering social or environmental benefits and financial gains.

Consider that 10 years ago $1 of every $12 was invested in companies or funds that had an ESG - environmental, social, and governance - lens to it. By last year that share had shrunk to $1 of every $3, according to Andrew Behar, a member of the US Social Investing Forum board and CEO of the nonprofit shareholder advocacy group As You Sow.

"Gender-lens investing" was coined in 2009, according to the think tank Criterion Institute, and consists of incorporating gender analysis into investment decision-making.

Numerous studies show this approach benefits people of every gender and institutional and individual investors alike. And while progress is being made, the financial-services industry still has some ways to go in creating a level playing field and providing investors with clear-cut ways to use a gender lens in the markets.

For example, from 1999 to 2019, the revenues of women-owned US companies increased by 103%, according to S&P Global.

And McKinsey & Co. says top-quartile gender-diverse companies are 15% more likely to see higher financial returns than their national industry medians.

"The companies that look at gender equality have less risk - it's that simple. In investing terms, it comes down to beta," Behar said. "They have less risk because they are taking care of their employees, they are creating a culture that is going to attract the best and the brightest, they are going to be respectful of their workforce, and so they build better companies that tend to be more profitable over the long term."

A gender-diversity search engine

But it can be challenging for investors to figure out if their money is going into companies that are working toward gender equality.

That was part of the reason Behar and his team created search engines designed to tell users if they are investing in companies that align with their values. For example, the Gender Equality Funds use a letter-grading system to score mutual funds and ETFs on their efforts. These include gender balance across the workforce, gender pay gap, paid parental leave, commitments to women's empowerment, and anti-sexual-harassment policies, among others.

"I think there are a lot of people in Wall Street that just don't have any conception at all about the fact that it's a material issue [gender inequality], which means that it impacts finance," he said, adding that people don't take the time and energy to actually understand the power of investing with a gender lens.

And when it comes to the financial world, gender equality in asset management still lags behind other industries such as medicine and law.

For the past decade, the number of female fund managers in the US has remained at about 11%, Morningstar data shows.

In 2018, McKinsey & Co. released a report showing that women remained significantly underrepresented in the upper levels of financial-services companies. It found that women and men began careers in finance on equal levels, but women accounted for only 19% of the C-suite.

What has limited women's leadership and kept them from financial tables is their historical exclusion from family, philanthropic, business, and government tables, Veris partner and senior wealth manager Alison Pyott said, adding that recruiting practices have also contributed.

Although change is being made, this is an industry that has historically been undiversified given that our natural tendency as human beings is to look for people who look like us, Lori Heinel, the global chief investment officer of State Street, told Insider.

Yet having a more diverse group of executive-level managers is beneficial.

"We believe diversity impacts fund performance for the better," Katherine Jollon Colsher, CEO of the nonprofit Girls Who Invest, said. "Diverse perspectives ultimately result in better outcomes, and in order to have diverse perspectives, you need to be inclusive of people with diverse experiences."

As such, gender inequity can have a negative effect on fund performance, as well as the ability to retain and advance people within an organization, she added.

"This need to diversify talent and hire and retain women is urgent, and if it is ignored the problems will only magnify and delay progress in the workplace for decades to come. The opportunity is now and the change is happening real time," she said.

Where there's progress

In fact, progress toward gender equality in many companies, while slow, is being made. As of February 22, all S&P 500 companies had at least one woman on their boards.

"We launched Fearless Girl four years ago now, and that coincided with very specific efforts that we started at that point in time to push for every company in the S&P 500 - and a couple of other major indices globally - to add at least one woman per board, and we hit that milestone in the S&P 500 last fall," Lori Heinel, the global chief investment officer of State Street, told Insider.

Companies are also beginning to internally measure and release more data on gender equity.

"I would say more companies are making an effort to measure gender criteria, meaning measuring internally and reporting it externally to us investors and we are at the belief that companies can't manage risk if they can measure them so certainly the momentum that we are seeing has been quite encouraging," Breckinridge Capital Advisors' senior research analyst Abigail Ingalls told Insider.

But Pyott at Veris added that there's still a long way to go in closing the gender gap, and companies could limit innovation, leadership, and diverse thinking if their workforce is left feeling disengaged, unconfident, or unsupported.

Ingalls went on: "I can tell you with certainty that I face what's known as impostor syndrome seven days a week, 365 days a year. It's a very real part of the experience of being a woman in business and yet the ability to lean on my female colleagues, the ability to have mentorship and partnership with male colleagues has of course helped make impostor syndrome less challenging day to day.

"It is part of the experience, and one worth overcoming, but still one that exists."