Outside-IN

Looking for a competitive edge? Embrace diversity

How advisers can tap the long-term performance edge that diverse leadership teams provide

Jul 11, 2018 @ 9:24 am

By Betsy Moszeter

Diversity-lens investing is one of the fast-growing categories of sustainable and impact investing. The goal of these strategies, which integrate gender and other diversity factors to identify and invest in companies with heterogeneous leadership teams, is to improve returns and promote more equality at companies — or both.

How fast are these strategies growing? In a 2017 report, Veris Wealth Partners calculated that total assets in gender lens strategies invested in public equities grew from $100 million in 2014 to more than $900 million in 2017. Research by Wharton Business School, also published last year, found growing interest in gender-focused private equity. According to Wharton's Project Sage, 58 funds have raised and are deploying almost $1.3 billion in capital with a gender lens and are seeking to raise an additional $1.8 billion currently.

(More: 5 investment trends behind growth in sustainable and impact investing)

Women's Financial Power

The growth coincides with, but isn't solely due to, the growing financial power of women. As consumers and investors, women are changing the way society interacts with its money by consistently making more holistic decisions than men about how they spend, save and invest their money.

Currently, women directly control 39% ($11.2 trillion) of the investible assets in the U.S. and are already strong influencers on the disposition of most of the remaining 61%. And they're just getting started.

By 2030, as the greatest wealth transfer in U.S. history builds up steam, women will be the primary decision-makers for two-thirds of the nation's wealth. Based on spending and earning power, women now represent a growth market bigger than those of China and India combined.

The Innovation Imperative

Staying ahead of innovation is one of the critical success metrics that shows up again and again with diverse leadership teams — and it's one of the most compelling reasons to invest in companies that value and promote diversity. Enter the real-world evidence and academic research that diverse teams, both inherent (race, gender) and acquired (experience, cultural background), outperform homogeneous teams in a variety of material ways:

• Diverse teams perform at higher levels than homogeneous ones because they are more creative. The logic is certainly there; a wider variety of inputs from team members enables a team to better identify problems and develop solutions.

• Nonhomogeneous teams tend to outperform because they evaluate more facts and process those facts more carefully.

• Research demonstrates that companies with more women are more likely to introduce radical new innovations into the market over a two-year period.

• Diverse teams are more likely to achieve both short and long-term goals than homogeneous teams.

Three Steps to Innovation with Purpose

The economy of the next decade is unlikely to look like the last ten years. That's because economic and environmental risks are continuing to materialize, and technology-based solutions to these risks are rapidly unfolding.

This ultra-dynamic landscape means investors need to stay on their toes and carefully evaluate relevant risks and opportunities. For many, diversity and inclusion are important elements of a thriving, sustainable economy.

So how can advisers determine if diversity- or gender-oriented funds are living up to their purpose? One simple way is to evaluate holdings on the three "I's":

Impact: Sustainable and impact investing criteria are critical factors, so the first question in evaluating a fund holding is whether it provides solutions that address economic and environmental risks. Investing in a fossil fuel company just because it has some positive diversity or gender factors fails the sniff test — and it's not a strategy for long-term performance.

Inclusion: Inclusion of those who are generally in the minority or not represented at all can clearly be a competitive advantage, so understanding diversity metrics at a company is a logical and effective second level of analysis.

Influence: But raw numbers don't go far enough. One must look at, for example, whether the women in leadership hold specific positions that would be expected to exert enough influence over the company's strategies, goals, priorities and culture to have a meaningful impact.

(More: Advisers ignore 'responsible investing' at their own risk)

Diversity's Long-Term Edge

One of the best ways to boost a company's ability to compete involves hiring diverse team members and giving them ample support and influence. In a rapidly changing world, the ability to innovate is really the only dependable competitive edge that exists for a company. Since the diversity of a company's leadership, workforce, and board governance is a proven way to increase the probability that the company will be able to continuously innovate, diverse teams simply make better long-term investments.

(More: Encourage diverse individuals to be leaders)

Betsy Moszeter is the chief operating officer and an investment committee member at Green Alpha Advisors.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Oct 23

Conference

Women Adviser Summit - San Francisco

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

Events

InvestmentNews celebrates diversity & inclusion in the financial advice business

Highlights of the Excellence in D&I Awards, showcasing the achievements of 26 individuals and firms that are moving the needle when it comes to diversity and inclusion.

Latest news & opinion

Divided we stand: How financial advisers view President Trump

InvestmentNews poll finds 49.2% approve of his performance, while 46.7% disapprove. How has that changed over the course of his presidency?

10 states with the most college student debt

Residents of these states have the most student debt when you consider their job opportunities.

Ex-Wells Fargo brokers sue for damages, claiming they lost business in wake of scandals

In a Finra arbitration complaint, two brokers allege that Wells Fargo's problems damaged their business.

Invesco to buy OppenheimerFunds

Deal brings Invesco another $246 billion in assets, as well as high-fee actively managed funds.

Dawn Bennett found guilty of $20 million Ponzi scheme

Jury took less than five hours to convict the former financial adviser and radio host.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print