‘We believe that businesses that promote gender equality have a competitive advantage’

22-12-2020 | Interview

Sustainable investing involves more than just investing in environmentally friendly income-producing vehicles. Robeco’s Junwei Hafner explains why buying into gender equality investments is not only good for society but also good for the returns – especially in times of an economic downturn.

Junwei

Hafner-Cai

Portfolio Manager

What provided the impetus for the founding of the Gender Equality strategy?

"As pioneers of sustainable investing, we have been dealing with the issue of gender parity and its importance for corporate success for a long time already. We assess companies with regard to social aspects like this one and are convinced that businesses that recognise and promote gender equality have a competitive advantage. These companies have access to a larger talent pool, can retain top performers more effectively and benefit from a better customer understanding as well as better insights into market opportunities.

Supported by our research, the simulation portfolio of gender leaders outperformed those of the “laggards” in the past 10 years by 1% annually and with somewhat less volatility. Since the launch of the “real” investment strategy, it has performed better than the benchmark, and has done so with a solid information ratio."

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The strategy’s success story is well-known. According to what criteria do you select your securities?

"We have a systematic, bottom-up stock selection process that combines proprietary gender equality research and ESG analysis with fundamental company analysis. Our disciplined approach focuses on companies’ gender equality performance, quality of business and valuation. We don’t assess gender parity only based on how high the proportion of women is in companies’ top management levels."

Does your evaluation approach go into more depth?

"We take a more holistic approach: We look at gender representation throughout the different workforce levels as well as other diversity metrics such as ethnicity and nationality, employee retention, equal remuneration practices and employee well-being programs to support family and work-life balance. All these factors are important for a diverse and inclusive working environment, in which men and women have the same career prospects and opportunities to develop their potential."

Do you have a secret recipe for the strategy management?

"For the management of our strategy, active ownership – the active exercise of our rights as shareholders – is also paramount because it is an effective way to influence company behavior. We engage with portfolio companies on gender equality issues to improve their performance."

How has the strategy performed over the past five years? Please provide some details on its size as well as its performance.

"The fund essentially invests in companies that are leaders in recognising and promoting gender equality, and also stand out due to their attractive company fundamentals. The objective of the fund is to generate positive financial and social returns for investors. The strategy has a solid track record. From its inception in 2015 until the end of August 2020, the fund outperformed the MSCI World by 2.94% (in EUR, gross). During the same period, the fund’s assets under management increased from EUR 10 million to more than EUR 178 million."

How do you see the theme of your strategy evolving?

"Investor interest is growing as the topic of gender equality and social issues gain importance. Gender lens investing is gaining momentum and is becoming one of the fastest-growing areas of sustainable investing. According to a report by Veris Wealth Partners, the value of assets in public market securities increased from USD 100 million in 2014 to USD 3.4 billion by the end of June 2019. This shows us that investors increasingly want to bring their investment capital into line with social impact goals, particularly after we have seen that social impact goals don’t necessarily hurt returns."

Is this trend accelerating?

"Investments in gender equality generate a positive social impact and contribute to SDG 5 (“Gender Equality”) of the UN Sustainable Development Goals. However, progress is still very slow when it comes to achieving gender parity. According to estimates of the World Economic Forum, it will still take more than 250 years for economic gender parity to be reached. Therefore, the topic still offers significant untapped potential."

How did your strategy get through the crisis?

"Here we should let the figures speak for themselves. From the beginning of the year until the end of July, the fund (in EUR, retail class B) outperformed its benchmark (MSCI World ND) by 2.4% in net terms – at an information ratio of 0.83. There are several reasons for this: Diversity and equality are a source of competitive advantages, innovation and productivity within companies, and these features turn into business resilience. During a crisis, these companies tend to weather the downturn better."

How do companies and their employees best prepare for crises?

"One of the areas that we assess within our equality framework is related to flexible working arrangements and remote work, for example. Companies that are better prepared and have a culture of diversity and integration experience a smooth transition to the new working methods and maintain the productivity, the feeling of connectedness as well as the physical and mental health of their employees."

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