Women and ESG Investing Intertwine

In 2015, Chief Personnel Officer Cindy Robbins decided that, after months of deliberating Salesforce’s pay gap issue with a colleague, it was time to tell someone who could do something about it. Robbins brought the issue to CEO Marc Benioff, who subsequently had the $10 billion company spend $6 million over two years to raise its female employees’ pay to be on par with their male counterparts.

The gender pay gap is a well-known issue — with women making in the ballpark of 80 cents for every dollar a man makes. But this 20 cent difference is likely to add up to greater than $1 million over a woman’s lifetime — and that’s only income; it doesn’t include potential investment returns. This inequity, which often begins in a woman’s early 20s (one could argue it starts earlier), has more implications for her life than simply income loss. It affects the way she invests, her family planning, and her retirement needs (it’s a well-known fact that women married to men are likely to outlive them).

In just two short years, women are projected to control two-thirds of private wealth in the United States. Investment advisors, the majority of which are men, cannot afford to be complacent about women and their investing needs. On average, women live four-to-seven years longer than men, and studies show that 70% of new widows fire their financial advisors. It seems like an obvious opportunity.

So why isn’t it? One explanation is that men have traditionally been the financial decisionmakers (men are still financial advisors’ primary contact), the breadwinners, the partner to continue working while their wives temporarily leave the workforce or drop out altogether to raise their family. But this is changing.

In the United States, 49% of women say they work because they are their family’s breadwinner, up from 37% in 2000. One explanation for this is that the rate of single motherhood is on the rise, having nearly doubled from 1974 to 2015, from 14.6% to 26.4%. On the other hand, the perception of women working has changed and is becoming more accepted. In 2000, less than half of all Americans viewed women working while raising children as a “positive development.” Now, 78% of Americans view working moms as a “positive development.”

The financial advisor community should take note that catering to the male-only financial decision-making is an antiquated practice, and it will no longer be good for their businesses. Increasingly, America’s billionaires are self-made women. Last year, roughly a quarter of new U.S. billionaires were women.

Women are not only going to be in control of the majority of private wealth dollars going forward, but also in control of how these dollars are invested going forward. This change will be a missed opportunity for those advisors who don’t actively engage with the women that are currently within their client base and for those who don’t work to understand how women investors think and what is truly important to them.

What Women Want This all leads to an important and fundamental question: when it comes to investing, what do women want? Advisors who understand and acknowledge the differences between men’s and women’s investing habits can tailor their approaches to each. Numerous studies have corroborated the age-old Mars/Venus guide from an investing angle, and the result is a collection of noteworthy takeaways. A study from Fidelity confirms that “although only 9% of women thought their investments would outperform those of their male counterparts, on average, women performed better than men by 40 basis points.” One explanation is the difference in the level of risk appetite that women tend to have versus men.

Studies suggest that women tend to be more risk averse than men. Although this might be viewed as a potential damper on return outcomes, studies also found that women tend to be less likely to be overconfident in their financial knowledge and less likely to trade in volatile markets. On average, men trade 45% more than women, thus significantly affecting their net return outcomes and leading to much higher volatility in their portfolios.

Additionally, women are more likely to seek advice and research their investments; in fact, studies have found that 17% of women spent more than a month researching their investments, versus only 13% of men. The bottom line is that women are more careful in their selection process and tend to take a steadier approach to managing volatility risk.