Gender lens funds by their nature tend to be actively managed as they are tied to a specific theme. Broadly speaking, these funds will remove companies from their portfolios that fail to make progress on gender diversity and will also aggressively vote their proxies in favor of shareholder initiatives that would improve diversity within companies. Many funds also maintain engagement campaigns with management teams to keep the issue of gender diversity top of mind for CEOs. Taken together, these factors are having a positive impact on public companies and gender lens strategies are drawing asset flows, managers say.
"In the past five to seven years we have seen company leadership get very attuned to DEI as an issue," said Heather Smith, New Hampshire-based lead sustainability research analyst with the Impax Asset Management gender analytics team. "When I started, I was having a lot of conversations that were more educational about how diversity can improve financial performance. I think that case has been made and we're seeing a recognition now that progress is really crucial. Companies understand that this is a business imperative and investors are making allocations with this understanding as well."
London-based Impax Asset Management Group PLC was one of the firms that pioneered investment screens for factors like DEI. Impax also runs the Pax Ellevate Global Women's Leadership Fund, the longest running gender lens fund, which launched in 1993 and had $947 million in assets at the end of 2021. The fund returned up 17.27% in 2021 and had a five-year annualized return of 8.93%, according to Morningstar Direct.
Audrey Kaplan, New York-based director and senior portfolio manager on the global equity team at $228 billion Robeco Institutional Asset Management U.S. Inc., added that DEI has emerged as a key factor in attracting and retaining talent within public companies. "The data is very clear that companies that have inclusive policies have less turnover," she said. "We are in a very tight labor market right now and being able to compete on this issue is significant." Ms. Kaplan is co-portfolio manager for the Robeco Global Gender Equality Impact Equity fund, which has €337 million ($364 million) in assets and returned 31.7% in 2021 and 13.71% for the five-year period.
The materiality of DEI on performance is attracting investor attention as well. Asset owners are considering DEI policies as a key factor in their allocation decisions.
"Having an organization that includes DEI as a key part of its culture is something that in our view positions an organization favorably from both a risk and return perspective," said Francois Cremet, senior director of stewardship investing at C$420 billion ($330.4 billion) pension fund manager Caisse de Depot et Placement du Quebec, Montreal. "We also see a strong correlation around the ability to attract, mobilize and retain talent. Firms where everyone feels included and encouraged to fully present who they are tend to have less turnover and that leads to better performance, particularly in a context of talent scarcity."
Gender lens funds' engagement with companies has also created a road map for asset owners to follow in their own engagement campaigns.
Gender lens funds like Pax Ellevate and the Robeco Global Gender Equality Impact Equity Portfolio were some of the first to push for greater diversity through proxy actions, which now is being adopted by more asset owners globally. Through its proxy guidelines, CDPQ set a target of 30% female representation at the board level for public companies it invests in. CDPQ is a member of the "30% Club," an investor campaign that was first launched in the U.K., with the goal of increasing gender diversity on boards to at least 30%.
CDPQ also recently launched its Equity 25^3 fund, a C$250 million investment fund with the goal of increasing diversity and inclusion in companies in Quebec and throughout Canada. It is the largest Canadian fund ever created to target companies that leverage diversity as an area of development and expansion.