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Will the transfer of wealth to women take sustainable investing mainstream?

Jennifer Reynolds is CEO of Toronto Financial Services Alliance.

While women continue to be the minority in the leadership of corporate boardrooms and the wage gap remains a pervasive inequality in the global economy, women are gaining ground in one area: global wealth.

From 2010 to 2015, women’s share of global wealth rose from $34-trillion to $51-trillion. By 2020, women are expected to hold 32 per cent of global wealth. In Canada, women’s share of private wealth is expected to more than double, from $1.2-trillion to more than $2.7-trillion, by 2024, representing 50 per cent of Canadian wealth. In the United States, women hold more than 50 per cent of personal wealth today, and that is expected to rise to 65 per cent by 2030. This raises an interesting question for corporations and wealth advisers – will women invest differently than men, and how might that affect portfolios and the economy more broadly?

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In fact, studies indicate that attitudinal differences do affect the way women invest. In particular, women are more inclined than men to want their investments aligned with certain social and environmental values. A recent U.S. Trust survey of high-net-worth investors asked how important social, political or environmental concerns were in evaluating investment opportunities. They were considered “somewhat” or “extremely” important by 63 per cent of women, relative to 41 per cent of men. A 2015 Morgan Stanley report found that women “are nearly twice as likely as male investors to consider both rate of return and positive impact when making an investment.” In a global survey by the Centre for Talent Innovation, 90 per cent of women said “making a positive impact on society is important” when considering investment decisions.

In a world where the majority of investors are increasingly focused on companies’ environmental, social and governance (ESG) characteristics, financial reporting and disclosure will need to evolve and reflect a much broader assessment of value and risks. Factors that historically have been considered qualitative and “non-financial,” such as climate risk, will need to be quantified. Companies that are seen to sacrifice ESG issues – or fail to provide transparency on the impact and risks from their business in these areas – may no longer be palatable to many investors. If sustainable investing becomes mainstream, are Canadian companies and management teams ready to report and deliver on more sustainable economic development?

No doubt, many will argue that, ultimately, management and companies are measured on quarterly results, not financial disclosure. However, as investors move to ESG-friendly alternatives, research has shown they won’t be sacrificing returns. Research summarizing more than 2,200 studies published from the 1970s through to the recent past that assessed the relationship between ESG and financial performance found that more than 90 per cent of the studies did not indicate a negative relationship between sustainability performance and financial performance. More than 50 per cent indicated a positive relationship. This is equally valid for the separate elements of sustainability performance – environmental, social and governance aspects – and for their aggregate effect. If “long-termism” or sustainable investment need not come at the cost of short-term returns, it does not seem too far-fetched that we could see a significant shift in capital allocation in the years ahead.

ESG investing has already arrived, by some measures. The universe of ESG-dedicated investment funds is worth about $750-billion, comprising European and U.S. mutual funds and exchange-traded funds. When strategies using exclusionary screens for certain ESG factors are included – the broadest possible definition of sustainable investing – assets under management amount to some $23-trillion, according to the Global Sustainable Investment Alliance.

It remains to be seen how significantly the transfer of wealth to women will affect traditional investment analysis and the allocation of capital. On a personal level, I apply ESG screens to my portfolio. One example: I don’t invest in companies that have no women on their boards. My investment decisions are in no danger of moving the market, but there may well be a growing number of women whose collective investment decisions will have an influence. Perhaps those shifts have already started, subtly affecting value and investment flows.

The story will unfold in the decade to come. If women’s wealth does increasingly flow to companies that focus on ESG issues and sustainable development, I hope women will have a plethora of Canadian companies to chose from for their portfolios.

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