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Sustainable Investing

Special Report: How Women Are Breaking the Bias in 2022

With women preparing to play a greater role in controlling wealth, here’s a look at the state of women and investing today.

Women account for half of the world population. Yet, they are less prepared financially than men, with lower lifetime earnings, wage inequality, and reduced prospects for high-paying corporate management roles compared with men.

Soon, women will play a bigger role in the world's wealth. They'll take control of more baby boomer assets, and, increasingly, they take the role of family breadwinners. And so, in honor of International Women's Day on March 8, Morningstar is examining women and investing from a variety of angles.

In the coming days, we'll share some easy ways for women to improve their retirement preparedness. Behavioral researchers Samantha Lamas and Sarah Newcomb talk about what advisors need to know to help. The corporate world increasingly believes that women are worthy investments.

Slowly, women are populating the C-suite. Until recently, as author Jackie Cook details, the pay gap between men and women in the corporate C-suite was narrowing, and the number of female named executive officers has been rising, albeit at a relaxed pace. That changed, partly because the pandemic hit women hard. Hopefully, it will reverse again.

Among the women running companies that belong in the investor portfolio, for example, are Linda Rendle of Clorox CLX, Emma Walmsley of GlaxoSmithKline GSK, and Michele Buck of Hershey HSY. As director of content Susan Dziubinski writes, all are companies deemed by Morningstar to have durable advantages and worthy of holding over the long term.

Plenty of studies show the advantages of promoting gender diversity. Increasing the number of women managers leads to better decision-making, moderates overconfidence, and curbs groupthink. Indeed, Christine Lagarde, president of the European Central Bank, has said that more women in top roles at banks--if the signs read “Lehman Sisters,” for example--might have forestalled the financial crisis.

Companies with high levels of gender diversity, and policies that promote it, are also likely to attract younger employees. They have higher levels of job satisfaction and retention, according to Catalyst, a nonprofit that promotes workplace inclusion.

“Any time you add anyone who has a different experience, perspective, or educational background, you can take advantage of it to come up with better ideas,” says Frannie Besztery, head of Morningstar Direct and a member of Morningstar’s senior leadership team. “It gives us more tools to solve problems when there are multiple angles from which to attack it.”

And it also helps protect against a variety of risks. Lack of gender diversity, as editorial manager Sara Silano describes, is a human capital risk that companies must address. And thanks to the #MeToo movement, it's believed that gender diversity, particularly in upper management, can help curb once-common corporate behaviors such as sexual harassment. Says Julie Gorte, senior vice president for sustainable investing at Impax, which advises Pax World Funds: "With more women in positions of power, it becomes a signal that the woman you harass today could be your boss tomorrow." Editorial manager Ruth Saldhana and I explain how sexual misconduct became a major business risk.

Investors are also paying attention to gender risk.

One strategy to improve gender diversity and wage parity is so-called gender-lens investing. Data journalist Margaret Giles digs deeper into this small, but growing, corner of the investment universe. In many cases, the approach has paid off: The Morningstar Women's Empowerment Index, which provides exposure to companies with strong gender diversity policies, has consistently outperformed the broad U.S. Market Index since its launch in 2018.

There is also evidence that, in some cases, women are better investors than men. A Fidelity study of the behavior of more than 5 million customers over 10 years showed that female customers earned 0.4 percentage points a year more than their male counterparts.

To be sure, there’s vast room for improvement. The lack of racial and ethnic diversity in the top ranks of companies--among female and male leaders both--is conspicuous. The pandemic was a setback to progress, as Cook details. Today, female labor force participation, which declined at historic rates at the start of the pandemic, has fully recovered in the developed markets, although the United States still lags and the emerging markets “suffered permanent scarring that could set back a generation,” writes Joyce Chang, chair of global research for JP Morgan.

But the push for gender diversity, combined with the pandemic and the death of George Floyd in police custody, forced companies to start responding to all their stakeholders--employees, customers, communities, and investors.

And there’s no going back.

Here’s a roundup of Morningstar pieces that you may find interesting:

Why Do Women Invest Less Than Men? Blame the Income Gap As women gain wealth, advisors must prepare to serve them.

Corporate Leadership Won't Reach Gender Parity Until 2060 at Its Current Rate A Morningstar analysis also found the gender pay gap expanded during the pandemic after years of improvement.

The Best Female Portfolio Managers to Invest With Now The fabulous 27 female managers.

Quotas for Women Aren't Enough to Protect Against Human Capital Risks Upward mobility is as important as board quotas and a diverse employee base.

The Best Women-Run Companies to Own: 2022 Edition These firms have carved out lasting competitive advantages and are led by female CEOs.

In the Pursuit of Equality, Gender Lens Investing Can Help Tip the Scale This investment strategy can positively affect society--and your portfolio.

How Do Women Really Invest? A closer look at the data suggest that income--rather than gender alone--may be the real determinant of women's investing choices.

How MeToo Forced Companies to See the Business Risks of Sexual Misconduct Change is slow but inevitable.

What a Longer Life Expectancy Means for Women in Retirement Cindy Hounsell of the Women's Institute for a Secure Retirement thinks women should consider delaying Social Security, working longer, and more.

Podcast: Sallie Krawcheck: "Companies Should Do Better" The founder discusses how advisors fail their female clients, the lack of gender diversity in financial services, and why firms should be working to close the gender pay gap.

5 Lessons From the 'Witch' of Wall Street The best advice is often timeless.

Wonder Women: Why Defined-Contribution Plans Benefit from Female Plan Administrators Not only is gender diversity improving among defined-contribution plan administrators, but that shift is likely to result in better participant outcomes.

For Women in Finance, Challenges Remain at the In-Person Workplace Along with the networking events and conferences comes a return of workplace challenges.

How to Be an Active Ally to Women in Financial Services It's one thing to call yourself an ally, and another to do the work.

Dear Fellow White Women in Finance: Hold That Door Open Diversity improves our work and work environment.

The Tool Kit for Sponsoring Black Female Advisors Having a mentor is good, but a sponsor can champion a career.

Correction: A previous version of this article incorrectly identified Julie Gorte as executive vice president at Pax World Funds. She is senior vice president for sustainable investing at Impax Asset Management (March 8, 2022).

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