Deep Dive in Pursuit of SDG 5

Soliane Varlet, Portfolio Manager of the Mirova Women Leaders Equity Fund, highlights the challenges of identifying “gender diversity champions”.

There is no hope of meeting UN Sustainable Development Goal (SDG) 5 – achieve gender equality and empower all women and girls – by 2030. In fact, equality is unlikely to manifest before the year 2160.

A 2022 Progress Report on the SDGs from the UN finds that just one third of managers or supervisors is a woman. At the current pace of change, this means 50/50 representation at senior level in the workplace will not be achieved for another 140 years.

Women’s labour force participation in 2022 is projected to remain below pre-pandemic levels in 169 countries, while the gender gap is expected to widen in 114 countries compared to 2019.

Widening gap

All this means that the gender gap in working hours, already large before the pandemic, has expanded globally, threatening to increase what the UN calls “pervasive” gender pay gaps.

In the UK, this is exemplified by figures from the Office for National Statistics published in April 2021. Among full-time employees the gender pay gap in was 7.9% compared to 7% in April 2020 and 9% in April 2019.

This trend is repeated the world over. The World Economic Forum (WEF) Global Gender Gap Report 2022 found that global gender parity decreased from 68.6% in 2019 to 68.1% this year.

The UN and WEF attribute the increase in pay disparity to the pandemic.

The UN states: “Women’s overrepresentation in sectors severely impacted by the pandemic and in informal employment explains their greater vulnerability. Women are more likely than men to work in the informal economy where the typical worker took home only 64% of pre-pandemic earnings in mid-2021. The unequal distribution of unpaid care work and limited access to maternity benefits, childcare and parental leave deepen disparities.”

Global cooperation and investments in the gender equality agenda, including through increased national funding, are – according to the UN – “essential” to getting SDG 5 back on track.

Contributing to that objective is the Mirova Women Leaders Equity Fund, run by Natixis Investment Management, which invests in companies that “contribute to the achievement of SDGs with a strong focus on SDG 5”.

The fund – which has an Article 9 classification under the EU’s Sustainable Finance Disclosure Regulation, underlining its impact credentials – invests in companies that meet certain economic performance criteria alongside employing an executive committee that comprises more than 30% women, or ones that have a female CEO or CFO.

Portfolio Manager Soliane Varlet says investing in companies with a diverse workforce makes economic sense.

“Companies with more diversity have a better economic performance. This fund focused on gender, but the same superior performance is true of all kinds of diversity,” she says.

Varlet’s comments are supported by 2021 research from the UK’s Financial Reporting Council and London Business school which found higher levels of gender diversity on FTSE 350 boards positively correlated with better future financial performance.

Specifically, based on average EBITDA [earnings before interest, taxes, depreciation and amortisation], the top 50% of the sample of companies that had at least one woman on the board experienced higher margins after three years.

But Varlet says the fund – which has amassed €217.41 million in assets under management – looks beyond female representation on boards, and considers gender diversity at an executive level.

“This is not just about board level representation, it is about finding companies that demonstrate a culture of diversity. We try to identify the companies that have a good balance of female representation in top management but that also promote career progression for women. The idea is to find the gender diversity champions.”

Equal opportunity

The fund has an investment objective to outperform the MSCI World Index. While it outperformed in 2020, the situation was reversed last year. As at the end of August, the fund’s total returns were 30.83% since inception versus 45.37% from the index.

Varlet says: “When comparing the fund performance with the index, one needs to bear in mind that the active share of the fund is around 89% and there are a few biases that can have quite an impact on the relative performance.”

She continues: “We are not exposed to FAANG [Facebook, Amazon, Apple, Netflix and Google] stocks and this in itself explains more than the underperformance of the fund versus the index. Although the domination and dominance of these companies is beyond doubt, it raises many questions, especially ESG questions.”

Those questions include the contribution these companies are making to gender parity. According to the UN 2022 progress report, women hold two in every 10 science, engineering and information and communication technology jobs globally.

At the 20 largest global technology companies, women total 33% of the workforce in 2022, but hold only one in four leadership positions.

Look more broadly, just 22.6% of director seats of companies on the MSCI All World Index were held by women in 2021 while 5.5% have a female CEO, which severely limits the fund’s investment universe.

“The majority of companies in the MSCI universe do not have significant female representation. We really need to increase awareness and not just in developed countries but also in the developing world. We are not there yet,” Varlet says.

The fund currently holds around 50-55 stocks from the wider universe of firms that meet its investment criteria.

One of which is tyre company Michelin where – as of 2021 – 29% of the management and supervisory positions were held by women, while four out of the 11 members of the executive committee, including two managing partners, are women. It has a target of 35% women in management positions by 2030.

“We have seen a real improvement in the number of women in senior roles at Michelin. It is clear that when you enter this company, there is career progression and you really have equal opportunity whether you are a man or a woman,” says Varlet.

Adequate scrutiny

Varlet says access to gender pay reports and diversity across the workforce has improved, but she adds it is still a challenge to access relevant data, and to interpret the information companies provide.

A study published by MSCI in 2022 looking at the All Countries World index found that while “many companies” are creating diversity, equity and inclusion (DEI) programmes aimed at improving representation of different demographic groups, ”it’s less clear whether they actually have improved gender diversity in companies and in the C-suite”.

The research noted: “Across the general workforce, and also executive management, even the most comprehensive DEI programmes appear to have had little impact. In fact, companies with [these] programmes have tended to have fewer women across the general workforce and in CEO and CFO roles.”

Varlet says: “Before a company can join our investment universe, we need to check everything and it’s not easy. The difficult part is the data crunching and getting access to data. We need more transparency, both in company data and in their policies.”

Varlet would like more investors to ask the “difficult diversity questions” of companies and argues that private finance alongside state initiatives will be a powerful force in achieving SDG 5.

“If we are to meet SDG 5 then governments and states need to do more, but this isn’t going to be achieved by policy alone. It’s going to need to be a private/public approach with companies incentivised by investor pressure.”

[This story was updated on 16/9/2022 to correct data relating to the fund’s performance against its index].

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