A lens on investor biases: Fair and accurate investment decisions that help empower women

Investing with a gender lens begins with introspection and awareness of what is often an unconscious bias. The pervasive nature of gender norms means that investors may themselves be subject to certain biases, and women are not immune.

The Harvard Business Review reported on an innovative study examining the role of gender bias in the venture capital industry several years ago.¹ Using linguistic analysis of a series of pitch meetings held between entrepreneurs and venture capitalists, the researchers found that the venture capitalists, regardless of gender, “tended to ask [male entrepreneurs] about the potential for gains and [female entrepreneurs] about the potential for losses.” Using statistical analysis, they found that the bias in these questions fully explained the relationship between the amount of funding an entrepreneur received and his or her gender.

Adjust your lens for clearer judgement

Controlling for these kinds of hidden influences requires investors to consistently and deliberately assess the gender dynamics of their investment processes. Dr. Iris Bohnet, Professor at Harvard University and author of “What Works: Gender Equality by Design,” offers thirty-six research-grounded actions to reduce unconscious gender bias. For example, to maximize investment team performance, “make sure every subgroup [such as women] is represented by at least three people or makes up about a third of the total” in order to “seize the benefits of diversity.”² Investors may also consider standardizing certain elements of their investment due diligence to ensure every investment opportunity is judged on the same basis of fact.

How a gender lens can impact investment decisions

Once investors are confident their investment processes are robust enough to both detect and manage bias, they can turn to assessing the gender-related attributes of the investments. In 2010, the UN consolidated its various female empowerment strategies into a new entity, UN Women, which is tasked with promoting women’s empowerment across the globe. Among UN Women’s first actions was to collaborate with the UN Global Compact to develop the Women’s Empowerment Principles (WEPs).

The WEPs provide valuable guidance for investors and serve as a benchmark for assessing both asset managers and the companies in which they invest. Just as investors might change their view of a company’s value based on the durability of its profit margins, they may also adjust their analysis based on the extent to which its business practices align with gender-related principles. Companies that treat women and men fairly at work, whether via pay equity, time off or promotions, for instance, may be more likely than peer organizations to attract and retain the talent needed to support their growth. On the other side of the spectrum, those with gender-related problems in their supply chain, such as forced labor, may be susceptible to value-destroying investigations and their consequences.

Gender lens investing may make a meaningful difference to investment performance

Gender analysis is consistent with the idea that non-financial factors may have a material influence on company or investment performance. As a result, many institutional investors have been integrating these considerations into their investment processes for years.

Asset managers have also crafted investment strategies designed to target companies and issuers that exhibit positive gender-related characteristics. These strategies can be found across the spectrum of asset classes today, both public and private, and include exchanged-traded funds (ETFs), separately managed accounts (SMAs), mutual funds, and private limited partnership vehicles. Moreover, gender-inclusive investment strategies can target a range of themes, such as access to capital, workplace equity, or the development of new products and services.

Just as lenses in a telescope can allow us to examine noteworthy objects in the far distance, a gender lens can be used to see, more clearly, a vision of a more gender inclusive society. Before deploying capital, gender lens investors make sure to evaluate the gender-related attributes of an investment alongside its financial characteristics. Understanding these dynamics helps ensure proper evaluation of an investment opportunity that otherwise may be clouded by unintended biases.