The winds of investing in the U.S. are starting to shift and women, it turns out, are a driving force behind the change.
Women have long been known to make financial decisions based on what's best for their children and their larger family. They're now also increasingly aligning their investments with what they feel is best for their community, their neighbors and the planet.
This philosophy, known as responsible investing, isn't exactly new. It's been popular in Europe for decades and even embraced by large, institutional investors in the U.S. for some time. But, for whatever reason, it hadn't gained the same momentum among retail investors here.
That is, until now.
According to a new report from non-profit foundation US SIF: The Forum for Sustainable and Responsible Investment, there were $17.1 trillion in responsibly invested assets in the U.S. at the start of 2020. That's up 42 percent from $12 trillion just two years prior.
What is ESG investing?
While there are a few specific types of responsible investing, ESG investing, which seeks to value a company based on its environmental, social and governance practices, is gaining the most traction. In fact, ESG now accounts for a third of all professionally managed assets in the country.
No doubt that the events of 2020 have certainly contributed to the sudden interest in ESG. The effects of systemic racism, inequality in access to health care, legal justice and education, as well as extreme wealth imbalances, were seemingly laid bare on a daily basis.
But women and their wealth trajectory are also key factors in the shift.
The growing financial impact of women
Nearly half of American women are the primary breadwinners in their household, an almost four-fold increase since 1960. The number of high-net-worth (HNW) women is growing twice as fast as the number of affluent men. Baby Boomers are aging and women continue to enjoy longer life expectancies than men, according to U.S. Census data. In fact, by 2030, women are projected to control two-thirds of all the wealth in the U.S.
Clearly, given their growing financial power, the values that women hold will shape how wealth is created, mobilized and passed down to the next generation. And increasingly, studies show that they value the principles behind ESG investing.
A recent survey of our clients found that female clients are almost twice as likely as their male counterparts to say it's important the companies they invest in are integrating ESG factors into their policies and decisions. Our survey also found that female clients are more likely to prioritize ESG impact when considering what companies or funds to invest in. Male clients are much more likely to prioritize financial performance.
A recent report from market research firm Cerulli corroborates this trend. Cerulli found that a majority of women in the U.S. under age 60 favor ESG investing. Among the ESG themes most important to them: investing in companies that pay their workers a fair/livable wage; and backing companies with leading environmentally responsible practices.
I suppose one could argue these two surveys measure intent and not action. At the end of the day, how a person says they intend to invest is one thing, while what they actually do with their dollars can be quite another. However, when it comes to women and ESG investing, we found that there doesn't appear to be a disconnect between intent and action.
In 2019, our firm launched three model portfolios focused on ESG investing. We noticed great interest in the portfolios from our female advisors right away. In fact, today 30 percent of the advisors with client assets in those three ESG portfolios are women. More telling, though, is how strong the interest in these ESG portfolios has been among female clients. As of February 2021, 55 percent of the individuals invested in these three model portfolios are women.
I believe this figure will only increase as women continue to gain financial wealth and independence. Women's propensity for caregiving and their desire to make investment decisions that are not only financially sound but also make a measurable impact in society and the environment will be instrumental in moving ESG investing from fringe philosophy to a commonplace strategy in the U.S.