Vantage Points

Can we save the planet by getting men to invest more like women? – 8th December 2021

Evidence shows women are better investors and more committed to sustainable investing, so is it time we all applied some intuition?

It is a principle widely accepted in the field of behavioural finance that men and women are far from identical when it comes to investing their own, or indeed, other people’s money.

To start with, women are four times more likely to save their money than to invest in the first place – that’s according to a recent JP Morgan study of 4,000 women in Europe, while there is no shortage of academic studies which have shown that women who do invest are more inclined to trade much less frequently than men, too. Moreover, men have also been shown to be more prone to the effects of the hormones testosterone and cortisol on their decision making, particularly in times of market exuberance or panic, with one authoritative study claiming it has even demonstrated a causal link between these hormones and erratic market fluctuations. The asset manager Fidelity, however, went further and unveiled its own research which shows that women are superior investors to men – both saving more but also enjoying, on average, a 40 basis points higher return on their investments than men. That was based on a survey of eight million accounts.

You might think such findings would have an effect on recruitment in the City of London – but think again. Since 2017 when Fidelity’s report was published, the proportion of male to female workers has remained constant. Today 64 per cent of the City of London’s 522,000-strong workforce are men compared to 36 per cent who are women. Yet if this issue of gender balance were just a question of equality, that would be bad enough. But there is even more at stake here, not least the future of the planet.

That’s because – like it or not – the same sort of people who have worked out the above have also alighted upon on some pretty revealing differences between the genders when it comes to sustainability and ESG (Environmental, Social, & Governance) investing. A case in point is a 2021 report from RBC Wealth Management which found that women were more than twice as likely as men to regard ESG as important. The JP Morgan study I referred to above found that sustainable investing was attractive for 77 per cent of woman. Meanwhile, another survey, this time by Money Crashers, found that only 19 per cent of women would invest in a company that was not considered socially responsible – compared to 51 per cent of men.

Hard as it might be for those with a Y chromosome to acknowledge, it seems that not only are women better traders and investors, capable of making better decisions and able to avoid testosterone-fuelled excitement, but they’re also far more interested in the sustainability of the investments they make. Hence a recent opinion piece that ran on CNBC declaring: ‘The future of socially responsible investing is in female hands.’

But I think we could go further: if we accept the argument that the future of the planet requires us to follow sustainable investment principles, then two conclusions are logically undeniable. First, having more women working in financial markets as traders and fund managers can only have a positive effect; and second, encouraging the uninvested four-fifths of women to put their capital to work, must also be a good thing. Not only would this be beneficial for their own prosperity (as JP Morgan asserted) but it would also be beneficial for the planet because their resources would flow toward companies that are likely to have a positive impact.

So what can be done? Well, just as in other fields where women have historically been underrepresented, investment banks and wealth managers can do better at recruiting women to their ranks. Next, more work needs to be done to address the reasons why so many would-be female investors hold back and ensure they have what they need to have the confidence to invest.

This aspect points to a wider solution, because even by increasing the proportion of women working in finance and increasing the proportion of women’s capital being invested, there remains an obstacle – men. In my view, we should all learn from the distinctive and clearly successful attributes of female investors – and work to understand, for instance, men’s propensity towards over-confidence or indeed to overcome their hormone-driven response to markets. If nothing else, even acknowledging the differences between men and women in financial terms and what that means is the start of the solution.

Men may be from Mars and women may be from Venus, but until Elon Musk gets his way and makes us a multi-planet species, we all have just the one planet, Earth, to share. So everything we can do to preserve that valuable asset in sustainable way must surely inform to a lesser or greater degree the investment decisions we take, regardless of the chromosomes of the investor involved. But in this area, there’s a strong case for saying that XX marks the spot.

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