Women prefer values-based investing. Here's what that might mean for their wealth

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Women prefer investing in a way that helps the environment and does social good, some studies have found. Such values-based investing could help raise women’s general enthusiasm for investing and boost long-term wealth, according to financial experts.  

About 52% of women would rather invest in companies that have a positive social or environmental impact, according to a recent poll by Cerulli Associates. That’s true for 44% of men.

While not an enormous gulf, an eight-percentage-point difference is “meaningful,” according to Scott Smith, who heads Cerulli’s research on investor behavior. And the disparity largely remains when comparing women and men across different age and wealth bands, he added.

The trend exists beyond U.S. borders, too. About 43% of women (versus 34% of men) think a company’s stance on social or environmental issues is “very important” when deciding whether to invest, according to S&P Global, which polled investors in 11 countries, including the U.S.

“Almost every new client I get wants to invest with their values in mind,” said Cathy Curtis, a certified financial planner based in Oakland, California, whose clients are primarily women.

“And if they didn’t before, they’re asking me to do it now,” added Curtis, founder and CEO of Curtis Financial Planning and a member of CNBC’s Advisor Council.

ESG funds

Investment funds that use so-called environmental, social and governance principles have grown in popularity in recent years. These investments (also known as “sustainable” funds) might invest in firms focused on renewable energy or that promote racial and gender diversity, for example.

Investors pumped a record $70 billion into ESG funds last year — 14 times the amount just three years earlier, according to Jon Hale, director of sustainability research for the Americas at Sustainalytics, which is owned by Morningstar.

There were three times as many mutual and exchange-traded ESG funds in 2021 as there were five years ago, holding more than $350 billion total, he said.

Women are most interested in investing in companies that: pay workers a fair or living wage; are leaders in environmentally responsible practices; and that don’t sell “objectionable” products like tobacco and firearms, respectively, according to Cerulli. (Men have the same top three ESG preferences.)

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“It’s more of an emotional thing with women,” said Curtis of their ESG bent. “It’s absolutely because they don’t want to be invested in things they see as either harming the environment [or] harming women’s causes.

“They really care about those things.”

Meanwhile, women tend to invest less often than men overall: About 48% currently have money in the stock market versus 66% of men, for example, according to a recent NerdWallet survey. That’s despite evidence that female investors tend to be better long-term investors than their male counterparts.

The typical female-headed household also has less wealth: about 55 cents for every dollar of wealth held by the typical male-led household, according to the Federal Reserve Bank of St. Louis. Among household retirement accounts, the typical woman has saved $28,000, less than half the $69,000 reported by men, according to the Transamerica Center for Retirement Research.

However, ESG enthusiasm among women has the potential to make them more enthusiastic about investing overall, which might prove beneficial for long-term wealth creation, experts said.

“This definitely gets them more involved, because they care about this [ESG] discussion,” Curtis said. “They don’t care about how much large-cap U.S. and how much international and emerging markets they have [in their portfolios].”

Investment returns

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In fact, women’s values tend to override considerations relative to investment returns, Curtis added.

Among all individual investors, 70% believe sustainable investing implies a financial tradeoff — an increase from 64% in 2019, according to the Morgan Stanley Institute for Sustainable Investing. The share skews higher (83%) among millennials relative to older age groups.

However, data doesn’t seem to support this “myth,” according to Morgan Stanley.

About 74% of sustainable funds ranked in the top half of their respective investment categories in the past five years, according to Morningstar. In other words, ESG fund investors tended not to sacrifice performance for their values. (Of course, ESG funds don’t necessarily always outperform. Many have had a tough 2022, for example, largely due to technology-sector exposure, experts said.)

“For investors and advisors who have been hesitant to invest in sustainable funds because they are under the impression that such funds as a group chronically underperform, [2021] is further evidence that this isn’t true — as are the past five years,” Hale said.

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