MUCH PROGRESS HAS BEEN MADE on the women’s equality front. But as long as the wage gap and unequal representation of women in management and government persist, there’s more to be done. The good news is that investors are playing a role in leveling the playing field for women.

A growing number of people are coming to realize that investing in companies that support women’s full inclusion may benefit their portfolios as well as society. In fact, research from the Wharton School indicates that public market assets under management invested in support of gender equality — called “gender lens investing” — surpassed $4.8 billion in 2019, more than doubling the amount from the previous year. ¹

So what is gender lens investing? “It’s not small, soft and pink,” says Jackie VanderBrug, head of Sustainable and Impact Investment Strategy in the Chief Investment Office for Merrill and Bank of America Private Bank. “It’s the deliberate integration of gender-based data into financial analysis, with the expectation of finding additional opportunities and uncovering and mitigating potential risks.”

Let’s break that down. From a practical perspective, it means investing in:

1. Businesses founded, run or funded by women. VanderBrug notes that while more women are starting businesses, the share of funding they receive remains low. According to Crunchbase, only 2.3% of venture capital funding went to women-led startups, while 89% went to male-led teams (and the remainder to male-female teams). ²

2. Companies whose policies encourage equal pay and opportunity. More and more companies are taking steps to support full inclusion of all employees. For instance, a company might choose to drop sexist stereotypes from its advertising, provide family leave, review promotion processes or offer STEM (science, technology, engineering, mathematics) tuition reimbursements, knowing that women receive a premium for working in STEM (salaries are 105% higher than those for women in non-STEM fields) but are more likely than men to work in the “STEM periphery” — roles in which they can apply STEM skills and expertise but are lower-paying than traditional STEM occupations. ³

3. Companies that make gender equality — from top management to the ground floor — a priority. According to VanderBrug, companies that exhibit greater gender diversity not only among senior leadership but also in the rest of the workforce may experience better performance, reduced turnover and higher employee engagement, all predictors of higher earnings. She points to data from McKinsey showing that gender-diverse companies are more likely to outperform their peers, a distinction even more pronounced for ethnically diverse companies. ⁴

4. Companies that produce products or services that are heavily weighted toward benefiting women. VanderBrug points to women’s health and the care economy as places of innovation, but also to areas such as computer science, including the efforts of one company to create software that is free of gender biases. She also notes that women’s accumulated financial assets are rising faster than men’s and could reach $93 trillion by 2023. ⁵

Gender lens investing, according to VanderBrug, is “a way to identify areas of opportunity in the search for enhanced investment returns.” ⁶ If you’re interested in exploring it further, she recommends meeting with your advisor and asking how you might increase your portfolio’s exposure to the growing economic power of women.