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GENDER SMART INVESTING; A GROWING OPPORTUNITY

What is Gender Smart Investing?

Gender-smart investing, also referred to as gender lens investing, is an investment strategy that seeks to intentionally and measurably use capital to address gender disparities between women and men, and to better inform investment decisions. It is the understanding of gender roles as a material factor of analysis that strengthens investment decision-making. It is an approach that helps an investor highlight opportunities and illuminates risk to achieve better financial and social outcomes for all. While the definition of gender-smart investing is quite broad, Fund Managers in emerging markets tend to invest in companies utilizing, one, all, or a combination of the following five gender-smart investment strategies:

Companies that are:

1. Owned by women and/or with women represented in leadership
2. Committed to a gender-diverse and equitable workforce
3. Committed to a gender-inclusive value chain
4. Committed to offering and designing products or services that consider the distinct needs of women as a consumer segment
5. Committed to ensuring their operations do no harm to women in the community

Fund Managers are also increasingly applying gender-smart investment strategies to their own firms, by committing to strengthening the gender diversity of their workforce and investment teams.

A Growing Opportunity with a Compelling Business Case

Billions of dollars are held in assets under management within these five strategies, in both private and public capital markets, and the opportunities to mobilize capital and contribute to investments that seek to close gender gaps are promising and growing. Although data is limited in emerging markets, increasingly there are sources that are tracking gender-smart investments. Project Sage, a Wharton Social Impact Initiative with Catalyst at Large, tracks capital raised with a gender lens across private equity, venture capital, and private debt vehicles. This cleared $4.8 billion in 2019, up from $1.1 billion in 2017, and is increasing.

The same report found that in 2019, 138 Fund Managers were investing with a gender lens, up 58.6% from the previous year, reflecting increasing demand for gender-smart investing solutions. The majority of these had Asia, sub-Saharan Africa and Latin America as their target investment geography, reflecting the importance of gender-smart investing across the globe. Moreover, public market strategies with a gender lens are growing. According to Veris Wealth Partners, publicly-available investment vehicles with a gender lens have increased 300% over the last four years. Assets under management as of 2019 were estimated at more than $3.4 billion, up from $2.4 billion in 2018. 

This trend in both public and private capital markets is likely to continue as more investors come to understand and experience the compelling business case for gender-smart investing.

It is smart business.

Gender-smart investing aligns with Fund Managers’ priorities of delivering strong financial performance, increasing shareholder value, delivering top-line growth, widening access to high-quality products and services, and improving the performance of investments, both financially and in terms of environmental, social and governance (ESG) performance. The positive performance also correlates with gender-diverse Fund Managers. Recent research conducted by IFC found that PE and VC firms with gender-balanced senior teams delivered between 10% and 20% higher returns than teams with majority male or female leaders.

A similar study of 22,000 publicly-traded companies found that an increase in women in leadership from zero to 30% correlated with a 15% increase in profitability.18 Gender-focused products and services also represent significant market opportunities. For example, based on a study of insurance firms in 10 emerging markets, the insurance sector could capture up to $1.7 trillion in new business by 2030 if insurance firms provide more products and services targeted at women.

It is also good for economic growth and sustainable development.

Across the world, countries are losing a combined $160 trillion in wealth because of differences in lifetime earnings between women and men, according to a recent World Bank Group study. The SDGs put forward by the United Nations (UN) provide a global framework for addressing the most urgent global social, environmental, and developmental challenges (SDGs). SDG 5 is solely dedicated to achieving gender equality and is also relevant across all 17 SDGs. The 2019 SDG Gender Index finds that with just 11 years to go until 2030, nearly 40% of the world’s girls and women-1.4 billion- live in countries failing on gender equality. Gender-smart investing presents greater opportunities for Fund Managers to contribute to the SDGs by addressing many of the development challenges, including women’s access to education, employment opportunities, water and sanitation, and reducing gender-based violence.

Five Gender-smart Investment Strategies

At the portfolio level, there are five strategies that Fund Managers can adopt in both origination and/or portfolio management. The 5 Gender-smart Investment Strategies for Fund Managers define each strategy and how Fund Managers can apply each strategy pre-and post-investment.

  Strategy (gender lens) Gender-smart Origination (for new investment opportunities) Gender-smart Portfolio Management (for existing investments)
  Invest in companies… Identify and consider… Support portfolio companies to…
Leadership 1. With women represented in leadership (i.e. founder, cofounder, gender-balanced leadership team) Companies where women are represented as founders, and co-founders, are majority-owned by women and are committed to increasing gender diversity within their leadership as represented in senior leadership and the Board of Directors. Increase gender diversity in leadership
Employees 2. Committed to gender diverse and equitable workforce Companies that have a gender-diverse
workforce or that are committed to increasing diversity throughout the workforce or supply chain
Increase the gender diversity of the employee base and enhance workplace equity for both female and male employees
Supply Chain 3. Committed to a gender-inclusive value chain

Companies that:

a) buy goods and services from women-owned and led producers and suppliers, or
b) distribute and sell products via women-owned and led distributors and retailers

Develop a gender-inclusive supplier base and distribution network
Products/ Services 4. Committed to offering and designing products or services that consider the distinct needs of women as a consumer segment Companies that serve women by providing products and services tailored as closely as possible to the reality of women’s lives Access and serve the women’s market with a tailored offering that meets women’s needs (e.g. insurance or healthcare)
Community 5. Committed to ensuring their operations do no harm to women in the community Consider the representation and needs of women community stakeholders that could be impacted by company operations Develop gender-inclusive community engagement processes and operations
Conclusion

Gender-smart investing is an investment strategy that helps an investor highlight new opportunities and illuminate risk to achieve better financial and social outcomes for all. It is an inclusive value creation approach that Fund Managers are adopting to unlock opportunities for increased profit, growth, and innovation. There is no doubt that the field of gender-smart investing is on the rise and here to stay.

The effects of COVID-19 are influencing governments, consumers, and LPs to think more intentionally about how they can better deliver impact and create value that is inclusive of both women and men. GPs will be increasingly asked to support LPs in more impactful investing, including in healthcare businesses that can respond to COVID-19; in companies that support economic and environmental resilience; and in supporting the private sector funding to advance SDGs, including Gender Equality (SDG5).

While the opportunities are promising and intentions have been set, more needs to be done to provide investors with the right tools and frameworks to put gender-smart investing into practice and support inclusive value creation efforts. Moving the PE industry towards gender-smart investing will require action from both GPs and LPs.

(Courtesy: www.ifc.org, read more: “A fund manager’s guide to gender smart investing” by IFC)

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