Beyond Women on Boards: How Gender Lens Investing Can Transform Your Impact Strategy

Authors

• Annelise Thim

  Former Associate Director, BSR

• Nandini Hampole

  Former Associate Director, BSR

The business case for gender equality and women’s empowerment, particularly its critical role as a driver of growth and innovation, has strengthened over the past decade.

A growing body of research shows how greater gender diversity in companies leads to long-term value creation, stability, and even greater returns. At the same time, ignoring women as consumers, a group responsible for 70-80 percent of consumer decisions, means missing out on one-third of the world’s private wealth.

Gender equality is at the heart of the 2030 Agenda for Sustainable Development. While SDG 5 is specifically focused on gender equality and the empowerment of all women and girls, it’s even more important to recognize that we cannot achieve the other 16 Goals if we do not ensure women have equal access to education, health care, decent work, and representation in political and economic decision-making processes.

More impact investors are—slowly—aligning their strategies to the sustainable development agenda and the push for greater gender equality and women’s empowerment. However, understanding on how to unlock the power of capital to support these commitments remains limited and leaves many investors simply counting the number of women reached. This check-box exercise provides little to no information about the actual impact for women and risks missing opportunities for more meaningful investments and greater returns.  

Gender lens investing is a powerful new approach with the potential to change that. It considers the impact of financial investments, both good and bad, on women and girls. It also recognizes investments’ potential to generate financial returns and advance gender equality simultaneously. Gender lens investing can also address other sustainability issues, such as climate change, and can help companies to avoid potential reputational or legal risks related to issues such as discrimination, sexual violence and harassment.

Busting Gender Lens Investing Myths

• Gender Lens Investing is a niche market: While relatively small compared to other types of impact investing, assets under management with a gender lens mandate are growing at an impressive rate, increasing by 85 percent over 12 months in 2017/2018 and reaching US$2.4 billion in 2018. The number of gender lens funds has quadrupled over four years, and the growth of these liquid, low-fee, and low minimum funds are helping to democratize gender lens investing.
• Gender Lens Investing means concessionary returns: Morningstar evaluated the performance of 10 gender-focused funds and found that seven of these outperformed in the top quartiles of their categories. Pax Ellevate Global Women’s Leadership Fund (PXWEX), which invests in companies advancing women through gender diversity on their boards and in executive management, outperformed the benchmark MSCI World (Net) Index in 2017 with a 22.78 percent total return compared to 22.40 percent.
• Gender Lens Investing requires counting the number of women on boards: Women’s representation in leadership is critical to ensure a diverse set of views and experiences when making decisions, but it is not enough to ensure a positive impact for women and girls. Given the existing male-dominated financial ecosystem, it is easy to see how gender lens investing might be watered down to a check-box exercise, but this has its own set or risks including missing out on more meaningful opportunities to invest in women.

Ensuring Meaningful Investments

While the opportunity for gender lens investing is clear, meaningful impact requires thinking about both how you invest and who and what you are investing in. At BSR, our experience shows that gender equality should not be siloed but integrated into every investment decision. This means investing with a gender-responsive approach by:

• Ensuring gender-equal investment teams, providing training and/or guidance and promoting and supporting women in leadership positions. The IFC found that gender-balanced senior investment teams generate 10 to 20 percent higher returns for private equity firms and venture capital funds. However, female advancement in the sector remains staggeringly slow: less than 10 percent of U.S. portfolio managers at mutual funds and exchange-traded funds are women, a figure that has remained stable for many years. While anecdotal evidence points to impact investing firms having higher shares of women, the gender gap remains.
• Considering gender-related issues throughout the investment process. Maintaining a focus on gender perspectives is important, from due diligence to post-deal monitoring and reporting as part of broader ESG criteria. Depending on the context and objective, this may require new tools or strategies focused on ensuring gender issues are proactively considered. This can be accomplished through gender mainstreaming by incorporating gender considerations into existing materials.

In terms of investment opportunities, investing with a gender lens includes:

• Women-owned or -founded business: Research has found that women entrepreneurs tend to do better than their male counterparts in terms of profitability, with one study finding that women-owned startups generate twice as much revenue per dollar as startups led by men. And yet, women-owned and -led businesses are chronically underinvested in, with female CEOs raising just over 2 percent of venture capital in 2018. Recent unicorns are great examples of successful women-founded business reaching new markets, such as Rent the Runway, Glossier, and Classpass, which was recently valued at over US$1 billion.
• Gender-diverse businesses that work to promote gender equality and women’s empowerment internally. Given the strong evidence that gender equality is good business, understanding how companies are performing on all gender issues is critical. Corporate commitments to promote more women leaders and to ensure pay equity and safe and inclusive workplaces are an important first step. But these should be coupled with strong accountability mechanisms, programs, and policies dedicated to supporting women’s workplace advancement. New initiatives are making it easier for companies to assess and track progress toward gender equality, including EDGE Certification, the Gender Equity Now Certification, and the Bloomberg Financial Services Gender Equality Index.
• Products and delivery of services that can substantially improve the lives of women and girls. One good example of this is the “femtech” sector, which aims to improve the health and wellbeing of women through new digital innovations. While investments in femtech have been growing substantially over the past five years, they still lag behind investments in health products and services for men. In addition to products and services, many issues critical to women’s empowerment, such as ending violence against women, are also greatly underinvested in. For example, the Tara Health Fund has committed 100 percent of its endowment to a gender lens portfolio with a focus on women’s reproductive health.

Gender equality and women’s empowerment is not just a missed opportunity for impact investors. When properly addressed, it can be a driver of meaningful impact and catalyze greater and more sustainable change.  BSR brings together deep expertise in the financial services sector and women’s empowerment to develop tools and strategies to support companies interested in impactful and effective gender lens investing.