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Gender lens investing cuts risk and boosts returnsÂ
340 million women and girls are set to be living in extreme poverty by 2030, if nothing changes. Moving capital towards the pursuit of gender equity could positively impact financial returns, business, and society. It’s time for asset managers to wake up to new opportunities.
When it comes to establishing gender equality by the current UN Sustainable Development Goal (SDG) target date of 2030, the world is failing: 340 million women and girls are forecast to live in extreme poverty at the end of that time horizon, and one in four will endure food insecurity.
The latest data on gender equality and female empowerment paints a stark picture, a situation made even more urgent by the cross-sectional nature of the issue. SDG 5, the headline goal, aims to achieve gender equality and empower all women and girls, encompassing nine targets ranging from ending discrimination, violence, and forced marriages to leadership participation, access to financial services, valuing unpaid care, equal pay for equal work, and adopting enforceable, supportive legislation. Across all 17 of the SDGs, there are some 52 indicators related to women and girls.
The UN Gender Snapshot 2023 estimated that an additional $360bn per year is needed to deliver the change required to meet the 2030 target. In anyone’s money, this represents a significant funding shortfall that governments and NGOs will find extremely difficult to meet. This means the private sector needs to do more, including the world of finance.
One way the financial industry can contribute to accelerating progress is by channeling more capital into businesses that are either run by women or that support female empowerment and rights, internally and externally. This is where gender lens investing (GLI) comes in.
Inequalities faced by women globally
- Every two minutes, a woman dies during pregnancy or childbirth, resulting in 280,000 preventable fatalities per year.
- More than 600 million women and girls live in conflict-affected contexts, with tragic consequences for many of them.
- For each dollar men earn in labor income globally, women earn only 51 cents. Only 61.4% of prime-working-age women are in the labor force, compared to 90% of prime-working-age men.
- Women account for 42% of labor but only 25% of C-suite positions, according to LinkedIn’s sample of 163 countries.
- According to the World Economic Forum’s 2023 Global Gender Gap Index, which benchmarked gender parity across 146 countries in 2023, it will take 131 years to reach full parity at current progress. No country has yet achieved it.
- The global average for women’s economic participation is 60%, while political empowerment is 22%.
How gender lens investing empowers women and improves the bottom line
According to the Global Impact Investing Network (GIIN), gender lens investing (GLI) is a strategy or investing approach that considers gender-based factors across the investment process to advance equality and better inform investment decisions. This can include investing in women-owned or women-led organizations, enterprises that promote workplace equity, or products and services that benefit women and girls. So, it is not just about financing businesses run by women but can cover, for example, companies supporting women through policies ranging from parental leave to safeguarding.
Gender lens investing does not mean sacrificing returns for social good. There is growing evidence that pursuing gender equity as an investor has positive benefits on financial returns, business, and society. Companies with women in executive management repeatedly outperform companies with no women in senior roles, as do companies with women on their boards. Diverse workforces support the retainment of talent and employee motivation and foster creativity and more robust financial performance. Furthermore, the purchasing power of women is growing, as is the share of global financial capital held by women – McKinsey predicted in 2020 that, by 2030, more than two-thirds of US wealth would be held by women.
A 2021 report by UN Women highlighted that venture capital (VC) firms with only 10% more women investing partners have achieved 1.5% higher fund returns and see 9.7% more profitable exits, while women-founded companies perform, on average, 63% better in the long-term than exclusively male-founded start-ups.
Lifting Global Growth by Investing in Women, a Blackrock report published in November 2023, found that the most diverse workforces beat the return on assets of their country and industry group peers with the least diverse by 1.6 percentage points, equating to average outperformance of 29% per year. Overweighting companies that promote more women into senior roles would have enhanced a portfolio’s performance by 72 basis points per year over the benchmark MSCI World Index over the past four years. Women-owned start-ups delivered twice as much per dollar invested as those founded by men between 2014 and 2022.
Despite the dual promise of social and financial impact inherent in gender lens investing, the financial sector has reacted slowly. For example, according to the European Investment Bank (EIB), in 2019, start-ups founded by women received roughly just 11% of overall venture investments by value in the EU.
The rise of gender lens investing
According to Parallelle Finance, publicly traded gender lens equity funds (GLEFs) totaled $4.8bn in assets under management (AUM) across 41 products by the end of 2022, with growth of 20.6% for the calendar year. The UBS Global Gender Equality ETF, for example, has delivered a net annual return of 5.8% over the last five years. Other GLI strategies can invest in some of the 484 companies included in the 2023 Bloomberg Gender Equality Index (GEI), which rates firms against five key pillars: leadership and talent pipeline, equal pay and gender pay parity, inclusive culture, anti-sexual harassment policies, and external brand. Mirova, the sustainable finance arm of French asset manager Natixis, launched its Women Leaders and Diversity Equity Fund in 2019 after signing the Women’s Empowerment Principles charter and agreeing to donate part of the fund’s management fees to the French chapter of UN Women. The fund has delivered a 30% performance since its launch.
Gender lens fixed income AUM amounted to $8bn by the end of 2022, with various gender bond issues during the year, including the Impact Investment Exchange (IIX)’s 50m Women’s Livelihood Bond 5 on the Singapore Stock Exchange and the $100m gender bond issued by Banco Pichincha in Ecuador. IIX has mobilized more than 128m in a series of five “orange bonds” for investments in gender equality and underserved communities around the world, with no losses to date, and is raising $100m for its next bond, the largest.
Several organizations have emerged that try to catalyze gender lens investing. The non-profit association 2X Global announced the 2X Challenge, which raised gender lens investments totaling $16.3bn in 2021-2022, benefiting 473 businesses in developing countries.
As an illustration of the investment gap that needs to be bridged, Bloomberg estimated that only $35bn (less than 12%) out of more than $300 billion in sustainability-linked debt issuances up to 2022 carried the gender label. In October 2022, the GIIN estimated the global impact investing industry held $1.1tn, compared with the world’s $115.1tn, in assets under management.
There’s still a long way to go until the financial industry shifts the bulk of its assets to more sustainable and impactful strategies and starts applying a gender lens more systematically for both inward-looking assessments and its portfolio allocations.
Our approach to gender lens investing
How do we increase the flow of capital into gender-smart businesses? Increasing the prevalence, diversity, and quality of GLI strategies among investors and their portfolio companies is an excellent place to start.
Since 2009, we have invested in privately held ventures offering products and services that have a transformative impact on poverty and the environment. Gender lens considerations are factored in at several levels: we monitor the share of women in our leadership structure (boards, investment committees, senior management) and staff and constantly seek to enhance gender diversity and female empowerment across our portfolio companies.
One example is Uganda-focused renewable energy firm Fenix International. AMG supported Fenix across debt and equity through different funding rounds, including its first institutional debt investment. When it was acquired by French multinational ENGIE in 2018, it had helped a million Ugandans access renewable energy for the first time while also delivering an average annual return of 13% for our investors.
By 2021, when we assessed Fenix for the last time, it had expanded to Zambia, the Ivory Coast, Benin, Nigeria, and Mozambique, seeking to deliver first-time access to decarbonized, decentralized, and digital energy to 20 million beneficiaries.
Fenix was AMG’s first portfolio company led by a female CEO, Lyndsay Handler. Under her leadership, Fenix rolled out important gender-lens strategies which helped grow the business: reduce gender bias in recruitment and retention to realize and maintain equal representation in middle management and leadership, deploy women to design products and drive innovation an employee ownership program, Fenix Flames, which gave all employees a share in the company; and a mentorship program for women leaders and managers.
Between 2010 and 2018, Fenix impacted the lives of 2.5m users and 1,100 full-time employees across Africa, 45% of whom were women. The design of a clean cookstove without indoor pollution led to a 40% increase in direct female customer ownership. Today, Lyndsay, inspired by her experience building Fenix, is a co-founder and managing partner of Delta40, a VC Fund and venture studio that invests in, builds, and supports inclusive climate ventures led by top African and female founders.
Another illustration comes from Colombian fintech Bankamoda, founded in 2018. As the only digital lender providing loans to the fashion and apparel industry, it accounts for over 130,000 small enterprises, of which 90% are unbanked, and 82% of its million employees are female heads of households. Maria del Mar Palau, its Harvard-educated CEO, is a former Deputy Minister of Trade, Industry, and Commerce and a former Executive Vice President of the Colombian Development Bank.
In 2023, the women-led and women-founded company raised a senior loan of $1m from our SocialAlpha Investment Fund (SAIF). The loan is structured over two years with a double-digit annual USD rate and collateral worth more than 100% of the loan. Bankamoda’s capital structure is primarily composed of leading fashion entrepreneurs whose aggregate revenues exceed $100m, and the company is looking to raise equity to expand its financial product offering and grow within and beyond the borders of Colombia.
AlphaMundi Group’s experience shows that diversified leadership helps reduce risk and enhance investment outcomes. Embedding a gender lens in a company’s business model and policies helps foster innovation, attract, retain, and grow talent, access new customer segments, and reinforce the brand’s uniqueness.
A call to action
So, as an asset manager, how can you get involved? Well, getting started is easy. You can begin with a diagnostic tool such as the 2X criteria (see graphic) and see which ones you comply with, and, as a second step, which ones your portfolio companies comply with. This simple exercise can help asset managers map their gender gap and design an action plan to address it – possibly by collaborating with specialized advisors such as Value for Women, who supported our portfolio companies through an analysis of their gender practices. Institutional investors who find they already comply with various or most of the 2X criteria at both levels can engage with certification bodies like EDGE to get started on a certification process.
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Most crucially of all, investors should allocate more capital to the growing range of GLI opportunities, from passive index funds to more proactive listed equity or private equity and private debt funds, bonds, and even direct investments in companies that are women-led, women-owned, have an explicit and verifiable strategy on gender and diversity, or better yet, have achieved certification with one of the available industry standards like EDGE or the UNDP Gender Seal. This broad range of investment options should allow any investor to progressively embed a gender lens across different allocations and improve risk-adjusted returns, thereby increasing compliance with fiduciary duty obligations.
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