Investors make the case for gender-inclusive climate finance on International Women’s Day.
This International Women’s Day, there is evidence that we have made some progress towards achieving gender equality.
The latest ‘Women on Boards Progress Report’ by US-based data and analytics provider MSCI, which assessed gender diversity across over 2,800 companies listed on the MSCI ACWI Index, noted a near-two-percentage-point increase of women on boards globally, up to 24.5% in 2022 from 22.6% in 2021.
However, one of the largest barriers to achieving gender equality beyond the boardroom happens to be one of the biggest existential threats facing humankind: climate change.
Research forecasts that 80% of those displaced by climate change will be women. In particular, those living below the poverty line will be “the most exposed” to negative impacts, such as reduced access to food and water, says Victoria Miles, Co-CEO and Co-founder of women-led impact investment advisory firm ImpactA Global.
For the majority of women, climate change has the potential to reverse whatever slow progress has been made toward parity.
“Addressing climate change is essential to reducing these [gender] inequalities,” she tells ESG Investor. “A better integration of [women] in society in general and in the workforce is critical in order to achieve a broader diversity in the economic sphere.”
In 2022, charity ActionAid warned that climate change increases women’s vulnerability to gender-based and sexual violence, due to increases in community conflicts and male migration leaving women alone and vulnerable.
Without action to bolster gender diversity, climate change could delay gender equality by 20 years, with progress in 2030 retreating back to 2010 levels, according to a 2021 report by consultancy firm Boston Consulting Group (BCG).
Women also risk losing out in the climate transition, the report added. The green economy is expected to be responsible for 67 million new jobs by 2030, but the current gender distribution across benefitting sectors suggests women will only hold 25% of them.
On the international stage, there is growing acknowledgement of the interplay between gender equality and climate finance.
Both the Green Climate Fund (GCF) and the Clean Investment Funds (CIF) have incorporated gender into their governing instruments and have a gender policy and action plan in place. The Organisation for Economic Co-operation and Development’s (OECD) Development Assistance Committee has integrated gender equality and climate action objectives into its bilateral allocable official development assistance (ODA), with total financing for climate ODA integrating gender equality reaching US$18.9 billion as of March 2022.
“There is scope for more action from investors as they begin to explore ways to integrate the previously distinct issues of gender diversity and climate change,” says Therese Kieve, Stewardship Analyst at UK-based asset manager Sarasin & Partners.
“Unless climate finance considers women’s unique needs, we will continue to not only amplify existing inequalities, but also weaken adaptation and mitigation efforts,” Kieve says, noting that climate-related investments should be viewed as “an avenue for the empowerment of women”.
New guidance is also emerging to help investors set clear, measurable targets that assess the gender and climate-related impacts of their investments in tandem.
360° gender impact
While there is room for all climate-focused funds to incorporate a gender lens in their assessments of opportunities, private equity firms have a particular opportunity to drive positive on-the-ground impact at portfolio companies.
US-based private equity asset manager EcoEnterprises Fund targets investments across regenerative agriculture, agroforestry and the circular economy that have a positive impact on local communities and the natural ecosystems they depend on. The firm utilises the Women’s Empowerment Principles Gender Gap analysis tool to identify gender-progressive actions its portfolio companies are already taking, as well as gender diversity-related gaps that need improvement.
The fund invests in an organic lime producer in Colombia, which is working to provide women, who form a minority within its workforce, with educational courses and professional development opportunities.
Other examples include Upaya Social Ventures, which invests in early-stage female entrepreneurs that have committed to employing at least 50% of their workforce from local communities living in extreme poverty across India, and the Matriarch Revolutionary Fund, a social impact integrated capital investment vehicle managed by and for Indigenous women across the US.
Additionally, there are also initiatives like The Rallying Cry, a growing global network looking to upscale private sector investments made through the gender-climate lens, starting with agribusinesses in Kenya and Zambia.
However, action is needed on a larger scale, according to the BCG report. In 2019, just 15% of the US$16.9 billion in climate-related venture capital funding went to start-ups with at least one female founder, BCG said.
Camille Barré, ESG Analyst at sustainable investment specialist Mirova, an affiliate of France’s Natixis Investment Managers, says that the asset manager has partnered with UN Women to deliver a more direct positive impact “through on-the-field projects” that it cannot access through its Mirova Women Leaders Equity Fund, which invests in listed companies that meet certain economic performance criteria alongside employing an executive committee that comprises more than 30% women, or ones that have a female CEO or CFO.
“We really want to ensure that we’re having a 360° gender impact as much as possible,” she says.
UN Women has done work in Vietnam, where it supported a woman-led project encouraging households raising pigs to install biogas digestors. Pig waste can then be converted into combustible methane, which can be used for cooking and other domestic needs. Women taking part in the project were trained to install and run the digestors.
Stephanie Niven, Global Sustainable Equity Portfolio Manager at South African asset manager Ninety One, argues that gender-focused metrics should form a core part of an investor’s analysis of any portfolio company, as strong climate and diversity performance are “mutually beneficial goals”.
“Investors looking at businesses that are decarbonising the world and presenting fantastic sustainable opportunities in the top line also need to be able to understand that an inclusive company culture ensures diverse views and really drives progress forward,” she says.
Niven points to French energy management company Schneider Electric, which, alongside its Science Based Targets Initiative-validated decarbonisation targets, is also prioritising gender diversity, both at a board level and through its “multi-hub organisational structure”.
“This is a strong sign of inclusivity and a strong sign that women in non-dominant groups can do well when power is decentralised,” says Niven.
Scrutinising the gender lens
A collective of female finance leaders came together in 2021 to form the Women in Finance Climate Action Group (WIFCAG). They are working to improve gender equality in climate investments and outline how financial institutions can better assess, measure and report on the gender-responsiveness of their climate-related investments.
In January, the group published a framework to help investors measure the gender-related impacts of their climate investments. It was developed in collaboration with Aviva, the Oliver Wyman Forum and 2X Global and will be tested by a group of investors over the course of 2023. It’s considered a “key resource” by Kieve from Sarasin & Partners.
The framework is comprised of three areas of guidance: defining the target outcomes to prioritise when adopting a gender lens to climate investments; aligning the organisation and investment processes with the promotion of gender equity; and integrating metrics into the organisation and its investment and engagement processes.
Recommended metrics include whether an entity has a commitment in place to mitigate the negative physical risks of climate change for women, the percentage of suppliers /distributors who are woman, and whether an entity has policies in place to prevent gender discrimination across its supply chain.
“Specificity and context matters, because the exact questions around inclusion and diversity that an asset manager wants to ask will differ according to the asset class or region,” notes Sana Kapadia, Director of Strategy at 2X Global, a global membership organisation for investors, capital providers and intermediaries employing a gender lens in public and private markets across developed and emerging economies.
For example, an asset manager investing in a region suffering from drought may wish to focus their questions on whether a mining company’s use of local water sources is having a more negative impact on women in the local community.
Following feedback to the draft framework, WIFCAG will further refine the applicability of its guidance across all asset classes.
Kapadia urges investors adopting a gender-inclusive approach to their climate investments to ensure they are thinking about “specific local challenges and the needed solutions”. Last month, 2X Global also published a report outlining how investors can further amplify their impact in this space by incorporating justice, equity, diversity and inclusion (JEDI) values into their investment strategy, better serving the most under-represented women globally.
Any asset manager championing gender diversity in their climate investment strategies should look to “practice what they preach”, says Barré.
Female representation is important when it comes to engaging with investee companies on gender, agrees Ninety One’s Niven, adding that “women have typically voted more in favour of environmental and social proposals than men”.
Last month, the European Corporate Governance Institute (ECGI), an international scientific non-profit association, published research examining the voting behaviours of mutual funds where at least 50% of the management team is composed of women. These types of funds made up 9% of fund votes on assessed shareholder proposals filed at US-based companies between 2003 to 2018.
ECGI found that these women-led mutual funds were 17% more likely to support environmental and social shareholder proposals. The paper also indicated that women-led mutual funds were more likely to vote with management in firms headed by female CEOs.
Increased diversity in an investment team leads to better investment outcomes, recent research published by investment consultancy WTW said. Equity and credit teams with greater gender diversity outperformed the least gender diverse investment teams by 46bps and 14bps per annum respectively, according to its analysis of over 1,500 investment strategies.
There is also a correlation between a women-led organisation and a company’s CO2 emissions, according to research conducted by the European Central Bank, with a 1% increase in the share of female firm managers leading to a 0.5% decrease in emissions.
Pauline Grange, Portfolio Manager of Global Equities at Columbia Threadneedle, says firms need to make a concerted effort to change the “patriarchal work culture of finance”.
“There can often be a confidence gap between men and women, which closes as women become more experienced, but it means that younger women tend to underplay their achievements and skills. We need to foster a culture where women are given a clear platform to be heard and their achievements recognised,” she says.
Only 18% of the world’s funds are run by a woman or a team with at least one woman, according to Citywire’s 2022 Alpha Female Report, which tracks over 17,500 active managers globally.
Asset owners are challenging asset managers on their approach to diversity-related diversity and in-house diversity. A group of UK asset owners, including pension fund Railpen, formed the Asset Owner Diversity Charter, which aims to champion diversity across the fund management industry. By joining, asset owner members must commit to including diversity-related topics as part of their manager monitoring and engagement processes.
The woeful female representation (just seven) amongst the 110 world leaders that gathered in Sharm El Sheikh for COP27 last year shows that there’s a long way to go until we achieve gender equality across climate-related policy, investments and solutions – from the highest positions of leadership to the most under-represented communities.
At our current pace, it will take 300 years to achieve gender equality globally, United Nations Secretary General António Guterres told the Commission on the Status of Women on Monday.
From the investor perspective, the path forward is clear, says 2X Global’s Kapadia.
“Gender is material; inequity is a systemic risk.”