Jacolene Otto, Head of Private Equity and Real Estate at Maitland, says investors should look beyond the headline numbers for impactful gender lens investing.
As we make more sustainable investment and business decisions, the importance of integrating ESG is becoming the norm rather than the exception. Most investors and corporates are now taking into account the 17 UN Sustainable Development Goals (SDGs) as a guiding principle for sustainable development.
One of the 17 SDGs that has come to the fore as a niche area of investment over the past 10 years is SDG5 – to achieve gender equality and empower all women and girls. We are seeing governments committing to female empowerment, but as with all the SDGs, the private sector needs to commit capital as governments cannot go it alone.
Over the last couple of years, the commitment to empowering women has gained more traction with the #MeToo movement, the high rates of violence against women (according to the UN, one in three women have been subjected to physical and/or sexual violence at least once in their lifetime since the age of 15), and the lack of females in leadership positions.
This has led to gender lens investing (GLI), which in short is investing undertaken with gender concerns as an important – or even the lead – factor in the decision-making process. GLI is therefore the practice of investing for both financial return as well as considering the benefits of the investment to women and girls. Gender-smart investors recognise that financial systems engage with and benefit men and women differently, and are actively committed to using finance as a tool to promote gender equality.
Although there is guidance in the form of the gender-smart investing toolkit by the CDC Group, which assists firms in developing their GLI strategy or the 2xchallenge, what does GLI look like in practice? And how are firms actually achieving true impact on women through their investments?
What I have learnt in my research and conversations is to quantify the issue. For example, most investors and corporates see GLI in terms of:
- Our portfolio companies’ workforces are made up of more than 50% females
- We have majority women on our board and/or in leadership positions
- Our investments are majority-owned by women
- The products that our portfolio companies sell are mainly female-orientated
- The women in our company are paid equal to men
Although this is all positive, giving women access to the market and meeting the brief of GLI, I keep wondering if it is enough. Is this really going to result in change? And so maybe the qualitative aspects also need to be explored. Some of the interesting qualitative insights I found to ensure meaningful investment are:
- A correlation between the levels of violence against women and the stability of a country. According to the Criterion Institute’s ‘Political Risk – Investment Approaches Roadmap’, the level of violence against women is a better indicator/ predictor of peace, compliance with the country’s laws and regulations and relations with neighbouring countries than, for example, measuring the wealth or democracy of a country. Yet the measurement of political risk, which drives investment decisions, does not take into account violence against women.
- Gender-balanced investment teams generate 10 to 20 percent higher returns in private equity and venture capital firms, according to the International Finance Corporation, a member of the World Bank group. This points to the importance of the investment manager not just ensuring that the underlying investment portfolio is gender focused but also that its own practices ensure advancement, training, and guidance for women.
- The need to embed gender-responsive due diligence (GRDD) into the investment process and culture of a firm to minimise the adverse business impacts on women. This involves not only an active, ongoing assessment of how a firm is contributing to gender equality – how women are treated in the organisation, the gender pay gap, and female unemployment in the surrounding community, for example – but the development of a strategy on how investment into the portfolio could potentially have an impact on this, too.
Although there are positive developments, for GLI to be effective and truly have an impact, it should be about more than just female ownership, the number of board seats held by females, or the number of women in the workforce. Certainly, these statistics should be at the centre of the gender equality conversation, but to truly enact change, investors need to adopt a holistic view of quantitative and qualitative measures.
The full impact of gender finance is unlocked when you look beyond leadership and governance, across the value chain and across the investment cycle. Only by understanding the impact of investments on the broader societies in which we operate can we measure the full extent of investment contribution to female economic empowerment and raise the standards for GLI across the industry.