Understanding Gender Lens Investing

April 6, 2021

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By Anna Peel. Originally published at ValueWalk.

Gender Lens Investing (or Gender Impact Investing) is the proposition that investment capital can be used to address social and economic inequalities and, specifically, economic gender inequalities.

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Historically, gender has been treated as a male or female differentiation but at the core, Gender Lens Investing addresses the question of power relations between the genders and how these may lead to opportunities or barriers for one gender or the other.

According to the Syntrinsic Investment Counsel, “Gender lens investing is inclusive and not exclusive. It aims to address not only issues of gender equality but those of poverty, economic growth, climate change, sustainable communities, and reduced inequalities to name a few. With women primarily responsible for the well-being of children in both developed and developing countries, it is logical that gender lens would overlap with these other social issues.”

Though still in its infancy, Gender Lens Investing has been gaining traction in the last couple of years due to growing attention drawn by the gender pay gap debate, the ‘Me Too’ movement and statistics from Boston College’s Center on Wealth and Philanthropy showing that by 2030 women will control two-thirds of the US wealth through the great wealth transfer[1] etc.

When investors use a gender lens framework, much like a magnifying glass, they can clearly see opportunities where their portfolio management choices and engagement can effect societal change and positively impact gender imbalances.

Themes

Broadly there are three main themes in Gender Lens Investing. First, increasing access to capital for women owned/led businesses which face an estimated $320 billion collective credit gap, according to the World Economic Forum’s Global Gender Gap Report, and investing in businesses that analyze and address barriers facing women entrepreneurs.

Second, investing in companies that promote workplace equity through a variety of ways such as demonstrated achievement or progress towards equal pay for equal work, strong anti-discrimination and sexual harassment policies, paid parental leave for fathers and mothers, increased representation of women on boards and in leadership positions of corporations, etc. This theme promotes the notion that companies that do well for women also do well for the investors and the community.

Lastly, the development of products and services that improve the lives of women and girls. Women are 65%-85% of the purchasing power in the world depending on the country so it makes sense for investors to pay attention to this theme.

Why Is This Important To Me?

I was born and brought up in Kenya, East Africa. After graduating from college with a business degree, I struggled to get a job because the country was in a recession and unemployment was very high. I had watched my mother, a social work professor, work hard to singlehandedly educate my two sisters and I and provide for our family. She had bought a house and other properties mainly through the use of women focused savings and loan associations, called SACCOs, that were set up to serve women and help them overcome credit challenges such as lack of collateral and guarantors. Often women in developing countries do not inherit property, a great disadvantage against women in accessing credit.

The challenge of getting a job created a burning passion in me to view business as a potential force for good, with the dual mission of making a profit and meeting societal needs like job creation. I chose to pursue a graduate degree in finance and economic development to help me work towards this end. My passion has led me to dedicate my career to community development finance, enabling access to capital for small businesses with technical assistance, charter schools and affordable housing.

A GLI story from my childhood is notable and illustrates how businesses can do well for their investors and the community. Today, newer and better cooking technologies are available. I share my mothers’ excitement over the recently developed, Made-In-Kenya JikoKoa cook stove that is very appropriate for the African household. Compared to the traditional, time-consuming and expensive stove that I grew up with, the JikoKoa is easy to use, cooks 50% faster, uses 50% less charcoal and greatly reduces deforestation. It therefore saves time for the women who are mainly responsible for the cooking, is good for the family’s finances and is great for the environment. There is opportunity for more products to be thoughtfully produced with the aim of improving the lives of women and girls. Globally their impact can be astronomical in numerous social and environmental sectors.

Considering Materiality And Environmental, Social And Governance (ESG) Risk

Guided by Praxis Mutual Funds stewardship investing principles, gender impact risks and opportunities are tested against established thresholds for materiality in the companies invested in. Praxis’ investment policy calls for company disclosure and action to decrease and prevent discrimination for women and other disadvantaged groups, increase board diversity and gender pay gap disclosure. This guides our investment and engagement decisions.

Gender lens investing is not a stand-alone issue but overlaps with other ESG issues in many ways. Consider the three ESG areas:

Environmental risk analysis can have gender impact when applied to funding businesses in renewable energy technologies or when considering climate change solutions which impact farmers around the word, many of whom are women.
Social risk analysis has gender impacts when issues of human rights, employee and community relations, workplace safety and equity are considered.
Lastly, a governance risk analysis can be beneficial in encouraging companies to increase diversity on their leadership teams. Diverse teams in gender, race and career experiences lead to diverse opinions which help look at opportunities and risks from a variety of perspectives, avoiding more blind spots and improving the overall strength of portfolios.

How Else Can Companies Respond To GLI?

Shareholder Advocacy

Praxis Mutual funds uses the right that shareholders have to engage companies on issues of Corporate Social Responsibility by dedicating staff and resources to advocacy on their behalf.

20 shareholder proposals were filed in 2019 requesting a report on a company’s gender pay gap and disclosure on pay gaps. Of the filed proposals, 16 were withdrawn, likely due to increased corporate disclosure which proves that engagement can be beneficial to furthering Gender Lens Investing.

Proxy Voting

Through the use of proxy voting, which is how shareholders who cannot attend a shareholder meeting get to vote on issues, Praxis voted on 100% of all proposals related to GLI such as asking for action on gender pay disparity and board diversity.

Community Development Investing

By committing approximately 1% of its funds to Community Development Investing nationally and internationally, Praxis has further deepened its commitment to GLI. This investment is managed by Calvert Impact Capital (CIC), a non-profit investment firm that makes loans to roughly 100 mission-driven organizations worldwide that have high impact social and/or environmental focus e.g. micro-finance, affordable housing and cooperatives.

CIC’s Investment philosophy considers gender impact across the value chain of their investments. With the deeply held belief that gender diversity is good for the company and for the community, CIC invests in companies that have 50% or more clients who are female and have diverse leadership teams.

As of 2018, CIC portfolio had impressive gender impact numbers. Women represented:

60% of the end clients of the borrowers
53% of the borrower staff
44% senior leadership in Borrower organizations
36% of board of Directors

GLI Challenges

There are still many challenges to be overcome. A major need is standardizing gender lens investment metrics/criteria in order to compare actual fund portfolios and determine gender impact. This will help encourage private equity and venture capital funds to increase their GLI oriented offerings.

According to MSCI, progress is still slow. A 2019 analysis of their MSCI ACWI Index constituents shows that, at the current pace, a 50/50 gender split among global directors might be reached by 2044. Though the number of companies with majority female boards doubled in 2019 compared with 2018, those only account for less than 1% of boards, 98.7% of them remained male-dominated. Finally, the myth that there is a lack of qualified women to fill executive and director positions persists though research shows that there are no notable differences in financial and risk expertise between men and women available to be tapped for the positions.

The Future Of GLI

Gender Lens Investing strategies are projected to increase over the next decade across all asset classes due to:

Growing demand from investors
The projected wealth transfer for women (who generally demand more inclusivity and diversity), an increase of from approximately $50 trillion in 2015 to $72 trillion, two thirds of the worlds’ wealth, by 2030.
Increased attention and engagement by both investors and investment companies on the 17 UN Sustainable Development Goals (SDGs) aimed at action towards ending poverty, protecting the planet and ensuring prosperity for all. SDG 5, Gender Equity, offers a framework for incorporating a gender lens within their investments.

Investing with a gender lens can improve the lives of women and girls at every level of society and our hope is that, as it becomes more common place, a more diverse and equal society will be within reach, and all, businesses and communities, will reap the benefits. Gender equity is the right thing to do.

Article By Stella Tai, Manager of Stewardship Investing Impact and Analysis at Praxis Mutual Funds® and Everence Financial®