Closing the Gap: Gender Lens Investing and the Future of Finance

Public perception of gender equality issues develops in a repetitive cycle. We’ve all seen it. A scandal breaks out or a study uncovers another damaging disparity. Think pieces are written, hands are wringed, and companies promise to do better. The audience’s attention then moves until another cycle begins. Real change comes very slowly, if at all.

This is especially true in the world of investment and investment finance. These are male-dominated fields where inequality grows more and more skewed the higher up you go. These are familiar issues, and many companies have expressed their intention to address various forms of inequality, both in their behavior as entrepreneurs and in their influence as investors. But again, change comes slowly.

So what is the best way forward?

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While hiring more women, especially in positions of real influence, is important, it is not enough. In finance and investing, the most powerful approach to achieving parity can be investment in gender lens. There are many reasons why different companies and businesses can adopt gender-sensitive investing: for example, it can benefit people around the world, help develop new and neglected markets and sectors, and improve the overall quality of life.

And then there’s the basic, fundamental reason why any investor should support investing in gender lenses: it’s a good investment.

What is gender lens investing?

Investing in gender lenses is a form of impact investing. These investments aim to create a beneficial social or environmental impact along with the expected financial return. While green and other such funds and investments have been around for a while, what distinguishes gender lens investing is that it represents the difference between an investment that pass to benefit women and girls and an investment that, from the beginningis intended for they benefit women and girls. Gender-lensed investing is therefore a framework by which investors can create real impact and to do so substantially.

Approaching equality and impact through gender-responsive investing means investing in:

  • Businesses owned or run by women
  • Companies that promote equality at work
  • Companies whose production improves the lives and economic prospects of women and girls

Investing in gender lenses has a wide range of objectives and individual efforts can be focused on specific aspects, regions and opportunities. But closing the “gender gap” in both the investee company and the investing company is the main mission. Investing in gender lenses addresses diversity from the ground up. It tries to avoid “gender washing” or bringing women in for appearances’ sake, and seeks to empower them on investment teams and place them in positions of real authority.

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The benefits of investing in a gender perspective

The world of business and investment is discovering, albeit slowly, that diversity, gender parity, quality of life, etc., are not just buzzwords. They have a real impact on the bottom line. Studies have repeatedly shown that companies with diverse founders, especially when women are included early on and have real influence as the business grows, perform better over the long term.

In small numbers, when these conditions are met, these companies outperform the market, earn higher returns, and make things better for women in the future. Gender-balanced investment teams beat expectations by 10% to 20%. The International Finance Corporation found that companies with gender parity on their leadership teams had up to 25% higher ratings than teams with lower gender diversity.

This is all quite logical. Business is about innovation, the next big idea. And no company will be innovative, creative and dynamic if the company’s leaders have the same education, the same MBA, the same practices and the same perspectives as their peers. This is not about abandoning this traditional route to business success. It’s about having different ideas that can build on each other and lead to something new. This diversity of thought is critical to innovation at the corporate and board level, as noted in Blue Ocean Strategy i Governance reimagined.

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Trends, opportunities and challenges

Considerable efforts are underway to “mainstream” investing in gender lenses, to move it from a niche investment opportunity to a strategy equal to any other. Although there is still a long way to go to achieve this, it is a growing field. Alternative investment strategies that emphasize the gender lens space account for nearly $8 billion, two-thirds more than in 2018. The G7 has pledged to raise another $15 billion. Things are moving in the right direction and opportunities abound.

The gender-lensed investment mindset can find growth opportunities outside the realm of traditional investment firms. For example, women in Africa oversee only 6% of funds, often in the microfinance subsector. Women own 40% of African small and medium enterprises (SMEs), but only 20% have access to traditional financing channels. The gap here is more than $40 billion, and investing in gender lenses can help close it.

India represents another opportunity where investing in gender lenses can mean the difference between lip service and real change. Many business leaders in India have expressed interest in increasing gender equality. But the goal remains elusive and, in some ways, it is losing ground. Between 2017 and 2019, the number of Indian startups with at least one female founder dropped from 17% to 12%. And of the founders of companies that receive venture capital funding at the early stage and beyond, less than 1% are women. Investing in gender lenses addresses these issues directly.

This is especially important in the era of COVID-19. The pandemic has created something of a global setback in the progress women have made in business and in the workplace. Traditionalist gender roles have led to women once again assuming a disproportionate share of domestic responsibilities. Systemic inequality has been accentuated.

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GLI and GEM: a case study

The investment in gender lenses is not superficial. It’s not a Band-Aid or a PR strategy. It can help businesses and investment firms make a beneficial impact. A shining example of this is Mennonite Economic Development Associates (MEDA), an international economic development organization working to alleviate poverty.

MEDA uses the Gender Equality Mainstreaming Framework (GEM) to support its mission. The GEM Framework “is a practical manual and toolkit for assessing gender equality and identifying, implementing and measuring gender mainstreaming strategies in companies”. Good gender-lens investing includes a holistic approach, and GEM can help integrate gender equality with other impact investing efforts, such as environmental, social and governance (ESG).

MEDA’s GEM Self-Assessment is an excellent first step for companies with gender equality goals. Companies can use it to measure their internal and public behavior on gender equality, identify areas where they need to improve, and then measure the impact of the changes they implement.

GEM is designed for scalability and can serve companies and funds of all sizes and specializations, from private equity pools to technology accelerators and NGOs.

What’s next?

“Never leave money on the table.”

In essence, this saying reminds us that we must not pass up those opportunities that are in front of us. It’s time for the investment and finance world to realize that by excluding women in the first place and dragging their feet on their active inclusion, it has left an enormous amount of money on the table. And it has done so for decades.

If women were equal participants in the workforce, it could add $28 trillion to annual global GDP. The investment sector must take advantage of this opportunity. As more and more companies understand how much gender inequality costs us all, they won’t be leaving that money on the table for long.

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All posts are the opinion of the author. Therefore, they should not be construed as investment advice, nor do the views expressed necessarily reflect the views of the CFA Institute or the author’s employer.

Image credit: ©Getty Images/philadendron

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Sameer S. Somal, CFA

Sameer S. Somal, CFA, is the CEO of Blue Ocean Global Technology and co-founder of Girl Power Talk. He is a frequent speaker at conferences on digital transformation, online reputation management, diversity and inclusion, relational capital and ethics. Fundamental to his work at Blue Ocean Global Technology, Somal leads collaboration with an exclusive group of PR, legal and management consulting agency partners. It helps clients build and transform their digital presence. Somal is a published writer and expert witness on Internet defamation issues. In partnership with the Philadelphia Bar Foundation, he authors continuing legal education (CLE) programs and is a member of the Legal Marketing Association’s (LMA) Education Advisory Board. He is on the board of the CFA Institute Seminar for Global Investors and Future Business Leaders of America (FBLA). He is an active member of the Society of International Business Fellows (SIBF).

Ian Robertson, CFA

Ian Robertson is a portfolio manager at Odlum Brown Limited and a DPhil candidate (part-time) at the Smith School of Enterprise and the Environment, University of Oxford.

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