Gender lens investing (GLI) is gaining traction as a powerful impact investment strategy combining financial returns with gender equality. According to the Global Impact Investing Network (GIIN), GLI is an investment strategy or approach that incorporates gender-based factors into investment decisions to advance gender equality.
Current state of gender parity and the financing gap for GLI
Globally, there are wide gaps in gender equality and access to economic opportunities for women. The World Economic Forum’s Global Gender Gap Report 2023 highlights that the global gender gap is 68.4% closed, with full parity projected to take 131 years at the current rate of progress. The International Finance Corporation (IFC) forecasted a US $300 billion financing gap for the frontier markets in 2023, with more than 70% of women-owned businesses having limited or no access to financial services. Globally, there is an estimated US $1.7 trillion shortfall in access to finance for women-owned microenterprises and SMEs.
The promise and challenges of GLI
Investors use the gender lens to invest in businesses that improve access to critical goods and services for women which impact their quality of life, security and well-being, leading to their social and economic empowerment, thus addressing gender disparities. GLI involves a deliberate focus on gender considerations across various dimensions of the investment process such as,
- Investing in Women-Owned or Women-Led Enterprises
Investors target businesses that meet people’s needs and drive value through diversity and inclusion, prioritizing investments in innovative enterprises led or owned by women
- Investing in Enterprises Promoting Workplace Equity
- Staffing: Ensuring gender equity at all levels of the organization
- Management and Boardroom Representation: Promoting gender diversity in senior management and on boards of directors
- Supply Chain Equity: Encouraging equitable practices throughout the supply chain, ensuring that suppliers also adhere to gender equity principles
- Investing in Enterprises Offering Gender-Positive Products or Services:
Investors focus on businesses that develop products or services designed to improve the lives of women and girls, such as healthcare, education, safety, and financial inclusion services
However, several challenges hinder the widespread adoption of GLI:
- Limited investment instruments tailored to specific needs of women owned/ led businesses: Many of the financial instruments available to women-owned or -led businesses do not meet their financing needs, mostly due to limited women’s ownership of assets that can serve as collateral, that makes borrowing difficult for women
- Lack of gender lens impact measuring framework: A gender lens financing framework that can guide investors to measure the impact of their investments on gender equality and women’s empowerment, beyond economic growth is lacking
- Limited pipeline of products and services targeted towards women: For private market vehicles, female entrepreneurs or businesses focused on markets addressing products and services targeted towards women or with women-powered value chains, are still less visible in pipelines for investing
- Perception of lower returns: Investing in companies led by women have been perceived as riskier despite better risk/ return profile of ventures owned by women; women have historically had lower default rates than men. Investors perceive that they have to sacrifice returns for social impact, which may deter them from incorporating gender considerations into their investment strategies
- Inadequate proportion of women investors and lenders: There can be a disparity and lack of inclusiveness in lending owing to a small number of women investors and lenders in the decision-making bodies. According to research by Oliver Wyman, women currently make up only 6% of the executive committees of major financial firms worldwide
- Unconscious gender bias during investment process: Research indicates the presence of gender bias in investment process, as well as the differential treatment of male and female entrepreneurs seeking investment capital at the same level of competence. This bias presents itself in a variety of ways, including positive reactions during pitch meetings and framing queries based on the gender during the due diligence process
- Limited availability of gender-disaggregated data: The lack of robust data affects the ability to measure impact accurately, create effective GLI products and promote companies with gender-positive practices
Potential of GLI:
Despite these challenges, there is significant potential for GLI to grow and impact global gender equality positively.
- Growing Assets Under Management (AUM): As of March 2024, total AUM of gender lens fixed income funds and vehicles is US $15.8 billion and as of June 2023, publicly traded gender lens equity funds (GLEFs) totalled US $4.3 billion in AUM, reflecting increasing recognition of gender-focused investments
- Emerging Markets: Development finance institutions and impact investors are increasingly channeling capital into gender-focused products, particularly in emerging markets like South East Asia, where orange bonds, which is a sustainable debt asset class for investing with a gender lens. are gaining traction. The Impact Investment Exchange (IIX) estimates that orange bonds, which are could unlock US $10 billion in gender-lens capital by 2030
Strategies for addressing GLI challenges
To overcome these challenges and harness the full potential of GLI, several strategies can be employed:
- Innovative financing models: Using catalytic and concessional capital to de-risk investments and attract both public and private finance
- Technological integration: Leveraging machine learning and artificial intelligence to analyse large datasets and identify gender lens investment opportunities
- Inclusive product design: Financial services firms can capture up to US $700 billion in additional revenue annually by better serving women customers, requiring a shift towards more inclusive product design, targeted marketing, and a commitment to gender equity.
By addressing these challenges and strategically focusing on the integration of gender considerations into investment processes, GLI can significantly contribute to closing the global gender gap while offering sustainable financial returns.
Bibliography:
https://thegiin.org/gender-lens-investing-initiative/
https://www.weforum.org/publications/global-gender-gap-report-2023/in-full/
https://www.unwomen.org/sites/default/files/2023-12/booklet-gender-finance-2023-en.pdf
https://www.bloomberg.com/professional/insights/trading/green-bonds-reached-new-heights-in
https://investinginwomen.asia/wp-content/uploads/2023/09/Factsheet-2-Gender-Lens-Investing.pdf
https://www.oliverwyman.com/our-expertise/hubs/gender-diversity-in-financial-services.html
https://www.spf.org/en/global-data/user47/GLILandscapeReport.pdf
https://www.fsg.org/blog/investing-in-women/
https://iixglobal.com/gender-lens-investing-cuts-risk-and-boosts-returns-imd/