Inclusion & integration of gender lens investing
By Sushma Kaushik, Partner at Aavishkaar Capital – Globally, Gender Lens Investing (or GLI) is gaining interest as more investors and financial institutions are adopting this as part of their investment strategy. Gender Lens Investing is very simply, an investment strategy that factors in gender analysis to advance equality and redress the gender imbalance within businesses.
Of 7.87 billion people in the world, ~50 per cent are women, yet their contribution to the economy is low, especially in emerging economies. In India women form 24 per cent of the work force and contribute a mere 18 per cent to the GDP. One can only imagine the impact a more productive and equitable society could have on growth of the country. Recently, in a landmark development in India, women have been allowed entry into the Defence Academy, so far considered a male bastion for recruitment into the Armed Forces. The Indian economy could potentially grow by an additional 60 per cent by 2025 if the women representation in formal economy increases. So, what stops gender parity from being pervasive? Is there change around the corner? If yes, the question is, what would equip us for such a change?
More women in workforce can trigger a virtuous cycle which not only makes women significant consumers of products and services but also bolsters entrepreneurship opportunities for them. This could lead to the creation of a trillion dollar opportunity! According to a report by Edelgive Foundation, businesses owned by women entrepreneurs in India are likely to witness a 90 per cent growth in the coming 5 years. To unlock this large opportunity, significant investments need to be made in developing the overall ecosystem.
According to a study by FMO the credit gap for women-owned businesses (MSMEs) in emerging markets is estimated to be at USD1.7 trillion and by closing this gap one could see an ~12 per cent. increase in average annual income. Credit intermediation will need to see more women loan officers, underwriters and alternate data to service these women customers.
As an investor, one should see it as a huge untapped opportunity. One that comes with a change in status quo and the ability to overcome socio-cultural and unconscious predilections. At its core, investing is about self-awareness, and understanding ones weaknesses. In this case, as responsible investors can we really choose to ignore 50 per cent of the population? According to the Fund Manager’s Guide to Gender-Smart Investing, “gender equality” or SDG 5, is a prerequisite for achieving all other SDGs and can supercharge overall ESG performance.
This perhaps is the reason for a global shift in investment strategy. According to a recent survey from the Morgan Stanley Institute for Sustainable Investing, 67 per cent of global asset owners identify gender diversity as an area of interest within their investment portfolios. Large asset allocators are also pushing for gender diversity across enterprises. In 2013, the International Finance Corporation (IFC) launched its Banking on Women Bond Program to help financial institutions serve women owned businesses both, profitably and sustainably. Since then, many international banks and financial institutions have launched funds that focus on increasing the flow of capital to women entrepreneurs and women-led small businesses. In 2018, G7 nations also launched the 2X Challenge to mobilize USD3billion to economically empower women in the developing world.
These initiatives by international funding organizations have resulted in a trickledown effect causing fund managers to embrace the challenge and incorporate a gender lens into their investment landscape. Such investments could further catalyze generation of employment, innovation, productivity enhancement and overall economic progress.
That said, while the overall shift might be in the right direction, until parity isn’t achieved, adopting gender lens investing will require an ecosystem approach. Phase one of this approach would involve providing necessary infrastructure and platforms to drive gender parity in employment and entrepreneurship. GLI focused enabler’s viz. accelerators, incubators, search firms and networking forums would be required to support and seed businesses followed by a participation from a continuum of funds. A gender lens fund would then need to become an active part of industry forums and networks that not only supports women founders but also helps in attracting talent and capital that works for them.
However, to achieve a level playing field, it is imperative that investment teams across funds also adhere to gender diversity. Teams that are gender diverse make for a more inclusive and diverse approach when evaluating businesses that serve women or are created by women. If women can be included in areas which demand high degree of technological and educational skill to handle increasingly complex systems such as armed forces and space technology, then integration into other work streams should be relatively easier? A study conducted by IFC stated that Private Equity and Venture Capital firms with gender-balanced senior teams delivered between 10 per cent to 20 per cent higher returns than teams with majority male or female leaders.
For GLI to be enabling it needs to be contextual and relevant. A deep understanding of demography, geography and social norms becomes very important because gender-based challenges change with every region, are often complex and require a novel approach. Gender funds need to extend themselves beyond women in leadership positions and look at businesses to address the challenges women face in reaching those leadership positions.
Perhaps the most important aspect of GLI is monitoring gender disaggregated data to facilitate financial institutions in advancing women’s financial inclusion and creating base to support investing in women per se. The data, once available, will allow investors and financiers to create performance benchmarks for different women enterprise segments, offer customised products/services and incorporate relevant gender-based indicators into their evaluation processes.
It is quite evident that Gender lens investing (GLI) does not necessitate a radical shift in investment strategy, instead it gives us a chance to fix the blind spots in our investment strategy to avoid missing the next Big Opportunity!
Sushma Kaushik is Partner at Aavishkaar Capital, the impact investing arm of the Aavishkaar Group, a global pioneer in impact investing.