Unlocking private investment to drive positive change for women in Asia and the Pacific
Integrating gender analysis to see elements that would be otherwise missed is a powerful investment tool for generating profit while helping women and girls.
Gender lens investing – integrating gender analysis to see things that would be otherwise missed – is changing the way people invest. Such strategies generate financial returns while creating benefits for women.
There is a substantial capital gap faced by women entrepreneurs, estimated at over $1.45 trillion, according to the International Finance Corporation. But the situation is improving. Capital raised by private equity, venture capital and private debt funds to invest in businesses that are owned or led by women, or benefit women, quadrupled, between 2017 and 2019, growing from $1.1 billion to over $4.8billion, according to the Wharton Social Impact Initiative.
Providers of equity and loans are realizing that women-led and women-centric businesses are an underserved market, and that they represent quality investment opportunities. Moreover, funds applying a gender lens are expanding geographic focus to emerging markets across Asia and Africa.
The growing popularity of gender lens investing is backed by evidence that investing in women makes economic sense. A study by the Boston Consulting Group found that for every $1 of investment raised, women-owned companies generated $0.78 in revenue compared to $0.31 for men-owned businesses.
Another study, by Credit Suisse, revealed that investors in companies with strong gender diversity strategies receive excess returns of 3.5%, on average. Further, gender diversity in leadership is known to spur long-term innovation and creativity. At the regional level, by eliminating gender inequalities, Asia Pacific can add $ 4.5 trillion to regional annual gross domestic product in 2025, a 12% increase over a ‘no-action’ scenario.
Development finance institutions and multilateral development banks are playing a key role in converting the enthusiasm around gender-smart investing into actual dollars invested and checks written. Industry initiatives championed by international development financiers such as the 2X Challenge have contributed to the mobilization of $4.5 billion which surpasses the initial goal of $3 billion for gender lens initiatives by 2020.
Moreover, these initiatives are encouraging a more robust application of gender lens strategies, which have traditionally focused on women-owned companies or women’s representation on boards. For example, an increasing number of funds are looking to develop broad-based, forward-looking gender strategies to realize the full financial and gender-inclusion potential of the investments.
Investing in women makes economic sense.
Fund managers today typically adopt a two-part approach to gender lens investing. First, gender insights are applied at the origination and portfolio management level to tap into new market opportunities (e.g., women consumer markets) and mitigate risks (e.g., anti-sexual harassment policies).
Second, gender lens approaches are applied within the investment firms themselves to strengthen diversity and inclusion in the workplace practices and investment teams. As fund managers consider the multiple aspects of gender equality, there is a growing demand for tools that help in systematic assessment of opportunities and guide gender equality efforts.
A growing number of investors are keen to incorporate gender elements, particularly into their screening or due-diligence processes, or to monitor the gender actions of their investees over time. To support such actions, a number of industry actors ranging from development finance institutions to private investment firms are providing tools and guidance.
A gender equality scorecard is one such tool that can be applied pre-or post-investments to understand and assess the gender impact potential of opportunities. Most gender equality scorecards measure women’s ownership, women in leadership positions, workplace policies, procurement practices, and women-tailored products and services.
For example, to qualify under the 2X Challenge, investments need to meet at least one of the criteria on women’s access to leadership opportunities, quality forms of employment, finance, as well as product and services that enhance inclusion or economic participation of women.
ADB is developing a gender equality scorecard that enables the company, or an investor, to evaluate a company’s actions to support gender equality against country and sector benchmarks.
Even the private sector actors, such as Small Enterprise Assistance Funds (SEAF), an emerging market impact investing firm, are launching their own scorecard to promote women’s economic empowerment and gender equality in their global investments. The firm applies six categories to assess investments: pay equity, leadership and governance, workforce participation, benefits and professional development, workplace environment and women-powered value chains.
The world of gender lens investing holds tremendous promise, not only to mitigate negative effects on women, but to generate economic returns, build greater resilience to future shocks and support a stable, inclusive global economy. Tools such as gender equality scorecards help us to get one step closer to successful adoption of gender equality approaches.
We must seize this moment to transform interest into real action by striving for effective adoption of gender lens investing strategies.