Q&A: A case for gender-smart investment

GABORONE — Over the last few years, development finance institutions have turned their focus to gender-smart, or gender-lens, investing — a strategy that seeks to intentionally and measurably use capital to address gender inequalities and better inform investment decisions.

Initiatives such as the Gender Summit, organized by Business Fights Poverty, and the 2X Challenge — which resulted in $3 billion committed to gender-smart investing by the DFIs of G-7 leading industrial nations — have further served to bring together a wide ecosystem of players to this discussion.

To accelerate progress, the U.K. government’s DFI, CDC Group, in partnership with the International Finance Corporation, last month launched a guide to gender-smart investing for private equity fund managers.

Jen Braswell, director of value creation strategies at CDC Group, said that such collaborations have been the driving force behind the momentum in the sector. With continued collaboration, financial institutions will be able to build back better with gender in mind, she added.

“We have collaborated across multiple institutions and brought the learning that we have each had in terms of, ‘How do you operationalize this approach to share with each other?’ And in so doing, we have had a lot of momentum that we bring back into our institutions that helps push things faster,” she said.

Braswell spoke to Devex about the value of such collaborations and what needs to be done to ensure that the momentum toward gender-smart investments does not waiver.

This conversation has been edited for length and clarity.

What is CDC Group’s approach to gender-smart investing?

When we launched our gender strategy in 2018, we focused on four key areas of the corporate value chain. We focused on where women participate in the leadership of a business; where women participate in the workforce; women’s ownership or entrepreneurship; and what the businesses themselves provide to women consumers. So looking across that whole spectrum of opportunity is what gender-lens investment means for us. It gives us a wide view of how we can influence and support gender equity through investing.

When we talk about the different elements of the corporate value chain, there is also a different impact that we can think about with these different elements. When we are talking about women in leadership or, more broadly, diversity in leadership, you are really looking at systemic change. You are looking to change the way that decisions get made in the private sector because there are different perspectives and different voices around the table.

Thinking specifically with a gender lens, you are looking to create a decision-making leadership framework that makes better decisions with women in mind for the business. For us, this systemic change is quite an important impact that we are looking to achieve as an impact investor.

When you are thinking about diversity in the workforce you are thinking about an impact that is around providing access and opportunity for economic participation that has a direct impact on the women who are employed in the business. So there is a direct-reach impact to individual women when we are thinking about the workforce.

Then when you are thinking about consumers, you are thinking about how we can improve the lives or help improve the lives of women directly by ensuring the private sector is producing goods that are designed for them and tailored for their needs or services that similarly support them.

Why should private equity play a role in bridging the gender gap?

The good news with gender-lens investing is it is not only the right thing to do; it's the smart thing to do. So there is a really clear impact case and also a commercial case, which flows from all the research that has been done to show that investment teams that have gender balance at the senior decision-making ranks produce higher performance in their portfolios and that gender-smart businesses are higher performers commercially.

This is because of the diversity and the gender diversity dividend that we see in terms of more responsible business decision-making, better talent management, improved safeguarding for the workforce, better design for products that reach broader segments of the market. So all of those things provide a commercial upside.

On the impact side, we really believe that there is a huge opportunity here that is being missed at the moment. While investors across the industry are ramping up their capabilities, we are not currently as a group intentionally investing with a view for where women participate in our businesses. And when we don't do that, we are missing an impact opportunity, as well as the commercial opportunities.

One of the motivations for the guide you worked on with IFC was to provide the data and research to make the case for gender-smart investing. How important is this data?

Data is key, and it is missing at the moment. When we started looking at this with all of our peers and we tried to get an understanding of where women participated in our portfolios, we realized that we really didn't have gender-disaggregated data, so we really didn't know where women were participating.

If you can't measure it, you can't manage it. So in order to be able to, first of all, help to convince the senior leadership of your private equity fund or your DFI that this is something that you should spend some resources and time to do, you should have some research to provide that correlation between the gender balance and performance and between gender balance and impact.

So data is key to beginning to shape strategy and be influential in helping decision-makers make the decision to invest with a gender lens. And it is also critical to be able to understand both the performance that you are having related to gender diversity and to the impact you have over time.

Right now, the data that is out in the market is patchy, partly because systems aren’t yet in place to be able to have a gender-disaggregated view. For example, many financial institutions do not automatically or currently know the gender of individuals they are lending to. It's just not part of what's systematically gathered. It is kind of impossible to invest credibly with a gender lens if you don't have the data to help support that effort.

What are you doing to ensure that this data is available?

So within the four elements of the corporate value chain that we look at, we worked together with the broader community under the 2X initiative to develop a set of definitions and a series of percentage thresholds of what good participation looks like across emerging markets, and we codified them in the 2X criteria.

We have also then translated these thresholds into a suite of simple indicators that we, along with a number of industry bodies, are turning into the industry standard for data collection for gender. We want to ensure that the data gets standardized, that we are all asking the same thing and the systems that get built across the private sector are providing the same data that we can all understand in the same way.

How has COVID-19 affected the push toward gender-smart investment?

COVID-19 has been challenging for everyone on every level, and the work to change the way that an investment house does its investing is hard work.

From the investment side, COVID-19 has shifted focus. Priorities have shifted to preserving portfolios as companies are starting to struggle under the challenges of COVID-19. Issues with retrenchment, issues with needing to pivot whole business approaches have meant that a lot of the work that has to happen to actually create a gender-smart investment process has slowed down, but I think that’s really going to be short-term.

In the macro sense, we are seeing that data now shows that women have been disproportionately affected by the pandemic, that women take on a greater burden of double duty with household and care duties in addition to work, and often it's women who are first to step away from the workforce.

So more than ever, investing with a gender lens is going to be critical as we move from this preserve phase to thinking about how we proactively and intentionally invest to ensure that we can regain the ground and help to build more gender equity into our portfolios in this “build back better” phase.

How can we ensure that the momentum is not lost within this next phase?

It takes intentionality. The starting point is leadership from the top of the investment community. So chief executive officers and heads of boards need to keep this particular focus in mind. Gender and diversity, particularly in the leadership of the private sector, is going to be key to helping the world navigate out of the crisis.

And leadership is key because gender-lens investing and diversity investing is a change agenda. It's a change from business as usual. And in order to realize the effects of the change and to drive it more quickly, it takes clear leadership and intentionality, and that leadership then goes through an organization to incentivize the business to think differently than it has done in the past.

Before the pandemic, we had a lot of momentum within the gender-lens investment space, and I haven't really seen that waning. I think there is still a positive view on the benefits that gender-lens investing provides. So now it's going to take some serious leadership to ensure that the momentum stays and we move to the next phase of gender-lens investing across the industry, and that it remains a top priority.

Devex, with support from our partner UN Women, is exploring how data is being used to inform policy and advocacy to advance gender equality. Gender data is crucial to make every woman and girl count. Visit the Focus on: Gender Data page for more. Disclaimer: The views in this article do not necessarily represent the views of UN Women.