(John McCann)
Over the past decade, gender-lens investing (GLI) has justifiably garnered interest among investors seeking to promote gender equality and women’s empowerment. But such strategies are about more than advancing a social good for its own sake. Investing in gender-diverse organisations, women-owned businesses, and companies catering to women’s preferences and needs has been shown to yield considerable financial returns.
This dual outcome represents a rich opportunity for all types of investors. But myths and misconceptions continue to limit GLI’s growth potential. Among the five most common myths, the first is that women’s inclusion and empowerment is merely a social cause, rather than an economic issue. But evidence from the past decade clearly shows that investing in women as clients and workforce assets is good for businesses and the economy.
For example, in 2015, McKinsey & Company estimated that if women were to “play an identical role in labour markets to that of men”, $12-trillion could be added to annual global GDP by 2025. Similarly, in 2018, BNY Mellon and the UN Foundation projected that closing the global gender gap in women’s access to financial products and services could unlock $330-billion in annual revenues. And in 2020, Women’s World Banking found that, among its portfolio companies, those with the most women borrowers experienced 6% higher growth in earnings and assets and 3% higher returns on equity, on average, relative to those with the fewest female borrowers.
The second myth is that a GLI strategy will not return market rates to private investors. Again, a growing body of evidence points to a direct correlation between greater gender diversity and financial outperformance. Even though the average female entrepreneur receives investment capital of $935 000, compared to $2.1-million for the average man, female-founded companies deliver twice as much revenue per dollar invested as male-founded firms. Moreover, companies with strong female representation on their boards are 28% more likely to outperform their peers, and gender diversity in executive teams increases the chance of outperformance by 25%.
The third myth is that there are not enough suitable projects to make GLI a compelling investment strategy. This reflects a lack of visibility, rather than a lack of supply. Fortunately, industry initiatives are emerging to shine a spotlight on gender-focused investment opportunities worldwide. In 2018, for example, G7 development-finance institutions launched the 2X Challenge to mobilise $3-billion to help empower women in developing countries.
Moreover, according to Project Sage 4.0, the number of funds allocating capital with a gender lens rose from 58 in 2017 to 206 in 2021. Conservative estimates indicate that $6-billion in total capital was raised for gender-lens funds as of mid-2021. And in the first half of 2021, female-founded companies in the US raised more venture capital than at any point in the last decade. Clearly, there is no shortage of suitable projects — although it may require dedicated efforts to find them.
The fourth myth is that focusing on gender is not operationally important to a firm’s success. This claim is belied by the fact that female customers comprise an enormous potential market — one that could account for about $15-trillion of global consumer spending by 2028. A 2018 Credit Suisse report estimates that women account for about 40% of global wealth, representing a largely untapped opportunity to generate financial and social returns.
A strong internal commitment to female employees and leaders also can create value for women customers. According to the think tank Coqual, teams are up to 158% more likely to understand target customers when their members represent those cohorts. The same study also found that companies with a diverse workforce and leadership are 45% more likely to have expanded their market share and 70% more likely to have captured a new market in the past year.
Finally, it is a myth that GLI is too narrow to be scalable. By definition, GLI lends itself to a variety of funding strategies, because gender considerations can be integrated into all aspects of an investment process and layered onto existing strategies. That is why more and more impact-focused investors are helping to build the business case for GLI.
The success of the European Investment Bank’s SheInvest initiative further illustrates the transformative potential of GLI. As a 2X Challenge member (and as the first multilateral development bank to adopt the 2X gender-investment criteria), the EIB mobilised €1-billion in GLI in the programme’s first year, providing African women with better access to finance, as well as tailored services and products.
Despite GLI’s increasing appeal and popularity, and despite the growing evidence in support of its social and economic benefits, the field remains small relative to other impact strategies. But there are major opportunities to build on GLI’s financial and social potential. The creation of the 2XCollaborative, a global industry group that convenes a broad spectrum of investors to promote GLI, shows that momentum is building.
By debunking myths and misconceptions, we can encourage even more social-impact investors – and conventional investors – to integrate gender considerations into their allocations of funding. — Project Syndicate