How Six Impact Investors Are Giving Their Portfolios a ‘Gender-Smart’ Boost
By Kristin Kelly Jangraw, INVEST Communications Director
Investors are showing increased interest in gender-smart investment strategies, given COVID-19’s disproportionate impact on women and the growing desire to “build back better” as inclusively as possible.
There is plenty of evidence that reflects the potential of gender-smart business and investing. Gender-diverse workforces are shown to generate higher profits than companies that are less diverse. More diverse businesses are often more innovative and find business opportunities that others miss. They also show stronger employee engagement and client retention.
While the business case is there, many investors are unsure about how to get started. Many impact investors, fund managers and gender advocates have already paved the way — and they are eager to share what works and what doesn’t.
The First Hurdle
What often prevents investors from pursuing gender-lens strategies is the perception that they must limit their investment mandates to a pool of companies that are led by women, serve the needs of women, or already have good policies and practices in place.
“One of the most common misconceptions about gender lens investing is that it is exclusively focuses on financing women-led businesses,” says Carmen Correa, CEO of Pro Mujer.
“There’s a big gap in the ecosystem right now in terms of the ‘how’ to be gender smart,” adds Alexa Blain, co-founder and managing partner of Deetken Impact. “Companies are consistently interested in improving their practices related to gender, but they don’t know where to start.”
Fortunately, investing with a gender lens does not have to mean taking such a narrow focus. Investors can instead find performance alpha by helping portfolio companies of all stripes find and close gender gaps.
“In actuality, it can involve investing in companies that are deploying different strategies aimed at supporting women’s equality in the workplace, such as expanding parental leave policies or creating policies to protect people from experiencing harassment,” explains Correa.
Deetken Impact has been working with Pro Mujer and USAID’s INVEST initiative to launch an interactive toolbox with practical resources to help small and medium-sized businesses in Latin America improve their gender and DEI practices.
“We take the time to assess each company and understand where they are,” Blain says. “We don’t expect them to be experts in all areas; we’re here to help them grow in a way that makes sense to their business model.”
“In our opinion, it is completely worth it from a financial performance perspective, but it is also a way to deepen the relationship with portfolio companies and start a virtuous cycle of gender mainstreaming,” she adds.
Start with a Survey
As investors search for ways to help their portfolio companies make gender-smart changes that will strengthen their businesses, it’s important to note that simple steps can pay outsized dividends without requiring a lot of money or time.
“In general, when it comes to gender-lens investing, my advice is to just get started rather than worrying too much if you have the perfect approach,” says Shuyin Tang, co-founder and CEO of the Beacon Fund.
Tang recommends starting with a simple survey to gather the gender baseline at investors’ portfolio companies. This could include questions about the gender composition of the companies’ customers and team and their policies around sexual harassment, flexible working arrangements, and other issues that affect women.
“Once you have this data for each portfolio company and then also at the portfolio level, you’ll begin to see patterns and trends and where some of the biggest gaps and opportunities might be,” Tang says.
In fact, even the act of taking a survey can have an impact by prompting portfolio companies to reflect. Surveys can be “very eye-opening to senior management portfolio companies, helping them find gaps in their organizations where incorporating a stronger female voice could make a meaningful difference on performance,” says Lisa Willems, managing director at AlphaMundi.
AlphaMundi focuses on helping all of its portfolio companies (a majority of which are still male-founded) integrate gender equity as a core business principle. AlphaMundi has partnered with USAID and Value for Women to support small and mid-sized businesses in East Africa and Latin America apply gender-smart solutions to their business challenges, leading to improved social and financial performance.
“Some of your portfolio companies might not have this information readily available,” notes Tang. “By making them think about these gender-related questions for the first time and showing that you’re interested in the answers, you’re already beginning to have an impact.”
Other Entry Points
There are opportunities at every stage of the investment process to mitigate gender biases and identify missed opportunities. To help investors understand their options, Value for Women created a how-to guide, broken down by time and effort required for implementation.
For example, in the deal origination and evaluation stage, investors can set targets for women applicants, seek new deal sourcing channels, and diversify investment committees. During pre- and post-deal engagement, they can provide women-led businesses with mentorship and networking opportunities, as well as tailored business development services and training.
Investors can also set specific, gender-related milestones with investees in their term sheets, starting with collecting gender-disaggregated data.
There is one important caveat: investors with limited resources should spend them on portfolio companies that recognize the opportunity in a gender-smart approach. Gender-strategy support works best when “businesses are motivated, they put their hand up, and will put skin in the game,” says Fries. “When they have CEO commitment and involvement and are willing to carve out time for their teams to participate, there is success.”
That doesn’t mean investors should only choose businesses that are already doing well, gender-wise. But it does mean it’s worth identifying which businesses are truly motivated and willing to invest their time and resources, even if they may not know where to start.
Laura Davis of RENEW Strategies adds that it can help for investors to show portfolio companies what they themselves are doing.
“When we can say to CEOs: ‘We do this too. Here’s why and here’s how it is helping us,’ the sell is easy,” she says. The more investors — both men and women-led — can demonstrate their own commitment to gender equality, the better.
Why Gender Matters
Addressing the issues that matter to women in the workplace makes businesses stronger and more resilient while benefiting women.
“Gender isn’t just part of our responsibility to ‘build back better,’” says Fries. “It’s also an opportunity: to tap into your full market potential, to increase your impact on the issues you care about, and to speed and strengthen the social and economic recovery from COVID-19.”
For businesses and investors, the financial and social returns are ripe for the taking. But there is a longer game to consider here, too.
“As an investor in emerging markets, we are still unfortunately faced with a dearth of investable, female-owned businesses,” says Willems. “We believe that one way to help address this problem is to ensure that all small and mid-sized businesses are incorporating gender-equity principles throughout their organizations.”
By embedding gender principles into the DNA of the companies at an early stage, she adds, “we hope to see women empowered across all levels of the organization — ultimately becoming the next generation of female founders and entrepreneurs.”
These practices also have a positive impact on societies and communities, as well as individual women.
Gender is one of those areas where the weave between returns and social impact is particularly tight. Empowering women is the right thing to do, and it makes companies, communities, and economies richer in every sense. There is so much opportunity still on the table to increase the flow of capital to female entrepreneurs, to help companies reach their full potential, and to reap the financial and social rewards of empowering women in every value chain.
Mainstreaming gender-smart practices may take some time. It requires pioneers to raise awareness and pave the way for more equitable and inclusive business cultures to become the norm. But it doesn’t have to be a difficult or overwhelming process.
“Gender-lens investing and gender-smart business practices often translate to simple actions, which truly are not rocket science,” says Fries. “Treating women as powerful consumer market segments, as leaders and sound decision makers, and as protagonists of sustainable business practice has clear business benefits.”
Armed with the right tools and equal amounts of patience and empathy — and in honor of International Women’s Day — investors can overcome the hardest part: starting the conversation.