Where the work lies now: a to-do list for gender-smart investors
Whether you’re looking at public markets, private markets, public finance, or private finance, gender-smart capital is moving - with the public markets now valued at $6 billion, according to data from Parallelle Finance, and $18 billion committed to both public and private market gender lens funds and vehicles. Despite a tumultuous couple of years for investors of all stripes, more actors are coming into the field, investment strategies and processes are getting sharper, and there is an increasingly sophisticated understanding of what gender-smart investing really means.
But despite this forward momentum, the money still isn’t moving fast enough. Women entrepreneurs and entrepreneurs of colour still only receive a tiny proportion of all investment capital, and that number has failed to move in a meaningful way, hovering around the 2% mark since 2008. (Black and Latina women founders fare worse, receiving less than half a percent of all US VC investment in 2020.) In a field that is still overwhelmingly male-dominated in terms of both raw numbers and power, gender is still considered a niche concern amongst many of those who hold the purse strings - a box to tick once the essentials to growth have been covered, rather than an essential to growth itself.
And the industry’s application of what it means to use a gender lens in your investments is still often rudimentary, focused on women in leadership and ownership rather than a deeper understanding of how gender plays out across product, policies, and supply chains.
As we open the GenderSmart Investing Summit 2022 today, I’ve been thinking about the key actions we need to take to move the field forward and shift the needle in both numbers and impact. What do we most need to do to move more capital with more velocity and to greater effect?
Here are seven areas of focus I believe would make the most difference at this moment. Read on to find out what they are, and let me know in the comments which resonate most with you.
Direct more money to women fund managers who are investing with a gender lens.
Between 2017 and 2021, the number of private market gender lens funds more than tripled, growing from 58 to more than 200. (At my count, we’re well over 300 at this point.) Many of these fund managers are at the leading edge when it comes to identifying new market trends, supporting local solutions, and investing in underestimated talent. Yet investment firms owned by women or people of colour are still vastly underinvested in, managing just 1.4% of US assets under management.
If you believe that talent is evenly distributed throughout the population, it is plain that these numbers are grossly uneven - and just wrong. Changing them will require a massive mindset shift throughout the investment industry, especially amongst men, who still control the majority of capital. It will require commitment of dedicated capital allocators and a shift in how all capital allocations are made. And it will also require new facilities like 2XIgnite, to accelerate, finance, and put a spotlight on women and diverse fund managers investing with a gender lens.
2. Deepen our understanding and practice of diversity in leadership - in companies, on investment committees, on boards, and more.
It’s not enough to get one woman onto your board and be done with it, or to invite the same three straight white women to join your board that everyone has on theirs. (See for example the “golden skirts” phenomenon in Norway, when following the introduction of board quotas, seats were concentrated amongst a small group of women.) Nor is it sufficient to have three white women on your leadership team and consider them representative of all women. Intersectionality matters when creating diverse, representative and inclusive teams.
The bench of business and investment talent is deep and diverse: both when it comes to women who possess the conventional qualifications for leadership and governance roles, and when it comes to women who have followed less conventional career paths but who still have a depth of intelligence and experience to bring to a team. (See this recent Fast Company article by Dori Tunstall on how organisations can diversify their selection processes to diversify their teams without sacrificing quality or talent.)
To achieve this kind of meaningful diversity, we need to diversify our candidate pools and talent pipelines, and interrogate our selection processes for potential bias. (GenderSmart’s Justice, Equity, Diversity, and Inclusion Toolkit, published earlier this year, is a powerful resource on how to do this.) But it’s equally important that once you hire, those individuals are treated with respect: with equal access to decision-making power, advancement, compensation - including incentive compensation - and a culture of inclusivity that respects all voices.
3. Harness the power of women’s wealth.
According to McKinsey, women now control $10 trillion in household financial assets in the United States. By the end of the decade, that’s expected to triple to $30 trillion. Whether it’s in their pension plan, their investment account, or cash in their bank accounts, many women have access to capital. We need to make sure they have the tools and information they need to leverage it in ways that are in line with their values.
According to Boston Consulting Group, 64% of women say that they factor environmental, social, and governance concerns into their investment decisions. Imagine what could be achieved if even half of them were also moving their capital with a gender lens? Across the 206 private markets funds featured in Project Sage 4.0, there was a $7 billion funding gap between what fund managers were targeting to raise and what they had raised already. Women’s wealth alone could close that gap in a quarter.
To do this, we need informed financial advisors and other intermediaries who understand gender lens funds and products, and are able to work with clients to connect them with funds that are relevant to their needs and interests. We also need to invest in and scale initiatives like We Are Enough, Invest For Better, WAI Angels, and The Beam Network.
Leveraging women as gender-smart investors isn’t a given: just as with men, we need to make the case from both a market opportunity and impact perspective. And as UBS’s recent Women’s Wealth 2030 report details, there is still more work to be done to both get more wealth into women’s hands and to unleash the power of what is already there. But women’s wealth is a significant untapped market to grow gender lens investing.
4. Men need to show up as influencers and allies.
While women’s economic power is growing, the reality is that men continue to control the vast majority of the world’s capital. This means that if we’re going to create the change we want, we need more men in our corner, pursuing more equitable practices in who they invest in, how they build their teams, and how they deploy capital.
Men often tell me that they don’t want to step in and get it wrong, or they don’t think that this work is their responsibility. Or, they think that they’re already being an ally. But real allyship means making tangible investment decisions. It means looking at investment teams, processes, and allocations. It also means addressing the disincentives in the system - for example, the focus on short term results over all else - and creating new incentives in their place.
In the meantime, we have books like The XX Edge by Patience Marime Ball and Ruth Shaber, which make a powerful business case for centering women as agents and actors of investment. We also have phenomenal male allies who are vocal, active, and put their money where their mouths are. We need those allies to bring more men to the table: to show them the value of gender-smart investing, and help move them from passive agreement to action. Women can’t create inclusivity all by ourselves. We need men to see the value of inclusivity too, and to commit to creating it alongside women.
5. Add a gender lens to all climate investment.
According to the Climate Policy Initiative, in 2019/2020, an estimated $46 billion was invested in climate adaptation and mitigation. (A tiny fraction of what is actually needed for rapid action, it is worth noting.)
But at present, very little of this is being moved with a gender lens. For most investors, climate and gender are viewed as separate arenas - despite the fact that we know that bringing a gender lens to climate innovation leads to stronger investment decisions that take into account the talent, innovation, and market needs of the whole community. Gender and other forms of diversity are also essential to a just transition that addresses climate change from a social, economic, and scientific perspective. When we invest with both a climate and gender lens, our money goes further.
Part of what we need to achieve this is a larger suite of products that allow investors at all levels to invest in climate and gender at the same time, instead of being forced to choose between the two. On the gender side, there are already a number of options available that combine the two lenses, from private markets funds such as Nordic Impact Fund, Envisioning Partners Climate Fund, AiiM Partners, and about fifty others, to public markets options such as Adasina Social Capital’s JSTC, PAX Ellevate Global Women’s Leadership Fund, Nia Global Solutions Portfolio, and RobecoSam Global Gender Equalities Equities.
But on the climate side, there is still more awareness building to be done on how gender can be integrated into investment strategies in ways that enhance climate goals. If we want rapid, widely-adopted change to the way that climate investing is done, we need straightforward ways for investors to integrate gender and other forms of diversity into their investment strategy. For more information on what this might look like, see this toolkit from 2X Collaborative and these guides from GenderSmart.
6. Amp up alternative finance models that meet the needs of entrepreneurs and the market.
We know that conventional VC and bank financing don’t meet the needs of the majority of businesses, regardless of the gender of the founder. To address this, over the last couple of years we’ve seen a growing number of gender-smart fund managers and banks experimenting and innovating with new vehicle structures and forms of capital.
Now we need to continue to test, scale and finance these models with more volume and more velocity. Two places to start to learn more about these alternative finance models are Adventure Finance by Aunnie Patton Power and the Impact Terms Platform, powered by Toniic.
We also need allocators to shift their investment criteria and reassess perceptions around risk, return, growth, and impact to be able to back vehicles with these new flavours of capital. Too many investors have just said, “I can’t.” But those on the leading edge are evolving their practices with the times, and seeing results for it.
7. Go deeper and further with our gender analysis, insights, and actions.
Over the last decade and a half, the gender-smart investing field has grown enormously. There are now hundreds of gender-smart products you can invest in, with a broad range of approaches and focuses to meet the needs of almost every investor.
But just like with climate, we still have work to do in order to better understand which approaches really move the needle when it comes to the change we want to create. If a company can only start with three things to shift its outcomes on gender, what are the right three to pursue? What investments will make the most transformative difference to gender equality, health, climate, and inequality around the world? It’s not just what we invest in that matters: the processes we use to make investments and how we work with companies as a result of that analysis and insight to create value matters as well.
I recently participated in an expert hour for GenderSmart with Joy Anderson of Criterion Institute, and she is very clear that deepening gender analysis is the key to unlocking everything - from market opportunity to transformative social impact. Joy believes that we won’t get the results we want if we limit the application of our gender lens to the surface level, investing in a few more women entrepreneurs, a few more funds, or making big declarations about gender equity. To really unlock the market opportunity, we have to understand the gender differentiated needs and experiences of all stakeholders, engage the voice of lived experience, and use existing data to make companies, markets and economies work better for all.
Stay tuned
This week, we’re bringing together 300 of the most intentional gender-smart investors from 44 countries around the globe. Stay tuned for further insights coming out of this convening.