Gender lens investing (GLI) is gaining traction mainly among development finance institutions and philanthropic endowments, but it has of yet failed to garner the attention of asset owners such as pension funds and insurers, leading to calls for more transparent and coherent definitions.

GLI broadly refers to investing in businesses that further women's welfare. Self-proclaimed GLI vehicles set their investment theses based on a variety of guidelines and definitions on what constitutes the investment approach.

There are several popular frameworks, including the 2X Criteria, Global Impact Investing Network (GIIN)’s Gender Lens Investing Initiative and SEAF’s Gender Equality Scorecard. Despite some overlap, there is no coherent, agreed-upon set of standards, and some of the targets – such as “women’s workforce participation” – leave a lot of scope for interpretation. Additionally, investors believe some of the frameworks to be too ambiguous and difficult to navigate.

Rasmus Juhl Pedersen, PBU

In the absence of a set of universally agreed standards, asset owners interested in GLI are having to evaluate opportunities using whichever investment approach they prefer. There is also the danger that a lack of common metrics opens up the potential for “gender lens washing” – a practice similar to greenwashing in environment, social and governance (ESG) investing.

Rasmus Juhl Pedersen, the head of ESG at Denmark’s Pædagogernes Pension (PBU), has some such concerns. He told AsianInvestor that in his view valid criteria include “gender diversity in leadership” and “a commitment towards improving gender equality” but argued that a male-run company targeting female consumers would not be appropriate, even though some GLI approaches might encompass it. 

The Danish retirement scheme recently became a cornerstone investor in impact fund manager SEAF’s latest women-focused vehicle targeting Southeast Asia. It is one of few pension funds committed to such strategies in the region.

One potential way to minimise gender lens washing would be for GLI criteria to avoid yes or no questions.

"Instead of asking 'does the company have a sexual harassment policy?', we should opt for 'what is the quality of that policy?'”, Suzanne Biegel, founder of GLI consultancy Catalyst at Large, told AsianInvestor.

TOO SOON FOR STANDARDS?

A broader way to reduce these risks would be to implement a commonly agreed taxonomy for GLI. However, colleagues of Pedersen say it might be too early to do so right now.

“We prefer it to be up to us what we define as women or gender lens investing,” Johannes Bill Ladegaard, PBU's head of alternatives, told AsianInvestor.

The risk of doing so is that it leads to overly strict compliance requirements might overburden and quash the market. Biegel added that any set of commonly agreed standards will also need a clear understanding of their impact on female empowerment.

Nevertheless, most investors realise a common set of standards will be needed if GLI is to gain a new set of adherents, particularly among smaller asset owners or fund managers. Asian Development Bank is one advocate for such a taxonomy. The Manila-based multilateral institution is working with the World Bank and other multilateral development organisations on similar GLI-promoting initiatives, such as the Women Entrepreneurs Finance Initiative (WeFi).  

Suzanne Gaboury, ADB

“When we spoke to private equity investors about taking a gender lens to their investing, we found some had the capacity and understanding to do the necessary analysis, but others don’t have the resources,” said Suzanne Gaboury, ADB's director-general of the private sector operations department.

She stressed that a set of common principles would help investors to “get their arms around” GLI as it would reduce the amount of research and resources through which they have to scour.

Gaboury points to ongoing work by the 2X Challenge, an initiative by the development finance institutions of the G7 countries, to align its gender impact metrics with those of the UK’s CDC and GIIN’s IRIS+ metrics and promote widespread adoption of these standards. 2X is also partnering with law firm Hogan Lovells on creating gender lens legal terms and definitions for debt and equity transactions.

Experts envisage a common set of GLI standards akin to the UN Principles for Responsible Investment or UK’s Investing in Women Code, of which asset owners and managers could become signatories. As of February 2021, the latter had 80 signatories.

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While common standards would help encourage growth in GLI investing, Gaboury thinks it will require a strong commercial argument to become mainstream.

Beigel agreed, noting that a particularly compelling argument for adopting GLI would be to stress its effectiveness in mitigating downside risks. “Companies with female-friendly policies are likely to enjoy better recruitment, retention and productivity, and are less likely to be the source of reputation-damaging sexual harassment lawsuits,” she said. These mirror similar risk arguments for ESG.

She cautioned that there is a danger in placing too much emphasis on gender alone ensuring superior financial performance. “You have good female entrepreneurs and bad female entrepreneurs. But there is a clear negative potential impact of not paying attention to gender,” she added.

That said, microfinance is a good example of where women-led strategies perform better. Statistically, the incidence of non-performing loans is lower when microfinance capital is entrusted to women.

Impact investor SEAF said it is working on a database that it hopes will eventually demonstrate to limited partners and the broader investment community that there is a positive correlation between a company’s commitment to furthering women’s welfare and business performance.

The Danish retirement scheme recently became a cornerstone investor in impact fund manager SEAF’s latest women-focused vehicle targeting Southeast Asia. It is one of few pension funds committed to such strategies in the region.