Smart investors pay attention to women

Investing with a gender lens increases business opportunities, helps to diversify risks in a portfolio and provides a social return to society.

Investing with a gender lens is quickly emerging as one of the most exciting strategies for creating impact. Several institutions from McKinsey to the Peterson Institute have published findings on how diversity on corporate boards is improving gross margins. Data from the Credit Suisse CS Gender 3000 report for example indicates that companies with a female CEO show a 19% higher Return on Equity on average and a 9% higher dividend payout. Village Capital found that in their portfolio women-run venture-backed companies seemed to outperform men. However, latest academic research casts doubt on the correlation between female leadership and company performance.

Data points aside, ignoring diversity and gender issues can come at a high cost. A stark example of the negative impact of ignoring gender is provided by Uber and American Apparel. Allegations around a hostile environment for female employees in both cases have led to a management exodus with severe disruption to the business and irreparable damage to the brand. In a recent article, the New York Times has called out several prominent Venture Capital investors on the issue of sexual harassment of female entrepreneurs trying to raise capital. Investors with a gender lens have a higher potential of avoiding these type of risks.

Yet, gender sensitive investing still sits at the fringes more often associated with micro-finance organisations then with multibillion dollar funds. Suzanne Biegel, a thought leader in the field and founding angel of the Clearly Social Angels (CSA) Network managed by the impact investment bank Clearly So, admits: “I spend a lot of time just opening people’s eyes. While on climate change the conversation has moved beyond proving the point, with gender, we still don’t seem to have enough data. At CSA, more than 24% of our investees are female led, close to 50% have a positive “women effect” on other dimensions, and more than 28% of our investors are women (percentage down recently because a lot of men joined the network!) However, a gender lens needs to go beyond just leadership and governance issues and look at the entire system which largely excludes women as active agents and decision makers.”

So what does using a gender lens mean? Broadly speaking, a gender conscious investor evaluates opportunities based on how that investment is beneficial to women and girls, supports female leadership and women’s access to capital, products and services.

Here are four easy tips to help investors make their portfolio’s more gender friendly and increase their social impact immediately.

  1. Incorporate gender considerations into your investment screening process

A gender sensitive screening for investments has the potential to expand opportunities not limit them. The most obvious strategy would be to pick companies with a high representation of female leadership, such as AXA’s World Funds – MiX in Perspective that will invest at least two thirds of its net assets in companies which foster diversity and demonstrate a strong commitment to adopt and implement women friendly policies. Investors can also target companies that are characterized by a high potential for female participation along their value chain. Aduna, the healthly products brand, for example, works with 2000 women in Ghana creating sustainable income streams for locally harvested products such as cacao, moringa, and baobab.

  1. Pick companies that design with women not just for them

This is an important point to consider both for businesses as well as investors. The most fundamental question is whether a companies’ business model has considered how women may have different needs and premises as employees, suppliers or customers?

This doesn’t just boil down to ‘sell more stuff to women’, the goal is to create opportunities and reduce risks by designing products and services where women take center stage or are at least equally as important as men. Jessica Camus from Ignis Advisory highlights: “Any business can take actions for investing in women by formulating a clear business case providing buy-in from shareholders, investors or clients underpinned by data and metrics.” Not incorporating gender and diversity aspects into business practices from product development to marketing and sales can have a tangible negative impact on costs and thus profits. These include missed market opportunities and the reputational risk that could come from badly designed products. The automobile industry have only recently begun start using female-size crash test dummies to increase safety for women. Companies will quickly realise that using a gender lens can enhance their business model and increase sales and adoption of their products and services. This in turn provides good shareholder value.

  1. Be aware of your own bias

When conjuring up the image of a successful founder, Elon Musk, Mark Zuckerberg and Jeff Bezos come to mind. Probably not many can name even one or two female founders.

No wonder, because women simply aren’t getting funded. Female CEOs get only 2.7 percent of all venture funding, while women of color get virtually none: 0.2 percent. A different study showed that men are 16 times more likely to get funding. Whilst each investor would certainly cite the entrepreneur’s business proposition and previous experience as the main criteria for decision making. Research by the Harvard Business School, however, documents that gender and physical attractiveness play a huge part – disadvantaging women (and not-so-good looking men). Raymond Guthrie, Senior Partner at the Global Innovation Fund, therefore incorporates diversity into their investment screening from the beginning by ensuring that women investment advisors hold senior level positions in the investment committees. New opportunities also present themselves when investors expand the definition of what type of business constitutes a good investment. For example, according to the Stanford Social Innovation Review women disproportionately start businesses that aim for steady profit rather than rapid growth and a quick exit. Broadening one’s definition of an entrepreneur to include woman coffee farmer in Rwanda along with leaders of Silicon Valley high tech startups, clearly expands the set of investment opportunities and can thus only be beneficial for the investor seeking a diversified portfolio.

  1. Start now.

The last and most important tip though is to make a start. Whilst there is certainly a need for more research around the exact correlation between gender, risk and returns. The merits of advancing diversity and inclusion whilst diversifying risk and uncovering previously hidden opportunities can hardly be disputed.