Impact Alpha, 6 Mar 2018: https://goo.gl/rj2zTX
The ripple effects of the #MeToo movement are spilling over into investors’ portfolios. Are investors prepared to turn public awareness of gender bias into proactive investment strategies?
In the past month, sexual harassment allegations against Steve Wynn and Paul Marciano led to nearly 20% declines in stock prices of the companies they founded. Private companies such as Uber and the Weinstein Company are confronting the financial risks of toxically sexist internal cultures (And yes, a majority-female investor group just purchased Weinstein Co.).
Investors are waking up to implicit or explicit gender-related risks in their portfolios. This awakening might just be the tipping point pushing “gender lens investing” into the mainstream.
Gender lens investing considers investments’ social impact on women alongside financial returns. In the past several years, there has been tremendous growth in impact funds, exchange-traded funds, and mutual funds focused on gender-lens investing. Recent studies have indicated over $2 billion of assets focused on gender-lens investing.
Traditionally, most gender-lens investors have been impact investors or development finance institutions with explicit mandates to address gender disparities through their investments. A small percentage of gender-lens investors have been convinced by the evidence of higher returns for businesses that are led by women.
Now, as more traditional private investors potentially become interested in gender-lens investing as part of their risk mitigation approach, there could be a large pool of funding available for gender-lens investment. If you are interested — whether for social goals, higher returns, or risk mitigation — the key question is often how to make a gender-lens strategy a reality?
Moving from the why to how
There are opportunities to apply a gender lens at four key inflection points: when defining the mandate for gender-lens investing, developing a strategy, due diligence, and when providing operational assistance to portfolio companies.
1. Define the mandate
The gender-lens investing movement began with a strong focus on women-led businesses. This focus remains critical as there are persistent, well-documented gender disparities in access to capital and as highlighted above, there is some evidence of higher returns for these businesses. Yet, investing in women-led businesses is only one of several gender-lens-related theses.
Investors applying a gender lens can support gender-equitable workplaces, companies that produce products and services that serve women and companies that work on structural issues such as reshaping rigid gender norms and addressing violence. For example, InFaith Foundation recently announced a $10 million portfolio aimed at addressing causes of gender-based violence.
To develop the right approach, investors must be clear from the start on what they are looking to address. Investors reacting to the #MeToo movement may choose to focus on strengthening gender equality in the workplace or at least investing in companies with greater equality as a risk mitigation tool.
2. Develop your strategy
The next step is to identify what drives gender equality in the workplace and think about how to include those factors in investment strategies.
Drivers could include gender-blind processes for recruitment and promotion, good parental leave policies and equal pay — and will certainly vary by industry and geography.
For example, in the restaurant industry the most critical drivers could be around explicit sexual harassment policies and flexible working hours. In professional services firms, key factors could relate to hiring, retention and equal pay.
3. Incorporate Metrics into Due Diligence
Once these critical factors have been identified, investors can incorporate corresponding metrics into due diligence. Equal pay, for example, can be clearly measured through historical data for specific roles.
Parental leave can be assessed by comparisons to industry competitors, outperformance of local and national regulations, percentage of eligible employees who take parental leave and percentage of employees who return after leave and remain for a specific period of time.
The culture of sexual harassment could be measured by the presence of explicit zero-tolerance policies, availability of support mechanisms and grievance reporting structures, and number of reported incidents.
It may also be to investors’ strategic advantage to link reporting metrics to the indicators of Sustainable Development Goal №5 — which is focused on gender equality. Given the increasing number of investors and investees using the SDGs to set impact metrics, this would allow investors more opportunities to benchmark and compare performance.
4. Support investees’ progress
Finally, investors can advise investees or portfolio companies on how to be more gender equitable and provide them with advice and support on strengthening their business models.
Investors can help portfolio companies overcome unconscious bias in hiring b encouraging the use of specialized tools, or institutionalize gender-specific mentoring and training programs. Investors can also connect investees to share best practices, track progress over time and have investees report back and improve on key metrics.
For these investors, developing a strategy to support gender-equality in the workplace makes business sense not only because of the potential to mitigate risks but also to capture higher revenues and benefit from lower volatility.
By taking the first steps, these investors can move entire sectors towards better policies and gender outcomes.