Greater than empowering, investing in ladies’s corporations is worthwhile
- July 30, 2022
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Investing in women and businesses run by women is more than a social issue — the evidence shows economic support and company empowerment. In short, it’s good for business.
Over the past decade, “gender-lens investing” (GLI) has been attracting interest among impact investors looking to promote gender equality and women’s empowerment, and rightly so. But such strategies are not limited to advancing a social good in its own right. It is proven that investing in organizations with gender diversity, women-owned businesses and businesses that cater to women’s preferences and needs. women has yielded considerable financial returns.
This dual result represents a rich opportunity for all types of investors — not just those focused on social impact. However, myths and misconceptions continue to limit the growth potential of GLI. Among the five most common myths, the first is that female inclusion and empowerment are exclusively social causes, not an economic issue. In fact, the evidence from the last decade clearly shows that investing in women as customers and workforce assets is good for businesses and the economy.
For example, in 2015 McKinsey & Company estimated that if women “played an identical role to men in labor markets”, $12 trillion could be added to annual global GDP by 2025. Similarly, in 2018 the BNY Mellon and the United Nations Foundation have projected that closing the global gender gap in women’s access to financial products and services could unlock $330 billion in annual revenue. And in 2020, Women’s World Banking found that among its portfolio companies, those with the most female borrowers experienced 6% greater growth in earnings and assets and 3% greater returns on equity, on average, than those with fewer female borrowers.
The second myth is that a GLI strategy will not return market rates to private investors. Again, a growing body of evidence points to a direct correlation between more gender diversity and superior financial performance. Even though the average female entrepreneur receives $935,000 in investment capital, compared to $2.1 million for the average entrepreneur, companies founded by women deliver twice as much revenue per dollar invested compared to companies founded by men. In addition, companies with strong female representation on their boards are 28% more likely to outperform their peers, and gender diversity on executive teams increases the chance of superior performance by 25%.
The third myth is that there aren’t enough projects suitable to make the GLI an attractive investment strategy. This reflects a lack of visibility rather than a lack of supply. Fortunately, industry initiatives are emerging to highlight gender-focused investment opportunities around the world. In 2018, for example, the G7 development finance institutions launched the 2X Challenge, a challenge to mobilize $3 billion to help empower women in developing countries.
Additionally, under the Sage 4.0 project, the number of funds allocating gender-lensed capital has increased from 58 in 2017 to 206 in 2021. Conservative estimates indicate that $6 billion in total capital was raised for gender-lensed funds in mid-2017. 2021. And in the first half of 2021, women-founded companies in the United States raised more venture capital than at any time in the last decade. It’s clear that there’s no shortage of suitable designs—although they may require dedicated efforts to find.
The fourth myth is that focusing on gender is not operationally important to a company’s success. This claim is belied by the fact that female customers comprise a huge potential market — which could account for an estimated $15 trillion of global consumer spending by 2028. A 2018 report by Credit Suisse estimates that women account for around 40% of global wealth, representing a largely untapped opportunity to generate financial and social returns.
A strong internal commitment to female employees and leaders can also create value for female customers. According to the Coqual think tank, teams are likely to understand up to 158% more of their target audience when their members represent these groups. The same study also found that companies with a diverse workforce and leadership are 45% more likely to expand their market share and 70% more likely to have captured a new market in the past year.
Finally, it’s a myth that GLI is too constrained to be scalable. By definition, the GLI lends itself to a variety of funding strategies because gender considerations can be integrated into all aspects of an investment process and layered into existing strategies. That’s why more and more impact-focused investors are helping to build the business case for the GLI.
The success of the European Investment Bank (EIB) SheInvest initiative further illustrates the transformative potential of the GLI. As a member of the 2X Challenge (and as the first multilateral development bank to adopt the 2X gender investment criterion), the EIB mobilized €1 billion ($1.1 billion) in GLI in the first year of the program, providing African women better access to finance as well as personalized services and products.
Despite GLI’s growing appeal and popularity, and despite growing evidence in support of its social and economic benefits, the field remains small relative to other impact strategies. But there are great opportunities to be built on GLI’s financial and social potential. The creation of the 2X Collaborative, a global industry group that brings together a broad spectrum of investors to promote the GLI, shows that the movement is gaining momentum. By debunking myths and misconceptions, we can encourage even more social impact investors — beyond conventional investors — to integrate gender considerations into their funding allocations.