Gender Lens Investing Roadmap released

Gender Lens Investing Roadmap released

A comprehensive roadmap has been produced for investors wanting to take a gender lens approach (GLI) to improve operational and investment performance and tap into more investment opportunities.

The resource has been described as a first-of-its-kind how-to guide for asset owners, fund managers, wealth managers, family offices and foundations wanting to understand what is involved in adopting a ‘gender lens approach’.

Report co-author Sally McCutchan told The Mandarin that the resource is based on three principles: internal operations, investment processes, and influence on the system. By creating the ‘three i’ framework, business case, and landscape report on gender investing, she says, local and regional investors can now understand what that might look like for various asset classes.

“We wanted to bring a focus for the investment community on what they can do to help address some of the gender and racial equity issues, both in Australia and more broadly in the region,” McCutchan says.

“It’s really designed for people to say ‘What sort of investor am I?’ and then ‘How do I engage in the process of actually trying to generate some change in this area?’,” she adds, noting that the different investor roadmaps also consider the implications for people, process and policies from a gender lens perspective.

Before getting to the ‘how’ of gender investing, the resource tackles some stakeholder-based assumptions about risk, return and business-development prospects to reassure investors who support the concept but are wary of the benefits that there is more profit and value in adopting this approach.

For example, companies with an executive team that ranks among the top quartile for gender diversity are 21% more likely to outperform the market on profitability. They are also 27% more likely to offer greater value creation.

Benefits also extend to clients, with private equity and venture capital funds in emerging markets whose senior investment teams are gender-balanced generating 20% higher returns compared to their peers. For portfolio companies with gender-balanced leadership teams, their valuation increases tracked ahead of others by as much as 25% compared to non-diverse teams.

“Most of the [existing GLI] products are not products that a family office sitting in Australia was necessarily able to engage with.

“We began the journey because we felt like there were people in the Australian market who were thinking about gender but they didn’t necessarily identify as gender lens investors. We also wanted to demystify what that meant in terms of engaging in an investment methodology that actually does consider gender,” McCutchan says.

Embracing a gender lens within an organisation or as an investment strategy is a concept taking off in other markets like North America and Asia but in Australia, the term is less well-known — that is not to say it is not practised, but less likely to be explicitly identified as GIL. There are a few successful local case studies, which the report draws on as inspiration for other companies to also follow their lead, including Melior Investment Management and HESTA, and McCutchan says smaller local businesses need to understand they can do simple things to also level the playing field towards gender equality.

“It is absolutely possible, depending on the asset class that you’re looking at, to take a frame around gender that does not necessarily limit your investment universe,” she says.

“What the report is trying to do is say ‘do what you recognise is achievable’ and that will actually bring opportunities to enhance investment returns, not restrict your investment universe.”

“There was nothing like this in the Australian market for investors that wanted to start to think slightly differently about not just gender but more broadly, thinking around diversity, equity and inclusion.”

For the government, McCutchan says strengthening policy and regulation surrounding transparency and disclosure is key to promoting GIL. While the Workplace Gender Equality Agency (WGEA) does some good work in the area in Australia, no penalties exist for large companies who do not comply and there is no enforceable requirement for companies to change their gender inequality across core metrics. She argues that without more transparent and accessible data on gender-equality metrics, investors will struggle to make informed decisions about the risk that sits alongside a lack of diversity.

“What’s happening in the US in particular, and with groups like Trillium Asset Management, is there has been lobbying for greater disclosure around workplace diversity and actually trying to make investment decisions based on the risk perception of people not having diverse management structures,” McCutchan says.

“You just have to look at some of the corporate issues in relation to large-scale listed companies that have displayed behaviours that reflect a lack of thinking about gender and diversity, and what’s happened to their stock price.

“We can also think about policies around, for example, publishing pay-gap data, where we actually start to see companies [of all sizes] having to disclose that,” she adds, noting there needs to be a publicly-led conversation about what ‘good’ looks like and how targets can help companies get there.

According to McCutchan, ensuring that more direct financing reaches women is another important step the government can take the lead on.

“One of the biggest issues that we see in this space is that there is a lot of fundamental bias around how capital is directed.

“Women, even though they might have established the social enterprise, or they might have established the company, they don’t necessarily have the characteristics that are geared up to the way that the financial system operates in terms of pitching and attracting investor capital,” McCutchan says.

“There’s been studies done that show even the type of questions that often get asked by normally male fund managers when they’re talking to women entrepreneurs often focus on the risk dimensions of investment. Whereas when they’re talking to male entrepreneurs, the questions often focus on the opportunities of the investment.

“That just changes the whole dialogue, the conversation, and often the outcome,” she says.

The new roadmap is a timely release given Australia’s place on the World Economic Forum’s global gender gap index fell last year to 50th overall out of 153 countries in 2021. In the subcategory of equal economic participation and opportunity, Australia was in 70th place.

McCutchan is CEO of Bridges Australia and an executive director of Impact Investing Australia, which, together with Capital Human, produced the report. She was also a member of the
Australian social impact investing taskforce, which was established in 2019 to examine the commonwealth’s role in the social impact investment (SII) market.

“We’ve been advocating for an early stage foundation, very similar to the Access Foundation in the UK, to support early-stage social enterprises, from both the capacity-building perspective and a financing perspective,” McCutchan says.

“It is basically a co-investment between government and the private sector that is there to support the development of new funds that are impact investing funds.”

Following sector consultation, the taskforce handed its final policy recommendations over to the government last year but the report is still as yet unpublished and there has been no government response. The interim report was made available in 2019.

“One of the biggest challenges is that if you are a first-time fund with a first-time strategy, large scale institutions will probably not give you any money because they like to see an established track record.

“When you’ve got a new methodology, you can’t have an established track record, and what the work wholesaler is trying to do is actually provide the anchor capital to help funds establish that track record,” McCutchan explains.

“That’s a piece of policy legislation that, if we want to see the impact investing sector move forward, is absolutely fundamental.”

Article from The Mandarin, 5 April 2022, by Melissa Coade, Senior Journalist