The Both and the And: Why Gender-Smart Investing Needs an Intentional and Integrated Approach
Over the last five years, the size of the global ESG market has almost doubled, reaching a total of $40.5 trillion in 2020.
Gender lens investing has grown significantly as well in the same period, with the number of private markets vehicles growing from 50 to more than 200 since 2017, and public markets investment to $11B at the end of 2020, following a $2.9B investment from Japanese pension fund GPIF into Morningstar’s Gender Diversity Index.
While significant, these numbers are still a drop in the ocean compared to the mammoth size and reach of ESG investments, which Bloomberg estimates may comprise a third of global assets under management by 2025.
This state of affairs has some in the gender lens investing arena asking if we might be more effective if we focused our energies on sharpening the gender lens in ESG, rather than building gender-smart investing as its own discrete approach: in other words, pursuing an “integrated” strategy (where gender is integrated into a broader agenda of social impact and inclusion) rather than an “intentional” one (where gender is treated as its own specific focus).
If our goal is to increase the amount of capital moved with a gender lens, they argue, the fastest and smartest way to do that is to direct our attention to where capital is already flowing. That is to say, we should literally follow the money.
There are good reasons for making this argument. Getting ESG to its now ascendent position has taken decades of work: not just in persuading investors of the benefits of investing with an eye to social, environmental, and governance considerations, but in creating the reporting and analysis infrastructure, products, and shareholder engagement strategies to support this approach. The gender-smart investing community has been doing its own field building and infrastructure development over the past decade, but to many businesses and investors, it is still perceived as a new set of rules and data to learn about, understand, and report on.
Today, ESG is an industry unto itself, with whole divisions and departments dedicated to it at pension funds, insurance companies, asset management firms, banks, consultancies and a plethora of professional services firms supporting investors with their ESG investment activities, and this only looks set to grow in the years to come. By turning our attention to where the energy already is, some argue, we can move further and with more velocity.
Further sharpening the gender lens in ESG will help to normalise gender as one of the considerations smart investors should be looking at when evaluating market opportunities and risk. It could also help us to better reach the many investors who care about gender, but who are most interested in addressing it in combination with other themes such as climate, social inclusion, and so on.
For this approach to represent an expansion rather than a dilution of driving capital to advance gender considerations, however, the gender analysis in ESG needs to get much stronger.
At present, many ESG vehicles stop at the most basic measures of counting women on boards and senior leadership, when they need to be looking deeper: at policies and practices, product design, supply chains, culture and inclusivity, and more. They also need to be looking at how gender impacts the Environmental and Governance aspects of ESG as much as the “S.” Equileap’s Gender Equality Scorecard offers one more detailed way of approaching this data; so do Wharton’s Four For Women and Adasina Social Capital’s gender justice criteria.
If your goal is to move more capital to women entrepreneurs, to invest in products and services that women need, or to invest in ideas that explicitly address gender inequality, a generalised ESG strategy won’t get you there.
Both as investors seeking financial return and advocates seeking to create social change, we benefit from being precise about what we want to achieve, and the people we are trying to reach. Not to mention that ESG encompasses so many different factors that it’s easy for gender to get lost.
My view is that we need to do both. We need people who are making sure that gender is in every part of the ESG conversation, because that’s how we’re going to move from billions to trillions of gender-smart assets under management. But I also believe that for the next 5–10 years, at least, we need to continue building gender-smart investing as its own field and approach of active and knowledgeable practitioners developing tools and deploying capital to advance gender equity across sectors, geographies and asset classes.
Ultimately, the work we are doing in the gender-smart community will serve the broader ESG field, too. In a conversation I had with Courageous Capital’s Laurie Spengler while writing this article, she pointed to the importance of leveraging the insights and experience developed within the gender-smart field over the last decade to sharpen the gender lens in ESG. I totally agree, and look forward to deepening this conversation.
When it comes to where I direct my own energies, I’m most interested in working on the really intentional stuff right now. But from a systems change perspective, I’m excited by and grateful for all the people who are working to integrate smart gender analysis into ESG vehicles and tools across the public and private markets.
What we have in common is that we all recognise that in the long term, businesses and investors who pay attention to gender are going to be more successful. And a belief that if you want to make a difference on gender equality, changing how capital is moved is one way to do it.
