Gender Lens Investing

GLI activity spans across global financial markets to reach women and girls in emerging markets and developing countries. This activity is not simply about philanthropy or basic regulatory compliance, but rather an opportunity to unlock economic power and drive market development, achieving financial return and value creation while delivering a quantifiable impact for gender parity.

Indeed, GLI activity is underpinned by an acknowledgement that investments in the potential of women have disproportionally high social and economic impact because of the spill-over effects in healthcare, education and economic growth and job creation. For example, research has shown that investing in businesses that have a higher representation of women on the board and in leadership positions is a predictor of long-term value creation and better financial performance.²

The backdrop to this movement is the commitment of 193 countries in 2015 to achieve 17 Sustainable Development Goals (SDGs) by 2030. While SDG 5 specifically targets gender equality, all 17 goals have underpinning indicators which address the barriers and challenges to achieving full gender parity.

The social, economic and health crises triggered by the COVID-19 pandemic have escalated the acute need for public and private capital to be invested with a ‘gendered impact’ focus. In addition to the already persistent disparities in men and women’s wages, labor force participation and access to financial services, the effects of the pandemic have disproportionately affected women, who are more likely to work in low-wage health and social care sectors.³

As such, the significant gains made towards gender equality in recent years have been put at risk, as the unpaid burden of care has increased, girls’ education in many countries has been disrupted, unemployment rates have disproportionately affected women, and incidents of domestic violence have multiplied.⁴ Research suggests that the effects of the pandemic could set progress for women back as much as six years.⁵

There is growing interest in GLI amongst investors, philanthropists and high-net worth individuals who seek opportunities to align their values with their investment portfolios. According to a recent surveys from the Morgan Stanley Institute for Sustainable Investing, 67% of global asset owners identify gender diversity as an area of interest within their investment portfolios.⁸ The devastating impacts of COVID-19 and the subsequent social movements we have seen in its wake, have affirmed the importance for organizations, funds and individual investors alike to respond to social needs both internally through their structures and externally through their investments.

In mid-2020, Goldman Sachs CEO David Solomon announced that the investment bank would not take companies public unless they had a minimum of one “diverse” board member, with the target being raised to two in 2021.⁹ Similarly, some of the world’s largest private equity firms including The Blackstone Group, KKR & Co and The Carlyle Group have signed up to a global Diversity in Action initiative, which requires them to track internal statistics on hiring and promotion by gender and diversity as well as provide data to investors making new commitments during fundraising.¹⁰

The motivation for gender-focused impact investment can be broadly divided into two categories: to improve the performance of an organization or investment, and to improve gender outcomes. A gender outcome, for example, might include increasing women’s access to capital, investing in products or services for women, helping to grow companies that treat women and men equally throughout the value chain, and improving women’s social, educational, and health outcomes.

Financial institutions are responding to this demand – generating products, services, and new funds that create opportunities for gender lens impact investing. These include investments in companies founded by, led-by or owned by women; investments in financial products that increase access to capital for women entrepreneurs; investments in technologies, products, or services that advance human rights and increase opportunity for women and girls; investments in partnerships or initiatives that strengthen fabric of communities led by women and investments along the value chain of suppliers of multi-national companies to assist them in adopting gender inclusive policies.

Demand for GLII products has also driven a rise in the number of gender-focused investment funds around the world. In 2013, the International Finance Corporation (IFC) set up a ‘Women’s Bond,’ which to date has allocated at least US$175 million to women-owned businesses.¹¹ Since then, Morgan Stanley, Barclays, the Royal Bank of Canada and other large banks have launched funds that focus on increasing the flow of capital to women entrepreneurs and women-led small businesses and cooperatives. In 2018, G7 nations also launched the 2X Challenge to mobilize $3 billion to economically empower women in the developing world. Eligible investments must meet minimum criteria for women in leadership, governance, ownership, and the workforce, or provision of products or services that disproportionately benefit women.¹²

Women are certainly realizing the power that they - and their institutions - wield through their investment portfolios. As of 2018, there were 35 gender lens investment offerings in the public market, with approximately $2.4 billion worth of assets under management.¹³ Global initiatives such as GenderSmart, which seeks to unlock gender-smart capital at scale, and SheEO, which seeks to ignite opportunities for female entrepreneurs and innovators, have also entered the space, indicating the significant appetite for this market.¹⁴

In Canada alone, there are now five investment products targeted at gender-lens investing.¹⁵ This is in the context of a nation where women are 6% more likely to have completed a university certificate or degree than men, yet women’s labor force participation still lags behind men’s and a significant gender wage gaps still exits.¹⁶ GLII products have allowed women to use their investment portfolios to help solve these issues, without compromising on their financial security.

Investment in women boosts economic development, competitiveness, job creation and GDP.

According to the OECD, full convergence of labor force participation between genders would add an estimated 12% to GDP.¹⁷ Even halving the gap would lead to a 6% increase in GDP by 2030.¹⁸ Another report found that if women participated in the economy identically to men, it could add up to US$ 28 trillion, or 26%, to annual global GDP by 2025.¹⁹

Across the globe, men disproportionately occupy positions of corporate and political leadership. Yet there is a growing body of evidence to suggests there is a positive correlation between the proportion of women in corporate leadership and firm performance.20 Research by the Pearson Institute for International Economics (PIIE) found that of the firms within its sample, firms at which 30% of leaders are women could expect a 6 percentage point increase in net profit as compared to firms with no female leaders.²¹

KPMG’s own research into family offices also found that family businesses led by female CEOs generally have a distinct transformational and less autocratic approach to leadership.²² The evidence suggests that women tend to encourage individuals and teams to pursue new business opportunities, identify opportunities for change and make decisions on their own.²³

Investing women’s access to education also produces numerous dividends. Countries where more women go to school also see a dramatic boost to national growth. For every 1% increase in the share of women with secondary education, per capita income in a country increases by 0.3%.²⁴

Educated women are more likely to participate in the formal labor market, start their own businesses and earn higher incomes. A single year of primary education correlates with a 10-20% increase in women’s wages later in life, while the return on a year of secondary education is even higher – in the 15-25% range.²⁵ Research also shows that each year of secondary education completed by a child may reduce their likelihood of marrying before the age of 18 by five percentage points or more in many countries.²⁶ If child marriages were to be eliminated entirely, this could generate more than US$500 billion in benefits each year.²⁷

Investing in women’s education also catalyzes intergenerational benefits. In many countries, each additional year of formal education completed by a mother translates into her children remaining in school for an additional one-third to one-half year.²⁸ Moreover, an extra year of a woman’s education has been shown to reduce the risk of child mortality by 5-10%.²⁹ These benefits are critical to ending the intergenerational cycle of poverty in developing countries.

As a professional services firm advising across various asset classes and industries, as well as within the international development and global philanthropy space, KPMG firms are actively engaged in advancing both gender equality and the impact investing market.

KPMG firms aim to support and empower clients in fulfilling their purpose and be a force for good in society, helping to deliver against the UN Sustainable Development Goals.  KPMG firms focus on enabling change across 4 key areas: environmental, social, governance (ESG) and sustainability; economic and social development; sustainable finance; and climate change and decarbonization, while impact measurement and reporting runs across all these areas.

The 2021 KPMG Impact Plan highlights the organization’s commitments across all SDGs, measures its progress and outlines how KPMG intends to live up to its commitments. Based upon KPMG’s Purpose and Values, this plan seeks to keep the entire organization transparent, accountable and committed to meaningful action.

On a global scale, KPMG have teamed up with Equal Measures 2030, an independent multi-stakeholder initiative of civil society and the private sector designed to tackle this area of opportunity – by connecting data and evidence with advocacy and action for gender equality. 

KPMG firms are offering their data and analytics expertise, governance support, and advisory services to achieve EM2030 objectives, including a particular focus on engagement with the private sector to initiate conversations about how they can use their data capability to advance gender equality. Through the creation of an SDG Gender Equality Index, the alliance measures the state of gender equality aligned to 14 of the 17 SDGs in 129 countries and 51 issues ranging from health, gender-based violence, climate change, decent work and others.

Looking to the future, KPMG predicts that gender impact investing will likely continue to gather momentum.  Witnessing innovations within the gender impact investing space, the organization is inspired by the trends being initiated amongst clients, partners and our own employees.

Partnerships across government, business, non-profits and the investment community will also likely continue to strengthen, to collectively achieve impact. One area where KPMG sees opportunities for continuous improvement is the measurement of impact. There is a need for consistency of measurement and frameworks to measure the various impacts across the gender equality spectrum.  Currently, each organization reports on its progress in its own way, with its own metrics, making it difficult to compare performance across organizations, sectors and countries. Streamlining these measures, combined with increased dissemination of gender knowledge and investment knowledge, will be the key to unlocking GLI so it becomes mainstream across the impact investing market.

The ultimate ‘success’ of the gender impact investing community will likely be to achieve a greater percentage of women contributing to global GDP, national economies and local communities, where gender parity is achieved by 2030 and has matured beyond the need for goals and targets in the gender equity space.