Author: Nikki Walker
Avoid a major blind spot: Gender-smart investing is risk management
Nikki Walker
Wed, 04/21/2021 - 01:32
If a company is not focused on gender diversity and its economic impact, does it really understand the needs of its customers?
This question, asked by Suzanne Biegel, co-founder of Gender-Smart Investing, was the central matter for debate during a breakout session last week at GreenFin 21.
Biegel was highlighting a central disconnect many investors have in understanding the importance of gender balance when considering investments related to climate action and solutions: While gender diversity may not directly lower emissions, companies with female representation on the board level are more likely to put the necessary steps in place to reach climate innovation, such as setting decarbonization strategies, according to the panelists.
According to a recent report by BloombergNEF, a company with 30 percent or more women on its corporate board produces superior climate governance and innovation. The report focuses on innovation in three areas: global electric utilities; oil and gas; and mining sectors.
Not only does gender diversity intersect with climate innovation, it also acts as a risk-management indicator for investments, according to the GreenFin panelists.
There is nowhere where gender is not relevant ... across every single industry, across every business model. And so given that we're looking at climate finance, it absolutely is relevant.
"Let's name it what it [is] and move forward," Jackie VanderBrug, head of sustainable and impact investment strategy at Bank of America, said of the blind spots companies operate with when they fail to consider gender dimensions related to business strategy.
Bank of America’s global research found that companies with above the median number of women in management have a 30 percent higher return on equity and 30 percent lower earnings risk over the next year versus those businesses that have a management mix below the media, according to VanderBrug.
While the benefits of gender representation are clear, only a few investors are making the intersection a priority at this time, the panelists said. Eghosa Omoigui, founder and managing general partner at EchoVC Partners, sees this as a mistake.
"There is a whole community of people who are doing it already," he said. "So if you're not really bringing these things together around gender and climate ... the risk of not paying attention is tremendous."
Enthusiasm from those already investing in and seeing the benefits from climate- and gender-conscious investments is contagious. VanderBrug described the feeling as, "I want what he’s having," after hearing Omoigui explain his recent work with Gro Intelligence — a software company that gathers, aggregates and processes data about global food and agriculture.
Half of Gro’s founders are female. Omoigui said the leadership team is building a 50- to 100-year company with its mindset on sustainability and inclusion.
So how can investors start to prioritize the two?
1. Ask for the gender data
Before Najada Kumbuli joined Visa Foundation as head of investments, she worked with Calvert Impact Capital, where she had to dig deeply into the renewable energy portfolio. She started to ask about the gender data. She was met with skepticism. "Folks were like, ‘Why do you even care?’"
As Biegel points out: "There is nowhere where gender is not relevant ... across every single industry, across every business model. And so given that we're looking at climate finance, it absolutely is relevant."
Data is an essential tool needed to make the case. "In the gender world, we're always trying to make the case for why we have to do this, as opposed to the opposite case ... in terms of the risk side, the challenge of what happens if you don't," VanderBrug said.
2. Be unapologetic and add gender representation to the term sheet
"Unapologetic" is Omoigui's personal investing philosophy, which means not just negotiating but demanding gender diversity in the companies he invests in. This mindset establishes the precedent for all his investing decisions and manifests in contract term negotiations. Omoigui remembered a particular Zoom meeting with a potential investment that left him thinking that the amount of guys on the call made it "not that interesting."
He now has a clause in the term sheet that says, "There will be changes made to that management team." It’s not a negotiation but a requirement because, as he sees it, if the CEO didn’t notice the lack of gender diversity, then that’s a blind spot.
"The fewer blind spots that you have the more like you’re building a 50-year company or 100-year company versus [a] five-year company. And we like to see 100-year companies." That is, of course, because companies that think long-term drive significant returns for investors.
Biegel shares a similar approach.
"I've told people, ‘I'm not going to invest in them because they're missing the gender balance,’ or that, ‘I am going to invest, and I'm going to hold them to account.’"
Biegel adds a clause in her term sheets saying that if progress is not made, she has the right to pull her capital out.
Small steps such as these move the agenda for companies. "We don't have to explain why we're investing in women, we just get to," Omoigui said. "Eventually, with the outcomes, many people start to shift."
3. Simply start
Once you get the data, the next step is action, Kumbuli said. While she regards her team’s efforts as small in scale, the impact is already present.
"For us, the strategy is really thinking about investing in intermediaries and investing in emerging fund managers because those emerging fund managers tend to be women. They are diverse managers, whether it's from a racial or gender perspective," Kumbuli said.
All panelists agreed the simple act of actually doing is critical.
While barriers to starting may be huge, Kumbuli believes that until investors see the improvements in their own portfolios, many won’t understand the need or see the opportunity. She experienced this with her own team at Visa. When Visa executives saw that the ESG equivalent of the funds they invested in outperformed the old funds, the perspective shifted, she said.
"This is a report that they have read, that they have digested, that they have seen many times," Kimbuli said. "But until they see it in their own portfolio, that's when it's like the ‘aha’ moment and that's when they want more."
Pull Quote
There is nowhere where gender is not relevant ... across every single industry, across every business model. And so given that we're looking at climate finance, it absolutely is relevant.
Topics
Finance & Investing
Social Justice
GreenFin 21
Women
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This story was originally published by GreenBiz and can be accessed here.