Investing with a gender lens: how we ensure gender diversity when selecting portfolio companies

09 August 2022

Gender inclusion is a popular topic at the moment, especially when it comes to investing.

According to a recent McKinsey study, closing the gender labour gap could add $28 trillion, or 26 percent, to annual global GDP in 2025. Indeed, the female economy is said to represent a market more than twice the size of India and China combined. By 2028, female consumers will control around $15 trillion of global consumer spending. And yet, women-led SMEs around the world face a $320 billion shortfall in access to credit despite women anecdotally having lower non-performing loan rates than men.

To help close this gap and realise the potential of women-led businesses in emerging economies, we have been working closely with an organisation called Value for Women (V4W). If you follow our news, you’ll be aware that we recently published our commitment to gender equality, in which we outlined our vision for ensuring that our funds are truly gender inclusive.

Gender inclusion is important to us because as an impact investment firm, we have a mission to invest in sustainable businesses that positively impact underserved communities. Our experience has shown that many of these businesses are diverse and often led by women.

Aside from helping us develop our gender equality statement and ensure that our own business is gender forward, V4W helped us minimise unconscious bias and ensure that our investment processes are gender inclusive. In other words, to ensure that we invest through a “gender lens”.

What is gender-lens investing?

V4W has developed an excellent practical guide, “How to Invest with a Gender Lens”, and in it they define the term as follows:

“Gender lens investing is the deliberate incorporation of gender factors into investment analysis and decisions to improve social and business outcomes.”

What is the 2X challenge?

The 2X Challenge is a global call to invest in the world’s women. It was launched at the G7 Summit 2018 as a bold commitment to inspire development finance institutions (DFIs), international finance institutions (IFIs) and the broader private sector to invest in the world’s women.

The objective for 2021-2022 is to collectively mobilise $15 billion in commitments, after having mobilized $11.4 billion between 2018-2020. This will provide women in developing country markets with improved access to leadership opportunities, quality employment, finance, enterprise support and products and services that enhance economic participation and access.

Pre-deal: sourcing and conducting due diligence with a gender lens

When sourcing new portfolio companies for potential investment, we have found that we need to reduce the “normal” filters that are often unnecessarily applied to a business looking for investment. For example, limiting founders by age and location removes many sustainable women-led businesses from consideration.

Once we have determined that a business is sustainable and presents an excellent opportunity for growth, we evaluate it to assess whether it meets at least one of The 2X Challenge’s gender-inclusive criteria.

Fulfilling one criterion makes an investment 2X eligible:

The business is founded by a woman or has 51% women ownership.
Product(s) or service(s) that specifically or disproportionally benefit women.
30% women in senior leadership or 30% women on the Board and/or Investment Committee.
30% of the DFI loan proceeds or portfolio companies meet the 2X Criteria.
30-50% share of women in the workforce (depending on sector) and one “quality” indicator beyond compliance.

Following internal approval, we proceed to our due diligence process, which has been enhanced (with the help of VfW) to ensure that it mitigates our unconscious biases and uncovers additional opportunities through synergies with the rest of the portfolio.

The intended outcomes of a gender-inclusive evaluation and due diligence process are to:

Identify businesses that are gender-forward or are led by women and how women are included in decision-making.
Understand how potential investees are including a gender lens in their workforce, value chain and/or products and services.
Detect possible gender-based risks within a business and/or its value chain.
Identify opportunities to apply a gender lens and reduce gender-based risks in the workforce, value chain and/or market of the business.This is included in our ESG action plan for the business.
Sensitise potential investees to potential risks and opportunities regarding gender equality through the due diligence process.

Post-deal: Creating a gender focus across the entire organisation

Once we have selected a company and invested in it, our team works with their leadership to prepare for growth and further funding. At this stage we begin work on the pre-set ESG action plan which often entails becoming a more gender-forward business. We help the leadership outline the practical steps required, such as ensuring that women are well-represented on the Board, employee pool and in the supply chain – including women-led businesses as suppliers.

Examples of the impact of gender inclusive investing

One of our portfolio companies, Origen Fresh, is a processor of high-quality oils and exporter of fresh fruits sourced from farmers across East Africa. The business is led by CEO and Founder, Grace Kariuki.

Not only is Origen women-led, it also empowers women at every level: from employees, to aggregators and farmers, the majority of whom are women. The company is a perfect example of how female leaders can elevate the opportunities of the entire community.

Tomato Jos is another example of how women-led businesses can create community and even country-wide impact. This portfolio company, under the guidance of CEO Mira Mehta, is turning Nigeria’s fresh tomatoes into a key ingredient for the local cuisine: tomato paste. In addition to running their own farm and processing facility, they are providing agricultural training and access to new techniques to a network of 350 regional partner farmers.

We invite you to to join us on this investment journey

At Goodwell Investments, we’re passionate about impact investing and identifying opportunities that promise strong growth both financially and socially.

If you have a business that you think we would be interested in, please get in touch, and if you’re an investor looking to diversify your portfolio, we’d be happy to tell you more about our portfolio, investment themes, and track record.

You can get in touch with us on contact@goodwell.nl