340 million women and girls are set to be living in extreme poverty by 2030, if nothing changes. Moving capital towards the pursuit of gender equity could positively impact financial returns, business, and society. It’s time for asset managers to wake up to new opportunities.

When it comes to establishing gender equality by the current UN Sustainable Development Goal (SDG) target date of 2030, the world is failing: 340 million women and girls are forecast to live in extreme poverty at the end of that time horizon, and one in four will endure food insecurity.

The latest data on gender equality and female empowerment paints a stark picture, a situation made even more urgent by the cross-sectional nature of the issue. SDG 5, the headline goal, aims to achieve gender equality and empower all women and girls, encompassing nine targets ranging from ending discrimination, violence, and forced marriages to leadership participation, access to financial services, valuing unpaid care, equal pay for equal work, and adopting enforceable, supportive legislation. Across all 17 of the SDGs, there are some 52 indicators related to women and girls.

The UN Gender Snapshot 2023 estimated that an additional $360bn per year is needed to deliver the change required to meet the 2030 target. In anyone’s money, this represents a significant funding shortfall that governments and NGOs will find extremely difficult to meet. This means the private sector needs to do more, including the world of finance.

One way the financial industry can contribute to accelerating progress is by channeling more capital into businesses that are either run by women or that support female empowerment and rights, internally and externally. This is where gender lens investing (GLI) comes in.

Inequalities faced by women globally

  • Every two minutes, a woman dies during pregnancy or childbirth, resulting in 280,000 preventable fatalities per year.
  • More than 600 million women and girls live in conflict-affected contexts, with tragic consequences for many of them.
  • For each dollar men earn in labor income globally, women earn only 51 cents. Only 61.4% of prime-working-age women are in the labor force, compared to 90% of prime-working-age men.
  • Women account for 42% of labor but only 25% of C-suite positions, according to LinkedIn’s sample of 163 countries.
  • According to the World Economic Forum’s 2023 Global Gender Gap Index, which benchmarked gender parity across 146 countries in 2023, it will take 131 years to reach full parity at current progress. No country has yet achieved it.
  • The global average for women’s economic participation is 60%, while political empowerment is 22%.

How gender lens investing empowers women and improves the bottom line

According to the Global Impact Investing Network (GIIN), gender lens investing (GLI) is a strategy or investing approach that considers gender-based factors across the investment process to advance equality and better inform investment decisions. This can include investing in women-owned or women-led organizations, enterprises that promote workplace equity, or products and services that benefit women and girls. So, it is not just about financing businesses run by women but can cover, for example, companies supporting women through policies ranging from parental leave to safeguarding.

Gender lens investing does not mean sacrificing returns for social good. There is growing evidence that pursuing gender equity as an investor has positive benefits on financial returns, business, and society. Companies with women in executive management repeatedly outperform companies with no women in senior roles, as do companies with women on their boards. Diverse workforces support the retainment of talent and employee motivation and foster creativity and more robust financial performance. Furthermore, the purchasing power of women is growing, as is the share of global financial capital held by women – McKinsey predicted in 2020 that, by 2030, more than two-thirds of US wealth would be held by women.

A 2021 report by UN Women highlighted that venture capital (VC) firms with only 10% more women investing partners have achieved 1.5% higher fund returns and see 9.7% more profitable exits, while women-founded companies perform, on average, 63% better in the long-term than exclusively male-founded start-ups.

Lifting Global Growth by Investing in Women, a Blackrock report published in November 2023, found that the most diverse workforces beat the return on assets of their country and industry group peers with the least diverse by 1.6 percentage points, equating to average outperformance of 29% per year. Overweighting companies that promote more women into senior roles would have enhanced a portfolio’s performance by 72 basis points per year over the benchmark MSCI World Index over the past four years. Women-owned start-ups delivered twice as much per dollar invested as those founded by men between 2014 and 2022.

Despite the dual promise of social and financial impact inherent in gender lens investing, the financial sector has reacted slowly. For example, according to the European Investment Bank (EIB), in 2019, start-ups founded by women received roughly just 11% of overall venture investments by value in the EU.

The rise of gender lens investing

Most crucially of all, investors should allocate more capital to the growing range of GLI opportunities, from passive index funds to more proactive listed equity or private equity and private debt funds, bonds, and even direct investments in companies that are women-led, women-owned, have an explicit and verifiable strategy on gender and diversity, or better yet, have achieved certification with one of the available industry standards like EDGE or the UNDP Gender Seal. This broad range of investment options should allow any investor to progressively embed a gender lens across different allocations and improve risk-adjusted returns, thereby increasing compliance with fiduciary duty obligations.