Not long ago, gender was a word seldom heard in the context of business strategy or investing. Today, investors, companies, and society at large are recognizing the importance of women’s empowerment and equality within their organizations and industries. Why? Because it is abundantly clear that advancing gender equality is both good for business and good for the world.
So, what does gender have to do with it?
1. Diversity drives business performance
A study by McKinsey & Company affirms the global relevance of the link between diversity — defined as a greater proportion of women and a more mixed ethnic and cultural composition in the leadership of large companies — and company financial performance. Analyzing 1,000 companies in 12 countries, the study found that companies in the top quartile for gender diversity on their executive teams were 21 percent more likely to experience above-average profitability than companies in the fourth quartile. For ethnic and cultural diversity, an even stronger effect was found with a 33 percent likelihood of outperformance.
2. Women represent a growth market larger than China and India combined
Harvard Business Review reports that women control $20 trillion in annual consumer spending, a figure that is expanding rapidly as women’s earnings increase. In aggregate, women represent a growth market more than twice the size of China and India combined. Given those numbers, ignoring or underestimating the female consumer is a significant missed opportunity. And yet many companies do just that, even ones that are confident they have a winning strategy when it comes to women.
3. Gender-balanced teams produce higher returns for investors
According to Morgan Stanley Research, a more diverse workforce, as represented by women across all levels of the organization, was correlated with higher average returns. From 2011-2019, companies with more gender diversity enjoyed a one-year return on equity that was 2 percent better than companies with low gender diversity. Further, these more diverse companies experienced lower volatility.
The same is true for investment funds. Reviewing 700 funds and 500 portfolio companies, a report by IFC found that private equity and venture capital funds with gender-balanced senior investment teams generated 10 percent to 20 percent higher returns compared with funds that have a majority of male or female leaders.
4. Women are excellent investors
Gender lens investing is also about connecting with women investors. Many women feel disempowered about their finances and the way that they invest, and women are hugely under-represented in private market investing. In venture capital in the U.S., for example, just five percent of investors are women. It’s not hard to conclude that a lack of women investors contributes to a lack of support for women-led companies.
It’s critical to close this gap, because research shows that women are better investors than men. Specifically, women spend more time researching their investment choices, tend to take on more appropriate levels of risk than men, and hold their investments for longer. All of these findings make for better investing outcomes.
5. Achieving gender equality worldwide would add $12 trillion to the global economy
McKinsey Global Institute highlights that gender inequality is not just a pressing moral and social issue but also a critical economic challenge. Mapping gender equality indicators for 95 countries, they found that 40 of them had high or extremely high levels of gender equality. If all countries instead operated with regional best practices for gender parity and women’s economic empowerment, it would add $12 trillion to global GDP by 2025 compared to a business-as-usual scenario.
The same applies in developed markets like Canada; by taking steps to address women’s equality, Canada could add $150 billion in incremental GDP by 2026. That’s 6 percent higher than a business-as-usual GDP growth forecasts.
Achieving these goals requires that public, private, and social sectors act now to close gender gaps in work and society.
Want to learn more?
The rationale for gender lens investing is clear. Putting it into practice means consciously incorporating gender considerations throughout the investment process as a way to unlock market power, drive fairer and more equal economies, and improve your financial returns.
At Deetken Impact, we start with a deliberate and intentional commitment to making a difference in the lives of women and girls, while meeting the risk and return objectives of our investors. The Ilu Women’s Empowerment Fund is a pioneering fund to advance gender leadership in Latin America and the Caribbean. We support growth-stage, sustainable enterprises that are committed to advancing women as leaders, designing products and services that meet the needs of women, building equitable workplaces and creating more opportunities for women throughout the value chain. It’s a strategy that produces strong financial returns while driving meaningful change for women in the communities where we invest.