How Impact Investing Can Grow the Bottom Line and Improve Gender Diversity

November 28, 2016

The impact of gender diversity on profits is increasingly clear, even though most institutions worldwide have yet to act on the data. According to McKinsey, making strides in gender parity would add a whopping $12 trillion to the global GDP by 2025. So if institutions themselves are slow to act, is there a space for investors to use their leverage to drive stronger financial performance while advancing greater progress toward gender parity?

To discuss the most recent findings on the link between investments and gender diversity goals, and to consider the obstacles that continue to stand in the way, particularly in emerging markets, Women’s World Banking recently hosted a webinar titled “How Gender Diversity Can Drive Greater Returns in Investing.” Panelists included Akua Owusu-Okonor, Associate Director of Leapfrog Investments, an impact investor that works with institutions in Africa and Asia; CJ Juhasz, Chief Investment Officer at Women’s World Banking Asset Management, an impact investor which makes direct equity investments in women-focused financial institutions; and Alice Mwai, Managing Director of Resolution Insurance Kenya, a provider health insurance to individuals and employees of SMEs in East Africa.

Women are good for business

10yolwebinar3-panelists_mod-grayv2“With our investee companies, we do see a very strong correlation between gender diversity and financial performance,” Leapfrog’s Owusu-Okonor pointed out. Women and girls make up 49% of the 91.4 million people the company reaches through its investments, and around 25% of leadership positions at Leapfrog’s investee firms are held by women. When it comes to diversity, she said, there are no tradeoffs between companies’ financial and social goals. Of Leapfrog’s 16 investee companies, 6 of them have a customer base that is majority women, “and these companies are growing at a rate of 29% annual revenue each year,” well above growth rates in the emerging markets in which Leapfrog operates. “These are fantastic statistics or data points,” she added, given that unlike Women’s World Banking, “we’re not an exclusively gender-focused investor.”

Mwai explained that Resolution Insurance Kenya, a Leapfrog investee, has key metrics in place to measure gender diversity across its staff ratios, management teams and board. Gender diversity is “not just a good-to-have; it’s an absolute necessity in our business.”

Juhasz of Women’s World Banking Asset Management noted that “Gender diversity is, in fact, our strategy.” The equity fund intentionally invests in institutions that are already gender-diverse or have the commitment and capacity to achieve that diversity, and it views gender diversity as an indicator of financial performance.

Juhasz shared research from Credit Suisse showing that there’s a 25-50% increase in return on equity (ROE) year over year just by putting a woman on the board. “Having a gender diverse organization is not something that’s going to cost you, but something that’s going to have a very salutary effect on ROE,” she added. The data is similarly positive when it comes to default rates: data shows that women are 50% less likely than men to default on a loan. “The return on assets increases dramatically the more women you have in your borrower base, so this is a very compelling story for us to invest behind this strategy.” Based on this investment strategy, “we actually expect to outperform our peer group” financially, she noted.

Women’s World Banking keeps close tabs on the gender data of its client companies, to continue building the business case for diversity, Juhasz explained. Investees are asked to gender-disaggregate their client and staff performance data because “once you have the data you can start a really substantive conversation in the board room, as an investor.”

When data isn’t enough to spark change

[youtube ]Despite all the data, Juhasz noted that “in the face of evidence that women are good for business, we sometimes still run into this idea that hiring women and serving women is a social issue, or even a cost center.” She added, “We can’t just throw up our hands when we run into cultural issues and say there’s nothing to be done, because there are things to be done.”

Owusu-Okonor pointed out that the case needs to be stated more clearly that gender diversity leads to higher profits, not just that it’s a good thing to do. However, “there are such competing focuses for businesses that…this can be a difficult strategy to put on the table.”

Mwai reiterated the need to “build understanding around the issue that this is not a women’s agenda; this is a business agenda.” The efforts, she added, must extend from clients to the management team, suppliers, sales and distribution force. And companies must focus on supporting women with leadership potential. “Women do not need a higher level of skill training, but we do need preparation to be able to operate in a male-dominated environment and still hold our own.” She suggested “providing mentorship and coaching opportunities for the women that we want to grow into leaders, especially when they are the first ones coming into an organization that has not been diversified before.”

“It is a business agenda, it’s not a social agenda,” Mwai emphasized. However, it’s important to remember, Owusu-Okonor said, that “the impact is not just about getting more women onto boards or into leadership; it’s about ultimately changing the lives of women and changing the lives of communities, and getting access to financial services to those that are typically excluded.”

Juhasz echoed Owusu-Okonor’s point: “Why are we doing this? Because it changes the lives of those women who then get hired…who find a way to support themselves, and that is ultimately what it’s all about.”