Increasingly discussed in asset management firms and the financial press alike, gender lens investing is one of the most rapidly growing segments of sustainable investing. Specifically, gender lens investing in an investment thesis that seeks to turn the abstract idea of an investment’s benefit to women into a functional investment strategy. It integrates gender-based factors into investment decisions with goals ranging from enhancing risk-adjusted returns to driving gender equality.
The basis of the investment thesis is manifold. Studies show that greater gender diversity on boards is a predictor of long-term value creation and lower stock price volatility and that European firms with a larger share of women in senior positions have significantly higher returns. The limited access of women-run businesses to capital is also well documented—just 3% of venture capital funding was raised by female CEOs. In addition, the International Finance Corporation (IFC) estimates a $320 billion financing gap for female entrepreneurs in formal sector small and medium enterprises in developing countries alone; naturally, the global total across firm sizes and including the informal sector is larger. According to the law of diminishing returns, where capital is scarce, returns to that the capital should generally be greater than where capital is plentiful. Lastly, according to Harvard Business Review, women make the majority of consumer decisions: 94% of furniture, 92% of vacations, 91% of homes, 60% of cars and 51% of consumer electronics.
According to Patamar Capital Managing Partner Beau Seil, companies often fail to consider or analyze the specific needs of women (without relying on pervasive stereotypes) in the products and services they create. The power of women as consumers should grow if their labor force participation rate rises.
Read the full article on Forbes.