Leverage Point
Policy
How are new government or institutional policies, standards, regulations and initiatives helping or hindering the growth of gender lens investing?
We’ve got the carrot: now we need the stick
Investors and asset managers can influence change to some degree (not least through their rights to vote and at company AGMs). While incentives or praise may be helpful in encouraging moves on gender equity, progress will continue to be slow unless businesses are forced to take action by legislation or regulatory requirements.
A lack of enforced transparency in many countries means that it can be a struggle for investors to obtain gender-based data from across the value chain, relying instead on a small subset of criteria (such as the number of women on the board). This statistic is easy to access and understand; however, it neglects the impact of other gender considerations and often leans towards economically-advantaged white women. What’s more, all gender-specific regulation at present focuses on diversity at leadership level, as opposed to investment behaviour, with gender instead falling under the human rights categories of existing taxonomies.
“I was involved quite deeply in the quota debate in the Nordics and I feel that, with the state of the world as it is, we cannot afford to nudge our way towards a more gender balanced world.”
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“If the country has Equal Employment Opportunity (EEO) policies, for example, and laws that prohibit discrimination and harassment, then we tend to find these positive links between the parameters of gender equality and financial performance. In countries where there is a public policy emphasis on disparities between men and women – places like Saudi Arabia or to the Middle East – then we don’t find those things.”
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“After five years of publishing this report, my team and I have come to the conclusion that there is a really clear correlation between legislation and better performance on gender equality. I would like to see more legislation for the corporate sector to reach certain targets, as we are seeing now in certain European countries.”
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“Regulation and disclosure is a huge part of building a future-proof gender finance ecosystem. Until businesses and sovereigns see these disclosure requirements being standardised – and also expected – they will just see it as another cost rather than the cost of doing business.”
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“If you don’t show the business case for it, or if there’s no business case, back it up with legislation. You either need teeth through legislation or you need the carrots through the business case.”
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“It may be that the best thing that we can do as capital markets is impact policy. We can impact corporate behaviour – and that is good. But fundamentally, it helped everyone when they got rid of forced arbitration federally. To [affect that many women] with a swipe of a pen is truly impactful.”
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Governments are paying more attention to gender finance
Actions stretch from the introduction of policies to boost gender equality in the workplace to the launch of innovative finance programmes aimed at women-run businesses. Often, this new regulatory interest in gender finance intersects with a growing focus on climate investment as part of wider ESG strategies.
But there are dangers to legislative change without a deep understanding of the responsible investment landscape. For example, the Australian Government recently introduced performance benchmarking for the superannuation sector. This has posed a challenge for ethical funds, which take a non-homogeneous approach to investing and therefore tend to react differently to the rest of the market. For these funds, being forced to comply with mainstream benchmarks can be misleading at best and devastating at worst.
“The introduction of governments into the field of gender lens investing is still relatively new. Five years ago, nobody would have said that governments were driving what’s happening in [gender finance] but they have substantially more influence now than they did before. People who are implementing innovative finance programs within governments have stepped in a much more significant way into gender finance.”
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“There’s been a tradition in Switzerland of letting the private sector regulate itself. Slowly, but surely, the government is realising that this is no longer sufficient, given the pace of challenges that we’re increasingly confronted with related to core environmental and social sustainability risks.”
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“Vietnam has introduced a new SME law that is designed to increase the participation of women in the workplace. It includes things like a definition of women-owned businesses, which didn’t exist before, as well as initiatives like digital technology training for women-owned SMEs.”
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GenderSmart View
Procurement is one opportunity for both national and local policymakers, given global supply chain disruption in the wake of the pandemic. Whether sourcing or distribution, applying a gender lens to consider more diverse and women-owned and led business will ensure more resilience across future value chains.
Sana Kapadia
Head of Content
Governments are putting the pressure on corporates – and corporates are pushing back
With many women in global value chains exposed to gender-based violence and harassment in the workplace, keeping large companies accountable is as important as lifting restrictions on women’s financial participation. Increased pressure on corporations to be transparent and report on gender criteria beyond pay gaps and diversity quotas could be a strong next step to enabling a global inclusive workforce and accelerating economies. In fact, closing the gender gap in business growth globally could add up to $2.3 trillion to GDP.
In turn, a number of businesses have taken a public stand in support of movements championing racial and gender equality and against policies that go against their corporate values.
While some have made notable strides towards gender equality, however, overall businesses are reluctant to change without proper regulatory incentivisation.
This is further complicated by in-built contradictions within the investment field: there are big banks and investment houses that lobby against some of the very policies and regulations that other investors are crying out for. This conflict needs to be addressed if we are to make progress.
“The New York State Comptroller wrote a letter to the S&P 100 companies telling them to disclose their diversity data. Prior to that, I think only 14 or 15% were disclosing EEO-1 data; after that it went up to 80%, so we’re definitely moving in the right direction”
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“It’s more a case of the business community needing to make their point of view heard more than has traditionally been the case in order to bolster diversity and inclusive policies. And then hopefully to not just oppose more discriminatory policies and actually to move the agenda forwards. But at the moment, I think it’s more a defensive than an offensive position.”
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“Businesses are just very reluctant to change. I’ve been working with the sub-minimum wage campaign now for almost two years, and it is almost impossible to get businesses to say that paying people $2 an hour is not good.”
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“In Australia, we’ve got a Workplace Gender Equality Act, and there are eight associated agencies, where companies have to disclose their efforts in gender equality. But if you don’t, there are no repercussions. Now, there’s a movement to give that legislation more teeth.”
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What’s New?
A non-exhaustive list of gender and diversity policy and regulation introduced since September 2020.
Western quotas don’t work everywhere
There is plenty of evidence that quotas can be effective in pushing equal leadership agendas (three countries with quotas – France, Italy and Sweden – currently lead the way on gender-balanced boards) but results are not unanimously positive. In emerging markets, gender quotas can be slow to take effect, not least because of cultural and social norms. In India, after the 2013 Companies Act made it compulsory for all publicly listed firms to have at least one woman director, many companies took a “one-and-done” approach rather than progressing towards gender equality, with many hiring relatives of male board members. What’s more, approximately 10% of the largest 500 firms listed on the National Stock Exchange of India failed to reach the deadline of having at least one female independent director by April 2019.
“Having a 30% [women on boards] target globally is not realistic.”
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“In India, we had a requirement that all public limited companies had to have one woman director on the board. Many public limited companies struggled to get a single woman director on the board.”
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SPOTLIGHT
The rise of the Feminist Foreign Policy framework
First established in Sweden in 2014, Feminist Foreign Policy (FFP) has been steadily gaining traction in governments across the world as a powerful lens through which to interrogate violent power structures. FFP is notable for bringing an intersectional feminist perspective to foreign policy, elevating the voices of those who live in conflict zones, and positioning equality as the basis of a safe, healthy and peaceful world.
Those countries utilising FFP are directing increased overseas spending towards women’s rights organisations and initiatives that prioritise gender equality. Could FFP prove an ally to gender-lens investors in the years ahead?
If so, we may have a way to go to bridge the gap between public and private: one respondent involved in organising a meeting of government representatives around FFP noted that not a single investment voice currently had a seat at the table.
Reduce regulatory ambiguity
Investors need standardised structures to better incorporate gender analysis into the due diligence process and help them to properly assess trade-offs, risks and opportunities. Without common discipline, it is difficult to compare performance across asset classes, organisations, sectors and countries.
Some regions have begun to introduce classification systems for sustainable investments at a policy level (such as the EU Taxonomy, introduced in July 2020), while actors from across the financial sector collaborated on the Operating Principles for Impact Management. However, these are only the beginning of a long road towards the streamlined measurement and reporting system which is necessary to push gender finance into the mainstream.
“There’s still a lot of ambiguity [regarding tax decisions], especially if you are trying to redesign risk capital to be more in line with what entrepreneurs are seeking, such as different types of funding and less dilution of founders’ ownership. If multiple tax authorities could agree on certain structures (such as the SAFE document) then it would make things easier for funders and the founders.”
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“In some regions or countries it is very difficult to invest because there’s a lack of certainty of regulations, rules, or even frameworks that are needed to develop and deploy specific instruments or to invest in specific sectors.”
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“There are definitely other policy changes that I think the gender lens investment space should get involved in, including backing the global baseline ESG standards. It’s in all of our best interests that we get a global baseline established.”
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Policy still treats gender finance as a niche field
Although policy makers are working to better support the impact investing ecosystem, too often the policies themselves are siloed, separating out issues that are fundamentally interconnected (such as racial and gender equity). This reinforces the idea that approaching investment with a gender lens is a niche solution to a niche problem, discouraging more traditional investors from adopting gender finance strategies. What’s more, by not viewing gender finance as operating within a complex legislative landscape, well-intentioned strategies can fail to reach their impact goals by not providing capital, products or services in the forms best suited to the women on the ground.
“Even in the instances where land titling and property ownership has been made something that men and women share, it’s not accelerating women’s access to financing because firstly not everybody owns property and secondly, if you do own it, that’s the last thing that you want to give out in terms of a guarantee.”
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“Both in the EU and internationally, there is a growing shift to align impact and social investing policies to better facilitate and create an environment for social impact investing to support Goals 5 and 10. But it hasn’t gone far enough because policy itself still seems to be somewhat siloed, particularly at the domestic level of equality and human rights (policies on race are separated from those on sustainability, for example). In turn, that tends to impact on the siloing of policies around impact investing and inequality generally.”
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“There are large development institutions finding that women aren’t able to access their financial products and services. Why? Because the policies prevent them [whether because of restrictions around land ownership, bank accounts or credit ratings]”
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“G7 countries could start to ask questions at a systems level, such as: What would the central bank, or financial institutions, or COVID response packages look like if they were designed from scratch with a gender lens? That would be extremely interesting.”
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POLICY GAP
Supporting Investment in the Care Economy
The care economy is a fledgling but high-impact gender lens investment theme at a critical juncture for supporting regulation.
With women taking on 75% of unpaid care work (UCW) globally, the care economy is a multi-trillion dollar barrier to gender equality.
Many investors are starting to take the care economy seriously as an impact theme, looking to amplify market-based solutions which recognise and reward paid and unpaid care and domestic labour. Alongside this, we need to see new policies and supportive infrastructure around the care economy, from affordable childcare facilities to parental leave. In some regions, the work has already begun: for example, in 2021 the European Parliament produced a report on the economic value of care to feed into a new EU strategy on care, as an integral part of the area’s COVID-19 recovery plans. In the same year, UN Women developed a policy support tool to guide public investments in the care economy.
“There are 350 million children around the world who need access to childcare and just don’t have it. The notion amongst policymakers is that young children aged zero to three should be in the care of their moms, and I think it negates the reality for low-income working mums. Success is about systems change. It’s about government recognising childcare as a public good. It’s about progressive policies and financing to support this sector. And it’s about working closely with the private sector, entrepreneurs, researchers, academics and funders to help raise this village that will be needed to have thriving economies and thriving communities in the future.”
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“When we started, Mexico’s care economy was still not regulated. Many investors thought that was a risk but for us it was an opportunity; now that Mexico is creating regulations, we get to be part of that process. Latin America is slowly becoming more regulated; for example, in Colombia 25% of domestic workers have become formalised. We’re seeing shifts across Mexico, Chile… These regulations will allow more companies to join the party.”
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Going beyond incentivised behavioural shifts
Mandatory disclosure of gender equality data is only the first step in shifting business and investor behaviour. Firstly, in some regions we could start to see more consequences, including sanctions, for companies that refuse to disclose their data, don’t comply with diversity targets or are found to be pinkwashing. Secondly, we expect to see a push towards connecting the legislative, corporate and investment ecosystems by aligning diversity quotas with investment indicators (see the EQT case study as an example). As well as moving the needle on gender equality goals, this would give more investors the confidence to adopt gender lens strategies.
“I expect that in a couple of years, censored sanctions mechanisms will appear to reinforce the transparency of the private sector with regard to [diversity] considerations.”
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“You’re starting to see only the first kind of legislative legal challenges to funds and investors who really have been impact washing”
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“If governments and regulators, [such as] the Security Exchange Commission, work together to align behind, say, three indicators that they get companies to report on, we [could] create peer pressure that would push companies to improve their data. At the same time, we need to work to align this data with investors’ investment criteria: for example, by demonstrating that companies with 30% female leadership are more likely to be successful de-risks investment into those companies.”