This is the first in a series from GenderSmart, a community of 2,500 investors and investment influencers, intermediaries and others in more than 50 countries, highlighting the work already underway to address the climate emergency with a gender lens, and to encourage the adoption of these approaches at scale and pace in mainstream finance.
The private capital committed by members of the Glasgow Financial Alliance for Net Zero (GFANZ) has the potential to transform climate investments. Yet climate investment decision-makers don’t reflect the diversity we need for a just transition. They are therefore likely to overlook the women outside of their networks driving many solutions.
This is true in both developed and developing markets. Growing research shows that having more women in decision-making positions results in better climate outcomes (here and here). At this critical point in human history, it just doesn’t make sense to ignore 50 percent of the population on your investment teams, sourcing, due diligence and analysis, whether you are looking at entrepreneurs, leaders, innovators, customers or suppliers.
Climate investment decision-makers don’t reflect the diversity we need for a just transition.
I’ve been working with those investing in solutions at the intersection of gender and the environment for more than a dozen years and have helped to lead the GenderSmart working group of investors driving progress on gender and climate. I’m buoyed by the growing set of climate investment commitments integrating an equity lens, particularly from governments, development finance institutions (DFIs) and foundations. This trend is good news for private capital, as it provides greater opportunities for the R&D and technical assistance necessary to bring these investments to market, anchor new investments and de-risk finance transactions. It also means that there are now investment opportunities in almost every asset class, sector and geography.
What’s out there
One increasingly investable area at the intersection of gender and climate are green and sustainability-linked bonds. The Impact Investment Exchange (IIX), which launched the oversubscribed series of Women’s Livelihood Bonds, is launching a Women’s Climate Bond focusing on sub-Saharan Africa. Schneider Electric launched the first sustainability-linked bond with metrics that include not only carbon impact but gender diversity and number of disadvantaged people trained in energy management. IFC launched a guide to sustainable bonds at COP26, and GenderSmart is also working with the International Institute for Sustainable Development and the UK government’s Low Carbon Energy Programme on a new tool in this area, which we’ll share in a future column. In private debt, responsAbility’s Access to Clean Power Fund seeks to impact women’s employment across at least 50 percent of portfolio companies.
In the latest Project Sage data, out this month, half of the private equity and VC gender-lens fund managers across hundreds of funds have a climate lens. It’s also worth keeping an eye on VC Include’s Climate Justice program for fund managers from historically underrepresented groups who are addressing net zero solutions. Elsewhere, Global Affairs Canada has partnered with Convergence Finance to provide grant support to new investment vehicles with a gender-responsive approach to climate finance.
Climate risk insurance is another asset class to watch, but to date hasn’t had much of a gender lens. The InsuResilience Investment Fund from Blue Orchard is improving access to climate risk insurance across the developing world, particularly for female smallholder farmers. This is in the context of a wider women’s insurance market opportunity estimated to reach between $1.45 trillion and $1.7 trillion in insurance premiums by 2030, according to IFC, AXA and Accenture.
This is just a whistlestop tour of examples — and certainly not investment recommendations — but it serves to make the point: There is already an investable pipeline in the private markets.
Approaches and frameworks
Whether you’re assessing your existing portfolio or devising a new gender and climate investment strategy, there are several key questions to ask regardless of theme or sector. How and where are climate funds backing women and racially/ethnically diverse entrepreneurs? How diverse is the investment team at the fund? Where are the good green jobs going and is there a diverse enough pipeline of talent in key transition sectors? What percentage of investee teams, and especially leaders, are women or from marginalized backgrounds?
It’s not just about equity. Analyzing data from 2,000 listed companies in 24 industrialized economies over a 10-year period, BIS found that a 1 percentage point increase in the share of female managers leads to a 0.5 percent decrease in CO2 emissions. And a lack of diversity at the fund level can mean missed investment opportunities from outside of traditional networks.
A 1% increase in the share of female managers leads to a 0.5% decrease in CO2 emissions.
Within existing portfolios, investors have the opportunity to work with fund managers and their investees, or with companies in direct investments, to drive more inclusive processes in service of improved climate outcomes and financial returns. One foundation in our network, for example, deploys both philanthropic and impact investing capital to climate solutions, and integrates gender and racial/ethnic equity throughout the investment cycle, including by coaching portfolio companies and funds to get more gender-smart. In their pilot study of SMEs and clean energy value chains with the Shell Foundation, Value for Women found that implementing a holistic gender inclusion strategy across entrepreneurs’ market research, product design, value proposition, sales, marketing, customer segmentation and human resources could impact sales by up to 85 percent.
There are also numerous reports and frameworks available. GenderSmart’s own foundational report in this space brings together data, benchmark projects and tools to demystify gender-smart climate finance, and to inspire more investors to join us. Most recently, the 2X Collaborative Gender-Smart Climate Finance Toolkit (another COP26 launch) includes step-by-step guidance and tools for investors from due diligence to exits, and a separate section on data and measurement. Examples include sustainable transportation, energy, agriculture, affordable housing and water infrastructure.
Growing investor pressure to improve ESG metrics in policy and regulatory frameworks are driving a broader definition of sustainability that looks for social as well as environmental impact. Investors at the cutting edge of climate finance understand that environmental and human factors are inextricably linked.It’s time for the rest of us to translate that understanding to our investment portfolios.
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