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Gender-lens Investing gaining momentum

Anna Lyudvig
Feb. 4, 2021, 10:21 p.m.

Word count: 1352

Over the last few years, there has been a dramatic increase in gender lens investing, a strong indication that the financial sector is working to balance a legacy of lopsided investments. Finnfund, a Finnish development financier and impact investor, has since April 2019 invested over €121m in companies that promote women’s empowerment in developing countries. “Investing in gender equality is important because globally, there are major differences in the status of men and women and their opportunities to participate. Finnfund assesses each of its investments before making a decision, taking into account whether the investment can be expected to promote gender equality,” says Ulla Huotari, Investment Manager at Finnfund.

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Over the last few years, there has been a dramatic increase in gender lens investing, a strong indication that the financial sector is working to balance a legacy of lopsided investments. Finnfund, a Finnish development financier and impact investor, has since April 2019 invested over €121m in companies that promote women’s empowerment in developing countries. “Investing in gender equality is important because globally, there are major differences in the status of men and women and their opportunities to participate. Finnfund assesses each of its investments before making a decision, taking into account whether the investment can be expected to promote gender equality,” says Ulla Huotari, Investment Manager at Finnfund.

“Development Finance Institutions have been pioneers in gender lens investing, for example through the 2X Challenge. We are sure that this will be mainstream fairly soon. Many investors target the Sustainable Development Goals and gender equality is one of them – SDG 5,” she adds.

The Finnish development finance institution (DFI) invests in responsible and profitable businesses in developing countries, providing businesses operating in developing countries with risk capital, long-term investment loans, mezzanine financing and expertise on how to invest in the developing markets. “Every year, we make 20-30 new investments worth €200-250m. At the end of 2019, Finnfund’s investments and commitments in 183 projects in 52 countries, totaling €957m. Our ticket size varies from €1m to €50m,” says Huotari. She says that Finnfund puts special emphasis on sectors that are critical to sustainable development, such as clean energy, sustainable forestry, sustainable agriculture and financial services. “We invest primarily in Africa but also across Asia and Latin America. In 2019, 78% of new investment decisions target the least developed countries and countries of low or lower-middle income, in which the need for sustainable investments is the highest.”

In 2020, Finnfund invested in Kasha, an e-commerce platform improving women’s access to genuine health, hygiene and self-care products in East Africa. The company sells menstrual care products, contraceptives, pharmaceuticals and a range of beauty products via its own platform, accessible through basic phones and a website and delivered to customers confidentially. The investment promotes gender equality by creating access to health-related products as well as creating employment and leaderships opportunities for women.

The DFI also invested in First City Monument Bank, one of the ten biggest commercial banks in Nigeria, which finances retail, micro, SME and corporate clients. The Bank has in-house and client focused incentives and programmes to support and encourage female participation in employment and entrepreneurship. Finnfund was also part of a financing package to AfricInvest Fund IV, a generalist pan-African fund aiming to foster the growth of African enterprises across the continent.

Finnfund’s approach to gender lens investing

Finnfund classifies its investments using the 2X criteria, which have been defined by the 2X Challenge, an international investment initiative to promote financing for women. Shared criteria helps the DFI to follow the gender equality investment field and compare investments. “We are extremely grateful that it was created and it has had great value in promoting gender lens investing. We are interested in the types of change and impact that can be generated through our investments,” says Huotari.

Also the portfolio companies are being screened against the same criteria, even funds. “We have wonderful examples in our portfolio, such as Penda Health in Kenya – an investment made before the 2X Challenge existed but one that always stands out when we assess the gender equality in the portfolio companies,” she adds.

Since 2019 Finnfund joined two gender finance communities, implemented gender lens into its investment process through its gender statement and participated in defining the 2X criteria for gender investments. “We have also organised training on gender equality issues within our own organisation,” adds Huotari.

Supporting women’s empowerment is not new to Finnfund

Finnfund has been investing in projects with positive impact on women for years. “For instance, financial institutions that offer microloans have notably impacted women’s empowerment, for example, by enabling women to found businesses. The assessment and monitoring of the situation of women has been part of our responsibility team’s daily operations for a long time if not always.”

“We have always wanted to ensure that the operations of companies we fund do not discriminate against any groups, including women. We have always assessed risks related to companies’ operations from the point of view of women especially. In recent years, we have also begun to assess and measure the impact our investee companies have on women.”

Huotari says: “Today, we always have a dialogue with our potential investees about how they can support women as employees, managers and customers. We especially examine structures that enable the equal engagement of women. We highlight best practices and consider matters that still have room for improvement.”

According to Huotari, the gender equality viewpoint is addressed at Finnfund not only in considering investment decisions but also in monitoring and assessing them.Gender equality has become an important criterion in business financing and to which companies must pay attention. Financiers are increasingly keen to assess the impact of their investments on gender equality, so companies applying for financing must also pay more attention to their gender strategy.

In 2019, the Ministry for Foreign Affairs granted Finnfund a €105m loan as a development policy investment to be invested in projects that promote gender equality in 2019–2021. During one and a half years, Finnfund has already committed more than €120m to projects and investments that strengthen the financial independence of women in developing countries or provide important services for girls and women. “The goal set for the government loan was achieved ahead of time. Of course, we won't stop there as there is so much more to do and we are continuously looking for new investment opportunities,” stresses Huotari.

“We are a rather small and agile organisation and it’s given us a possibility to implement gender lens thinking into each and every function. The personnel have been trained to identify factors that may be affected by gender. We have no separate gender lens investing personnel – everyone is committed. Gender lens investments are a priority also for our Board of Directors as well as our owner, the Finnish State: Improving the status of girls and women is a priority in Finland’s development policy and also one of the key goals of Finnfund’s investments,” she adds.

Huotari says that investors need to understand that “gender lens thinking is simply good for their business”, adding: “The most obvious benefit for businesses is easier access to financing. It is also a question of improved operational efficiency. Research shows that women make good employees and customers. Women pay their bills and service their loans. Diversity in management has also proven to be key to financial success: Firms with a high gender diversity on their board of directors were more profitable and larger than firms with low gender diversity.” In the next 12 months, Finnfund will keep developing its tools and best practices in collaboration with the 2X Challenge and Gender Finance Collaborative, according to Huotari.

Looking for companies with ambition

“We are no longer simply ticking boxes and trying to meet existing criteria in our investments but engaging in dialogue for the future with potential investee companies. During the investment process, we review a company’s current situation but, above all, the company’s target level and ambition regarding the empowerment of women in the company,” she says.

Huotari stresses that currently, their biggest challenge is to find women-owned companies that fit in their target company size category despite the fact that many studies show that female entrepreneurs have much harder time finding funding than their male counterparts.

“Financiers’ increased interest in investing in equality will inspire women entrepreneurs to found and grow their own businesses. This is why we want to also highlight women-owned businesses. What we’re looking for is diversity in a broader sense – we’re not promoting all female panels but we do want to see diversity in leadership. It has a strong significance to bring out role models who show that career paths are open for everyone,” she concludes.

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