This Earth Day, three seasoned climate scientists published a long and challenging critique of net-zero as a frame for those working toward a resilient and sustainable future—including investors. “The only way to keep humanity safe,” they write, “is the immediate and sustained radical cuts to greenhouse gas emissions in a socially just way.” This acknowledgement that the climate crisis has hit some far worse than others—particularly women and people of colour—is a valuable reminder that gender and other forms of equity are critical to any effective solution. How can an environmental, social and governance (ESG) fund be sustainable if it ignores the needs of half of society?

Yet this gender lens is still largely absent. Sustainable investing flows were estimated at USD 40 trillion last year but, of that, only USD 17 billion–$20 billion (GenderSmart’s estimate across public and private market vehicles) has gone into gender lens investing, excluding microfinance flows, development finance institutions, and privately placed bonds. A 2020 report by US SIF put investment with a gender lens at USD 868 billion (2018 figures), if one looks at any investment allocation that mentions gender as a factor. 

There are several possible reasons for this late adoption. One is that gender finance as an investment theme is a number of years behind ESG. The climate investing field has spent 15 years defining, structuring, rating, and establishing legitimate climate finance flows and the materiality of climate risk—and has yet to define globally accepted standards. Gender lens investing as a field has done much to establish correlation, but it has a way to go on causation, which some feel is essential to making the investment case. 

Unfortunately, many still have a limited perception of gender lens investing, looking only at gender balance on teams and boards. While these are two critical dimensions, they ignore the importance of looking at gender across the value chain, whether one is looking at employment overall, supply chains and distribution channels, or consumers. Gender lens investors are either intentional in their strategies—making gender outcomes core to their thesis—or choose to integrate gender alongside other sustainability factors. Increasingly, gender finance practitioners are suggesting that the fastest path to scaling equity is this latter approach. 

Within the climate and sustainability portfolios, adding a gender lens can either be seen as a defensive position (a way to minimize risk) or an offensive position (a way to actively maximize opportunities). Risk mitigation comes from analyzing the operational, market, or reputational risk; identifying the blind spots within an all-male investment team; or exploring where a company might be missing access to talent, customers, or partners.  For example, we will not get a workforce capable of the jobs needed to support a low-carbon economy unless we close the digital divide. And the digital divide is heavily gendered. 

Yet, there is also much long-term value to be derived from considering the markets of tomorrow and understanding gender-differentiated needs. This is where a balanced investment team can provide the required diversity of thought and recognize opportunities faster. As GenderSmart’s recent Climate & Gender Investment report makes clear, the integration of these two investment areas can jump-start climate action, build environmental sustainability and resilience, and unlock huge untapped opportunities. 

How to integrate gender and climate within your portfolio

Of the 275 funds in public and private markets that GenderSmart is tracking, less than 10% of public market funds and about 20% of private market funds have both a gender and climate lens (although this is trending upwards). We need more instruments and more vehicles that integrate climate and gender.

Whether applying a stronger gender lens analysis to an existing sustainability-screened portfolio or designing a new investment strategy, there is an evolving set of processes and frameworks available. One of the most widely adopted in gender finance is currently the 2X Challenge criteria, which looks at gender in terms of ownership, leadership, employment, and consumption throughout the value chain. Yet new climate frameworks could also be made to work for gender and social equity, such as the Taskforce on Climate-related Financial Disclosures (TCFD), which is structured in terms of governance, strategy, risk management, and metrics and targets. The TCFD framework includes process metrics rather than just key performance indicators (KPIs) and targets, which on their own can reduce this complex undertaking to a series of checkboxes. One could ask companies—not only financial institutions—to report on governance, strategy, risk management, and metrics and targets on gender equity.

A question came up at our recent Summit and in our recent webinar about the potential of finding a “net-zero” equivalent for gender finance. What would this look like for gender and other forms of equity? Could a familiar analogy help climate investors transition to a dual-lens approach in their portfolios? What would “net-zero” inequality look like in different arenas, such as business or investment governance, the pay gap, or access to essential products and services, including education, healthcare, and energy? We can see why this might be an attractive meme. And as with net-zero in climate, there are sector-specific approaches. 

But can net-zero be reduced to one metric with regard to gender? And is there any reason why we would accept inequality in one arena and “offset it” in another? Or believe that some bold new technology will “solve” it? We recognize the all-too-real risks of oversimplifying. Arguments against a target like “net-zero” for gender are that it skips over complex and historical structural inequities and does not speak to the need to shift power structures and cultural dynamics. We must think about which gender imbalances or equity issues we are aiming to address, in which places, and in which contexts. 

Tackling unpaid work, for example, needs context-specific gender analysis to unpack the root causes of the visible problems. Do we lack equal representation of women because of discriminatory hiring practices, or do other factors such as the social position of women, sexual and gender-based violence, or the unequal care burden also play a role? What is the role of a single company versus an industry or market infrastructure in shifting social norms or access?  How much does public policy, media, education, or family play in shifting these norms? Criterion Institute, for example, is working on process metrics to analyze power in gender lens investing.

There are also some valuable qualitative metrics available that can be quantified in aggregate to provide a scalable dataset. How safe do men and women employees feel in an environment, for example, and how much agency do they have in the workplace? What is the quality of access to leadership roles or financing? 

EDGE certification has both qualitative and quantitative components that go beyond the numbers to the nuances of gendered experience. The 2x Challenge has a framework to look not only at numbers but also quality metrics. The Equileap scorecard looks at 19 variables in companies, using many quantitative and some qualitative data points. 60 Decibels has a tool to capture the voice of the end user to feed into a gender analysis. There are many other tools available that provide useful food for thought, including the Gender Responsive Due Diligence platform, Women Win, Plan International Netherlands, and Partnering for Social Impact.

There is also an opportunity to integrate the lived experiences and insights of grassroots climate and gender groups—as well as the end beneficiaries—into our investment decisions to avoid detrimental impacts and maximize positive outcomes. Or, as one delegate put it at our recent Summit, “those who are closest to the knowledge but furthest away from the power.” Criterion Institute has developed a guide for Translation Between Gender and Finance to catalyze more inclusive investment decision-making. 

To be solid on both a climate analysis and a gender analysis in investment means taking a rigorous approach to both. Just as one would analyze reductions in carbon emissions, greenhouse gases, waste, or other climate-related metrics, one can take a rigorous approach to analysis and targets on gender factors. 

There is a capacity-building and education component to this work, both at the investor and investee levels. Investment teams and advisers need to understand the opportunities and risks of not applying a gender and diversity lens to sustainability strategies so that it does not get buried amidst competing priorities. And investee companies—particularly in the early stages—will need support to integrate a gender and climate lens across their governance, leadership, talent, product design, supply chains, and approach to customers. At GenderSmart, we are seeing growing numbers of gender lens funds integrate a technical assistance component as standard practice to address this need.

Best practice examples

On the fund side, AlphaMundi Group provides an illustrative example of gender consideration across the board. Within the fund, there is gender balance at every level, from the investment committee and analysts to the fund management team, which they strongly feel is part of their strength as an organization. They work with their companies on a gender action plan with “business-first gender-smart technical assistance,” including by bringing a gender lens to climate-smart portfolio companies. Most recently, they launched the Gender-Smart Enterprise Assistance Research Coalition (G-SEARCh) with a consortium of other funds to “institutionalise gender equity as a core principle of ESG.”  

Elsewhere, Schneider Electric is one of the best examples of a climate-smart company intentionally integrating climate and gender, internally and externally. Their definition of sustainability goes beyond climate to a holistic view of ethics, human rights, and gender diversity, and they see it as their fiduciary duty to address these. They recently launched a groundbreaking sustainability-linked 5-year bond with three key KPIs and targets: reduced CO2 emissions; gender diversity across the workforce, including equitable and inclusive policies and practices; and an increased number of underprivileged people trained in energy management. These are not hypothetical goals: they are specific and measurable, incentivizing their own internal processes and the investor market. This is proof that a company does not need to be in a climate-related field to implement a dual gender and climate finance strategy.

Conclusion: The urgency of a dual approach

At the beginning of this article, we referred to a critique by climate scientists, which posited that “net-zero” fails because it allows for a mental discounting of the urgency of the crisis, making it solvable at some future date through the magic of new technology. In reality, the only solution requires an immediate and drastic reduction in emissions with a socially just lens. 

Billions of investment dollars are being deployed into climate and sustainability solutions; now is the moment to ensure that gender is in the picture from the beginning. We are on track to get to USD 160 trillion in assets under management with an ESG mandate by 2036; imagine the transformative impact if it all had a gender and social justice lens. 

This dual-lens strategy is about better climate outcomes and better overall outcomes for everyone—not just better gender outcomes. The trailblazing examples above demonstrate to the market how successful organizations can bring climate, gender, and diversity agendas together. This is our opportunity to show the rest of the investment community how it is done. 

This article was commissioned by IISD following the Future of Finance event held March 16 - 18, 2021; an event which was co-organized by the International Institute for Sustainable Development (IISD) and the China Council for International Cooperation on Environment and Development (CCICED) and was part of the Building Bridges Community.