Gender Lens Investing: Align Impact’s Approach
The below Q&A is adapted from an interview that Tamar Honig, an Associate on Align Impact’s investment team, recently participated in with UN Women, Phenix Capital Group, Bocconi University, and Politecnico di Milano. These groups are collaborating on a research project aiming to advance the market for gender lens investing, the results of which will be published by the end of 2022. The interview provides a comprehensive overview of Align’s approach to gender lens investing. Some questions and responses have been modified for clarity.
1.What is Align Impact’s investment strategy in terms of impact generation? Do you define your investment strategy as finance-first, impact-first, or something else?
At Align Impact, we invest across asset classes, geographies, and sectors, serving clients across a range of issue areas that are important to them, from climate change solutions to financial inclusion to affordable housing and beyond. Rather than defining our strategy as either finance-first or impact-first, we see these two pieces – the financial soundness and the impact thesis – as highly intertwined and not mutually exclusive. So we look for business models in which impact grows in lockstep with revenue and other financial metrics. Renewable infrastructure is a great example of that – as production of clean energy increases, so does the financial bottom line, creating a positive flywheel effect.
That said, capital comes in different shapes and sizes, and not all impact-generating businesses fit into traditional venture capital or private equity models. There is a full stack of financing options to consider in growing and scaling impact businesses, with different rates of return to be expected from each segment of that stack. So some high-impact opportunities might be better suited to philanthropic dollars or non-dilutive grants or catalytic capital, because of the stage or the sector in which they are operating. With those kinds of investments, you are taking an impact-first approach, but that’s not to say that all impact investments imply sacrifice on the financial front.
Said otherwise, there is no inherent tradeoff between financial returns and impact. Yet sometimes we intentionally seek out and accept concessionary returns in exchange for a strong impact return that cannot be achieved through traditional market mechanisms.
2. How would you define gender-lens investing?
Gender-lens investing is investing with an eye toward advancing gender equality. That lens manifests at various points throughout the investment decision-making process, from looking at the gender balance on a fund management leadership team to analyzing how products and services of underlying portfolio companies may target or in some way improve women’s lives.
3. In which regions do you think gender lens investing is the most needed?
Gender lens investing is important throughout the world, but geographies to specifically call out include emerging markets, where women disproportionately face exclusion from access to capital, and on the U.S. home front, in states where reproductive rights are under threat and innovative solutions are needed to ensure women’s access to the healthcare they need.
4. To what extent does Align Impact prioritize investing in funds that allocate capital with a gender-lens strategy?
We approach all investment decision making with a gender lens. From a first screen perspective, an all-male leadership team with no action plan for improving its gender balance would be a red flag. We know from a wealth of data that advancing women into leadership roles is not only important from a gender equity perspective, but it’s also just smart business. A diverse team – in terms of gender, race, background, and thought – will have more varied perspectives to draw upon, leading to more creative and constructive decision making.
In later stages of diligence, we ask fund managers to share diversity, equity, and inclusion (DEI) data for their leadership and broader teams, and we track this information on an ongoing basis. We also dig into how DEI impacts evaluation of underlying portfolio companies. That is, are fund managers tracking the percentage of their portfolio’s leaders that are women and/or minorities? Are they exerting influence on portfolio companies’ development of a DEI policy and approach?
Again, we ask these questions for the dual purpose of advancing equity and ensuring our investments are following good business principles. By overlooking female and minority fund managers and founders, investors leave a tremendous amount of value on the table. Until we achieve gender parity at all levels of the investment industry, investing in women – and especially women of color – will always be a competitive advantage, because right now, that’s a gap in the mainstream market.
We hope to see the proportion of capital invested into explicitly gender lens-oriented strategies grow in the coming years. It’s something we care about, our investment committee cares about, and our clients increasingly care about, so forces are aligned to expand the breadth and depth of our work in this area. A few examples to illustrate our progress to date:
We recently underwrote a venture capital fund that invests in female founders in STEM fields – that is, science, technology, engineering, and mathematics ventures throughout the U.S. We found the triple gender lens approach compelling: the fund is led by three powerhouse female GPs, who invest in female-led companies, whose products and services have the potential to disproportionately benefit women.
On the emerging markets side, we’ve invested in a fund that provides working capital loans to rural smallholder agricultural cooperatives in Latin America, Southeast Asia, and Africa. The gender lens here is that investors can invest through a Women in Agriculture note with a focus on accessing hard-to-reach communities of female farmers.
Another investment to highlight is a social investment venture firm seeking to transform women’s reproductive health, which encompasses sub-sectors like maternal health and contraception. The fund, which is managed by an all-female team, prioritizes solutions that target women of color and low-income women.
Beyond investing, there are a few other levers we have access to for advancing gender equality. For example, we’ve leveraged our networks to organize showcases for female-led fund managers, increasing their exposure and connecting them with potential investors in instances where we may not be able to invest ourselves.
5. How do you demand that funds you invest in follow a gender-lens approach (e.g., women-led businesses in their portfolios, gender equality in their investment teams, etc.)?
We try to refrain from demands, but rather seek out fund managers who take the initiative to be aligned with our gender equality aims. If funds are not pursuing gender equity from the outset, we would likely deliver that feedback and then pass on investing in them, as there are many other high-quality, impact-aligned opportunities from which to choose.
We request information on the gender diversity of leadership teams and overall teams as part of our due diligence, and track this data for all of the investment opportunities we’ve approved to our platform on a yearly basis. Last year, we surveyed all 102 investment firms in which our clients have active impact investments in private markets, collecting diversity data and inquiring about how their teams are thinking about DEI internally. Some key takeaways from that exercise:
57% of investment firms recommended by Align are more gender diverse and 62% of investment firms recommended by Align are more racially diverse than industry averages
38% of leadership team members across investment firms recommended by Align are women or non-binary, compared to only 16% in the industry
29% of leadership team members across the investment firms recommended by Align are people of color, compared to only 15% in the industry
While we don’t mandate one specific methodology for impact measurement, we like to see fund managers implementing a thoughtful approach that is tailored to their impact thesis and intended impact outcomes. We maintain an evolving list of impact measurement and management (IMM) resources that we’re happy to share with fund managers as they progress in their IMM journeys. This includes reporting frameworks like the IFC Operating Principles for Impact Measurement and the United Nations Principles for Responsible Investing, as well as impact accounting systems like the GIIN’s Impact Reporting and Investment Standards, also known as the IRIS+ metrics, and the Sustainability Accounting Standards Board, also known as SASB. Bonus points for fund managers who partner with third-party service providers that offer expertise in collecting, verifying, and analyzing impact data. Such providers include UpMetrics and 60 Decibels.
On the subject of resources for implementing a gender lens approach, I also highly recommend GenderSmart, a global field-building initiative dedicated to unlocking the deployment of gender-smart capital at scale. This network of investors, intermediaries, and other actors offers various channels for engagement, including working groups, virtual and in-person summits, and an excellent library of gender lens resources.
6. How does your organization implement gender diversity practices/policies/strategies within the workplace?
As a female-led, female-owned, and majority female-staffed organization, Align Impact has quite a lot of built-in women-driven decision making. Equality is a core value of ours, and informs the way we seek to serve clients of great wealth while also fostering concrete improvements in the lives of some of the world’s most vulnerable populations. As a young female professional myself, I’ve felt empowered at Align to play an active role in everything from sourcing investment opportunities to leading due diligence to building and deepening our role in an ecosystem of like-minded gender lens investors. I really value and am inspired by the community of brilliant women I’ve found at Align and in the surrounding ecosystem, and know that the ability to participate in, nurture, and give back to such a community will remain a priority throughout my career and life.
7. In your opinion, why is gender diversity important? Which areas of gender diversity are the most important (e.g., hiring, leadership, promotion, mentorship, etc.)?
While gender diversity is important across the board from hiring to leadership, promotion to mentorship, and so on, from where I sit, investing in women is the single most important thing we can do to advance gender equality. While much progress has been made that deserves to be celebrated, certain statistics have remained stubbornly dismal:
According to a Knight Foundation study, just 1.3% of the $69t asset management industry is managed by firms with majority female or BIPOC ownership.
Pitchbook data reveals that only 14% of venture capital decision makers are women, and even fewer are women of color.
A recent Axios article highlighted that just 2% of total U.S. venture capital dollars were raised by female-only founding teams in 2021.
We cannot accept this as the status quo. These imbalances exacerbate inequality and stifle innovation. While non-financial resources – such as mentorship, advisory services, and access to networks – are nice to have, many women fund managers and founders report being over-mentored and under-funded. Capital is key to unlocking the institutional barriers that have kept this half of humanity from reaching their full potential and raising their communities up alongside them. We know that investing in women is an investment in entire societies, as women typically invest a higher proportion of their earnings in their families and communities than men. Boosting women’s economic participation and their ownership and control of assets has trickle-down effects on everything from poverty reduction to improvements in children’s nutrition, health, and school attendance.
We have the data on just how powerful it is to invest in women. Those of us in the investment industry have a unique role – and responsibility – in making that capital flow.