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Women Rule: Why the Future of Social, Sustainable and Impact Investing is in Female Hands

Group of female social investors

By Marta Maretich @maximpactdotcomMaximpact.com

In the early days of the social investing movement, women and girls were arguably seen more as program beneficiaries than financial movers and shakers.

Social lenders changed their view when they realized that focusing initiatives like microfinance lending on women turned out to be the most effective way to make whole communities more prosperous. This early insight quickly led to further programs targeting women, including special prizes and support networks for female entrepreneurs and the advent of gender lens investing—an approach to creating female-centred portfolios that puts capital behind women in a more systematic way.

Positive as all this was, things have moved on significantly in the world of social investing. No longer only the beneficiaries of social finance, today women are building a complete ecosystem of social investing that has female financial power at its heart.

Women are wealthy—and socially conscious

Global wealth demographics have their part to play in this trend. Women—or at least some women—are richer now than ever before. And they’re soon to get even richer.

Taking the US as one example, women now control almost half of the estates valued over $5 million and they stand to inherit some 70% of the $41 trillion to be inherited over the next four decades in the largest intergenerational transfer of wealth the world has ever seen. By 2030, roughly two-thirds of the private wealth in the US will be held by women.

This wave of wealth is set to land in the laps of female investors who have been shown to have a more positive attitudes toward social investing than their male counterparts. Half of wealthy women in a recent survey expressed an interest in social and environmental investing while only one-third of wealthy men did. 65% of women thought social, political and environmental impacts were important, as compared to just 52% of men.

Female advisors, step up!

Surveys show that financial firms are not currently meeting the needs of this growing pool of wealthy female clients and many are taking special measures to reach them. Part of the problem is that there are still so few female advisors out there: Only three in 10 advisors are women, according to a 2013 Insured Retirement Institute study, yet 70% of women seeking advisors say they would prefer to work with a woman.

The good news is that the female advisors now at work are already a positive force for social investing. A report by the Calvert Foundation showed female advisors to be more interested in using sustainable investing funds (59%) than their male counterparts (39%). They were more likely to know about alternative investing opportunities and more likely to offer them as options to their clients, too.

More female MBAs?

Boosting the number of women in financial advisory roles could, then, be a way of extending the reach of social investing to more women. But where will they come from?

In theory, a new generation of female advisors is currently learning its trade in business schools around the world. Yet due to what’s often condemned as a male-dominated culture, many MBA programs have poor track records of enrolling and retaining female students and this has the effect of limiting the number of female graduates.

That may now be changing with more business schools making concerted efforts to become more female-friendly in order to attract women students. Some, like Harvard, are actively reaching out to women in an effort to create a more balanced student body. Still others have succeeded and now boast student bodies where females outnumber males. It’s a positive move and, if their efforts pay off, we may see an increased number of female financial advisors starting to come through the system.

When they do, they may well be better prepared to advise on social investments than their predecessors. In a parallel trend, many MBA programs are now offering more training in social, responsible and impact investing to all students, including female ones. This means that more female business graduates will come out with degrees that prepare them to take up active roles in the social investment marketplace.

Women-run investment firms

At the same time, female financial expertise is taking the helm in more direct ways through a growing number of women-run venture capital firms and all-female investor networks. Firms like Cowboy Ventures, Aspect Ventures, Broadway Angels and Aligned Partners are run by women, for women investors.

Their presence in the start-up marketplace disproves the myth that women investors are risk averse. And, even when the firms don’t specifically target women-run businesses, they seem to be having a catalytic effect on female-founded companies: Women-run investment firms reported receiving more pitches from female entrepreneurs because of their networks. As a consequence, a greater percentage of their investments—up to 40% in some cases—have been in companies started by women.

Elsewhere, women are establishing venture funds specifically targeting female entrepreneurs and focusing on female markets. High Note, run by Genevieve Thiers, seeks to will invest in companies run by women who are solving problems for women.

Women in the boardroom — finally!

Female venture capital firms are a good thing for socially conscious female investors, and, from the looks of it, a good thing for female-run businesses, too. But there’s an even more significant advantage to them: they will put more women on the boards of more companies.

How does that work? Increasingly, venture capitalists claim voting seats on the boards of the companies they invest in. With more female VCs, more of those seats will be occupied by women, giving them more influence over the way businesses grow and develop.

There’s no guarantee that the presence of VC women on boards will have a positive effect for social investing — women, after all, can be just as profit-obsessed as men. Yet, given the interest shown by women in using their capital to back social and environmental good, it certainly could. It will also go some way toward correcting the woeful lack of women on corporate governing boards generally. (Other methods, including quotas, are being tried in some countries, including Germany and the UK.)

In social enterprises, the gender picture in the boardroom is slightly more female positive than the norm. Social Enterprise UK’s 2011 State of Social Enterprise Survey found that 86% of social enterprise leadership teams included at least one female director. By contrast, only 13% of the members of the Institute of Directors, a UK organization for corporate board members, are women.

Looking to the future

Capital, expertise and leadership: these are some of the things more female involvement promises to bring to the social investing sector. Female investors, working with female advisors and investment firms, will be able to do more for female social entrepreneurs as well as social businesses who serve the needs women.

This is a long way from women as beneficiaries and it’s all good. But it’s important to point out that it won’t only be women who benefit from women becoming more engaged social investors.

Changes to the gender balance in social investing are part of a wider expansion in the role of women in business and finance. With greater influence, more autonomy, increasing confidence and shedloads of wealth behind them, women are increasingly in a position to change the way the world invests—and do great things for the planet and its people.

Can’t wait to see what happens next.

Empowering Women Through Impact Reaching a helping hand across the “Pioneer Gap”

by Marta Maretich, Chief Writer, Maximpact.com

Women’s financial empowerment has been a hot topic in recent months. There’s a definite (deserved) buzz around gender-lens investing and its potential to make more of impact capital. Yet, while the gender lens approach is an exciting step forward for women’s financial empowerment, it isn’t the whole story.

Impact investing isn’t an island anymore; it’s now becoming part of the financial mainland. By the same token, investing in women happens within the much larger context of the global financial markets on the one hand and the developing impact investing industry on the other.

Looking more deeply into the subject of women and the flow of impact capital reveals a number of areas where the practice of gender lens investing intersects with larger issues in the impact sector. One of these is the sticky issue of supporting impact businesses as they struggle through the”pioneer gap” the tricky mid-stage between startup and market viability.

It’s now clear that women business leaders are a good bet in both financial and impact terms. But when it gets down to choosing investments, practical questions remain: Which female leaders are we really talking about? And which businesses, at which stage?

Doing good vs. making money?

To make the right decisions when it comes to gender lens investing, investors and funds need to come to terms with the fact that the impact investing sector is still a divided marketplace. On the one hand are businesses whose main aim is to do good, especially for the poor; on the other are those whose central goal is market-rate returns. The gender lens, while it helps bring focus in many ways, may not pick up this fundamental difference.

So at which end of the spectrum should we put our capital if our goal is to empower women? The answer is both; plus more in the middle.

There are good options for female-centered investors who want their capital to have the most impact for poor and under served women. Veteran social financiers like Root Capital and Village Capital have reliable track records. Incubator programs, contests and honors for women social entrepreneurs have proliferated across the social benefit finance sector. The enterprises they work with are typically small seed-stage ventures, run by individuals or small teams. They often use microfinance models and with notable exceptions they are often based in the developing world.

On the other end of the spectrum are more impact investments in traditional areas like large-scale infrastructure, renewable energy, real estate and commodities. Today the majority of the more than $4 billion of impact capital is invested these kinds of businesses in developing markets. Very few of them are led by women (as a benchmark, women CEOs run only 4.2% of Fortune 500 companies; only 16% of directors are women). Some of the “new”impact industries, especially tech firms, are among the most male-dominated. And while these businesses may bring benefits to women in a broad sense, their positive impacts tend to by pass the poorest and neediest.

Targeting the missing middle

There’s nothing necessarily wrong with any of this;diversity is one of the strengths of the impact investing sector and the picture is always changing as we learn more. Yet the division points, once again, to a nagging sector-wide issue: the lack of mid-stage businesses with both strong impact credentials and growth potential. This is a crucial problem for female-friendly impact investors.

Recent research has identified some of the factors behind this “pioneer gap”. The main problem is that it’s very difficult for impact businesses to scale up,especially in developing countries where they lack basic market infrastructure, skilled workers and the right kind of capital. Often, there’s support from incubators at the seed stage, but this evaporates as the enterprise gets bigger and its needs become more specialized and complex. Entrepreneurs, whether male or female, struggle to provide leadership at this stage, often lacking key skills or access to expertise or networks that can help them. Many promising impact businesses die here.

For female-focused investors, there’s another issue. The abundance of seed-stage female-led businesses tends to divert attention away from the shortage of investable female-led businesses at the middle stage. The fact remains that many small seed-stage social enterprises, though worthy, will never scale up; some can’t, some simply don’t want to. Yet impact investors; those who are playing for real; need to place capital in businesses that grow, or at least have growth potential.

The disconnect between seed-stage social businesses and growth helps create a hole in the middle of the marketplace where some of the most dynamic investment opportunities should be. More importantly, it can mean that women-centered investments don’t have the transformational effect they should have. Investing in seed-stage women entrepreneurs may bring local benefits, but unless they go on to build organizations and scale their businesses, they will never enter the mainstream global marketplace or reach more beneficiaries. This limits their scope for impact.

Growth-friendly and female-friendly, too

The problem of the missing middle is slowing the development of the impact sector, but it also creates an opportunity for investors and funds. Those who want to focus their capital on women can multiply the benefit of their investments by targeting mid-stage female-led businesses with growth potential.

  • – Make supporting mid-stage impact businesses a priority in your woman-centered portfolio.
  • – Analyze the portfolio: How much investment is going to mid-stage businesses? How much capital is backing intermediaries and accelerators who work with mid-stage businesses?
  • – Partner with impact accelerators and intermediaries who specialize in supporting businesses in the pioneer gap; LGT Philanthropy’s Smiling World Accelerator Program is one example.
  • – Consider women-friendly investments with more modest financial returns: 5% per year or lower. Modest return goals mean mid-stage businesses can benefit from capital without being squeezed by investor expectations.
  • – Create a woman-centered fund backed by philanthropic capital. Rather than channeling philanthropy dollars away from good causes, use them as capital for supporting mid-stage businesses in the pioneer gap, as Acumen does.
  • – Build blended investment funds that combine capital with philanthropic or technical support funding for mid-stage businesses. Sophisticated impact funds, such as the Grassroots Business Fund, are increasingly using models that blend philanthropic with impact capital.
  • – Look outside the social benefit sector for scalable female-led businesses that have positive impacts. Mainstream investments in areas like health, renewable energy, accessible finance,education and biomimicry are all areas where women business leaders are making a mark as well as a contribution. Open deal sites like Maximpact have a range of different kinds of deals in different sectors.

Using gender lens goes some way toward encouraging investment choices that benefit women. By looking more deeply at the nature of these businesses; and meeting their needs at each point in their growth cycle; investors can do even more for women, especially those making the difficult shift from entrepreneur to organizational leader. At the same time they can help build the impact marketplace by nurturing businesses through the pioneer gap. It’s a win-win-win situation for women, investors and the marketplace.

[Image credit: 123RF]

Making the Most of Women Professionals in Impact Investing

7 Steps Toward Strengthening Female Leadership and Career Development Across the Sector

by Marta Maretich

Women are breaking ground in the field of impact investing. The prominence of female leaders such as Jacqueline Novgoratz, Hazel Henderson and Judith Rodin suggests that the field of impact investing will be more gender-balanced than was the case with traditional, male-dominated finance. A recent study demonstrates the value of “multilingual” leadership teams, signalling that diversity and collaboration may be the strongest model for impact leadership. All this is good news for women working in impact.

Yet the sector is young; there’s still far to go before it’s firmly established. As impact moves into a consolidation phase, how can female impact finance professionals (including fund managers, executives and board members) improve their performance and make more of a difference? Findings from a National Council for Research on Women report on women fund managers in traditional finance suggest some practical steps women in impact could; and probably should; take to make the most of their professional lives.

1. Recognize the need to mobilize all available talent. The world faces major challenges: food scarcity, health crises, depletion of natural resources, habitat loss, climate change; all areas impact investing targets. We must draw on the expertise and talent of women as well as men in order to find; and, in the case of impact investing funds, to finance; innovative solutions.

2. Strive for a “critical mass” of women in top jobs. Research in related fields has shown that a critical mass of women in leadership roles changes the dynamics, decision-making and culture of organizations for the better. Impact funds should strive for broadly representative gender mix at the executive, officer and board levels. In the longer term, the impact industry needs to determine what a critical mass of women should look like; and create quantifiable criteria, benchmarks and guidelines for bringing more women into the field. This may be a task for a group of industry leaders, or possibly an organization (not yet formed) for women impact investing professionals similar to Women in Banking and Finance or Women in Finance.

3. Build and expand professional networks.
Traditional finance now boasts a number of female-centered networking organizations including 85 Broads and Golden Seeds. Similarly, female philanthropists have the Women Donors Network and Women Moving Millions. It’s about time female impact professionals had one or more such professional body to support career development, provide mentoring, encourage peer support and facilitate learning. Opening more male-dominated impact networks to women, and inviting more men to participate in women’s networks, have been found to strengthen gender equity in other fields.

4. Promote female fund managers and woman-centered portfolios. Funds can do more to identify and promote successful female fund managers and woman-centered (or gender lens-based) portfolios. Funds should promote both to investors, highlighting research that shows that funds and businesses managed by women perform as well as those run by men when the playing fields are level. Impact investment portfolios aimed at women beneficiaries offer clients an added dimension of benefit. Reaching out specifically to female investors, as the group High Water Women does, is another way to find synergies between investors, female fund managers and portfolios centered on women.

5. Gather and share data on women in impact. Quantifying impact; and sharing fund performance information; are already central principles for the impact sector. Yet, apart from some findings included in ImpactAssets50, there is so far little information on the representation of women in top impact finance and leadership roles. Tracking, monitoring and reporting information about the gender makeup of impact funds will help develop the sector. On another level, collecting information about the performance of women impact executives, fund managers and women-focussed funds will clarify the contribution made to the sector by women; and provide information to improve career development and participation.

6. Nurture the next generation of female impact leaders.
Woman impact professionals need to reach out to the next generation of young female leaders. This means mapping the career path for women in impact, then actively encouraging girls in elementary, high school and higher education to pursue subjects, such as economics, math and business, that make it possible for them to succeed. Shining a light on successful women in the field and using the media to make impact careers more visible to young people have both been shown to increase interest. Mentoring, coaching and providing educational opportunities such as boot camps and internships, are effective, too.

7. Support and fund research. Research may not be a top priority for busy impact investing professionals, but it’s essential for the development of the impact sector; and for the successful participation of women in it. The current buzz around investing in women is in many ways the fruit of research and this should be a lesson for the community of female impact professionals. Research has the power to shape sector development; but research doesn’t happen on its own. Someone (could it be us?) needs to help identify research needs, fund the work and disseminate the findings. Women impact professionals need to step up to this challenge, just as women in other fields have done before them.

Conclusion

Impact investing has always held itself apart from traditional finance, pointing to the ethics, values and commitment to benefit that distinguish the impact movement. Yet as the sector grows and evolves, women impact professionals will confront some of the same challenges faced by their sisters in traditional finance. If they want to lead from the front; and research suggests it’s best for everyone if they do; then they will have to build networks, hone skills and cultivate the career self-awareness that characterizes true professionals in every field.

The impact investing sector supports women in many different ways. Now there’s a chance for it to demonstrate its support for the professional women who make impact happen.

[Image credit: mfrissen, Flickr]

View Women’s empowerment impact deals.