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29 Jul 20

What are current reports telling us about gender and blended finance?

What are current reports telling us about gender and blended finance?

At Convergence, we keep our pulse on new literature to add to our Resource Library. Over the past 2 months, we have seen many new reports on gender and blended finance. Here, we are sharing our takeaways from the new research, and our perspective on what it means for blended finance:

#1 There is progress towards industry standards for gender-related impact measurement


Previously, Convergence shared why impact measurement in blended finance can be challenging. Measuring and monitoring the impact of investments on gender quality and women’s economic empowerment is an even trickier affair. The newly published Gender Equality Scorecard© Manual and the 2XChallenge Indicator Guidance Note underscore the ongoing effort to harmonize different metrics.

Gender Equality Scorecard© Manual

Developed by Convergence Member, the Small Enterprise Assistance Funds (SEAF), the Gender Equality Scorecard© (GES©) focuses on integrating a gender-lens in growth-oriented small and medium-sized enterprises (SMEs). The GES© provides an overall rating score for a company based on six gender equality performance vectors: 1. pay equity 2. women’s workforce participation 3. gender diverse leadership and governance 4. benefits and professional development 5. safe and healthy workplace environment, and 6. women-powered value chains.

The score for each of these six vectors is produced through the evaluation of four distinct parameters. The newly released GES© Manual describes how to score each gender equality vector consistently, and aligns the GES© indicators with the widely used IRIS+ gender impact metrics.

Given that small and medium-sized enterprise (SME) finance is a frequent sub-sector for blended finance transactions, accounting for 25% of all transactions in financial services – in fact SEAF itself has a long history of using blended finance in its operations – the GES© Manual could be a useful resource for many in the blended finance community.

2X Challenge Indicator Guidance Note

The newly released guidance note, “How to measure the gender impact of investments,” also showcases the ongoing coordination efforts in the gender lens investing field. Jointly published by CDC (UK's development finance institution), the GIIN and the 2X Challenge, it gives detailed guidance on the application of the 2X Challenge indicators to various investment activities, including to financial institutions and funds.

To understand how investors can apply 2X Challenge indicators to different investment activities, imagine a Development Finance Institution (DFI) that lends to a financial intermediary which, in turn, lends to SMEs. In this case, the DFI may struggle to identify at what level to apply gender indicators–should the focus be on the financial intermediary, the SME itself, or both? As the guidance note highlights, the 2X Challenge indicators apply differently to financial institutions depending on the type of investment product provided, and whether this involves directed lending to financial intermediaries with a defined use of proceeds. For example, for equity or debt investments involving non-directed lending (e.g. tier 2 or senior debt), the DFI should apply 2X Challenge indicators 1-4 as follows:

Figure 2: 2X Challenge indicators applied to non-directed lending to a financial institution (FI)

Picture1

Source: CDC, the GIIN, and the 2X Challenge (2020) “How to measure the gender impact of investments”

Although the blended finance market remains far from gender mainstreaming, these are noteworthy strides towards standardized impact metrics and higher quality gender-related impact data.

#2 Gender risks are inherent in infrastructure projects


Criterion Institute’s new paper “Gender as Material to Infrastructure Projects: Reaching Better Outcomes by Applying a Gender Lens from Project Inception” analyzes gender-related risks throughout an infrastructure project’s lifecycle. Like every sector of the economy, infrastructure can have broad implications for advancing progress or entrenching gender concerns. The authors argue for incorporating a gender lens at the earliest stage of project inception and design to reduce risk across the project lifecycle. They further argue that the current discussion on incorporating a gender lens in infrastructure needs to move beyond: 1. minimum compliance standards and a ‘do no harm’ approach to the intentional creation of a positive impact on women and girls; and 2. the focus on efficiency when considering a gender lens in infrastructure to the recognition of gender equality and women’s empowerment as goals in and of themselves.

The paper touches on the opportunity for blended finance to advance this agenda. Blended finance transactions involve impact-driven organizations (e.g. public agencies, philanthropic foundations, impact investors, etc.) These often bring up considerations of gender-related risks and opportunities to other investors, which can eventually lead more investors to adopt a gender lens from the earliest stage of project development.

#3 It’s time to sharpen the gender lens to consider LGBTQI individuals


In an earlier blog post, we acknowledged the need to move beyond the gender binary. A new report by Criterion Institute, supported by Dreilinden gGmbH, argues that investment can be a tool to address inequities faced by lesbian, gay, bisexual, transgender, queer, and intersex (LGBTQI) individuals. “Investing with an LGBTQI lens: Rethinking Gender Analysis Across Investment Fields” outlines how to engage with managers and advisors to shape their practices and shift power dynamics in the transaction structure and terms. It points out that asset owners have the privilege of defining the terms on which they will move capital, and that “Investors have the power to embed an LGBTQI lens within terms, structures, and agreements to meet these individuals’ specific needs.” The report further notes that adding questions about diversity, equity, and inclusion into due diligence processes “not only removes biases from the investment process and helps to unearth hidden opportunities, but also signals to existing and potential portfolio companies that these issues are important to asset holders.” Although the market for non-binary investment strategies is still nascent, this report will contribute to its growth.

#4 Gender lens investing is on the rise


Project Sage 3.0,” which the Wharton Social Impact Initiative and Catalyst at Large published in July, reveals that the market for gender-lens funds is growing rapidly. The report outlines the current activity of private equity, venture capital, and private debt vehicles operating with a gender lens. It finds that the total capital raise (among the firms that permitted the research team to publish the amount raised) was approximately USD 4.8 billion. This figure is more than double from the USD 2.2 billion figured they reported in 2019. The vehicles listed in the report include many blended finance transactions such as the Capital 4 Development Asia Fund, Women’s World Banking, SME.NG, RENEW, GroFin, Global Partnerships, Educate Global, and Ilu Women’s Empowerment Fund.

While this global summary is tremendously helpful, regional landscape reports provide more granular information. For example, the Sasakawa Peace Foundation, Catalyst at Large & SAGANA recently released Gender Lens Investing Landscape – East and Southeast Asia. It highlights the important role of de-risking mechanisms – both for shifting perceived and real risks – and features blended finance transactions such as the Japan ASEAN Women Empowerment Fund (JAWEF), and the Women’s Livelihood Bond 2.

For more of the latest research on blended finance, visit our Resource Library.

This blog post, contributed by Regina Rossmann, is part of a new series that will look at gender in the blended finance market, including key opportunities and challenges for achieving, measuring, and bolstering gender equality in blended finance transactions. Blogs in this series include:

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