Could reaching into this massive untapped market save the world (and your ROI)?

This monthly column by Hannah Moreno, Founder & Managing Director of Third Hemisphere, was originally published in The Australian and Stockhead. You can also read it in The Daily Telegraph, MSN, Herald Sun, Townsville Bulletin, The Courier Mail, The Advertiser, Cairns Post, The Chronicle, The Mercury, NT News, Geelong Advertiser, and Gold Coast Bulletin.


Founder & Managing Director


Harnessing the Gender Opportunity to Revitalize Economies


Governments globally are scrambling to slow the steady march towards economic stagnation, recession, and even depression.


Yet there’s a bloody good tactic to halt this march, and it’s staring everyone right in the face.


“Salvaging declining economies 101” points to untapped markets or underutilised inputs as an efficient means to stimulate new economic growth.


And what’s one of the most obvious untapped economic inputs in the world?


The glaring gender opportunity


Gender inequality is costing the world trillions of dollars every year.


When it comes to labour force participation, the disparity (and, importantly, the opportunity) is huge: 47 percent for women versus 72 percent for men globally.


Closing this gap completely could add $28 trillion to global GDP which, for perspective, is roughly the combined size of the United States and Chinese economies.


In the stock market, some of the world’s largest players have also realised there is money being left on the table without deliberate affirmative action.


In 2020, Goldman Sachs CEO David Solomon announced his investment behemoth would not take public any companies without at least one woman on its board.


He pointed to incredibly compelling data that showed the average share price of companies with one diverse board member jumped 44 percent within a year of going public – an impressive 31 percent more than those without.


Not to be outdone, investment giant BlackRock laid out the gender opportunity in a reportarguing that investing in women would “increase the global economic pie” and improve the credit-worthiness and earning potential of its investments.


It followed a partnership announcement between BlackRock and the United Nations body focussed on gender equality and women’s empowerment, UN Women, to champion a growing movement called Gender Lens Investing (GLI).


Other heavyweights climbing on board


Other global heavyweights like Morgan Stanley and Merrill Lynch are also scrambling to jump on the GLI bandwagon. And let’s be clear.


None of these investment powerhouses are performing GLI solely out of the goodness of their hearts.


They are doing it because it will make them money.


Incorporating Gender Lens Investing: A Guide for Investors


Bank of America Merrill Lynch defines gender lens investing as the “incorporation of gender-based factors into investment analysis with the intention of driving both financial performance and social benefit”.


Morgan Stanley believes that “investing with a gender lens can potentially increase a company’s – and your portfolio’s – bottom line”.


In my last column, I also wrote about the greater 6-month performance of Australian small caps who IPO’ed with a woman at the helm compared to those with a man – despite a notorious dearth of funding for women founders.


So how can investors jump on the bandwagon too, for the sake of their hip pockets (and, you know, our entire economy)?


Ask the right questions


Kristin Vaughan, Partner at climate tech venture capital firm Virescent Ventures, believes investors should scrutinise the composition of their current portfolio and any opportunities they are assessing.


According to Vaughan, “The most successful investments driving the biggest returns are often those which disrupt conventional wisdom about an industry. We know that a diversity of perspectives, including from women, leads to these non-obvious ideas, and produces the best new tech companies.


“So investors should ask themselves – does the composition of my portfolio accurately represent society, and incorporate the broadest possible range of perspectives that we know will contribute to higher performance according to the data?


“Do the policies and actions of companies authentically match their stated philosophies, and are those philosophies diverse, inclusive, and representative?”


Grill your advisers


When other parties are guiding your investment decisions, there must be alignment around your investment criteria.


Zarmeen Pavri, Partner and Chief Impact Officer of SDGx, believes investors should therefore grill their financial advisers on the composition of the teams managing their money.


Maximizing Gender Lens Investing: Strategies for Investors


According to Pavri, “Investors put a lot of faith in their financial advisers to choose the right money managers for their wealth. So these advisers must be able to answer questions about how fund managers view the diversity alpha (if at all!) and how many women are on their investment teams.


“Research shows that more diverse investment teams perform better and invest into more women-led, inclusive assets.


“So gender disaggregation data should be transparent at the fund manager level and at their portfolio level. There should be transparency around gender diversity scores in their investment reports back to investors, and how they are assessing this within their investment processes.


“Failing to account for all of these measures is leaving value on the table and potentially missing out on higher returns. So financial advisers must be held accountable on all of these factors.”


Invest like the professionals


You could also consider taking your lead from people who invest professionally.


Vaughan says her team actively seeks out diverse-led businesses in order to capture the biggest opportunities. But first, she sought out diversity in her own team.


“Over the past 12 months we have recruited several roles,” she said. “We deliberately set out to ensure we had equal gender representation of candidates. It didn’t work the first time, so we went back to market to try again, and our team at Virescent is now split evenly on gender as a result.


“When it comes to our investments, we also focus on targeting equality of opportunities. This involves consciously spending more time assessing investment opportunities from more diverse founders, taking more meetings, and providing more clear and actionable feedback.


“We also know that males and females communicate differently, with men often far more bullish on their own potential for success. So we are conscious of looking past that to the underlying drivers of the opportunities presented to us.”


A clear takeaway here is to ensure you are assessing as many female-led opportunities as male-led ones, which is a sentiment echoed by Jackie Vullinghs, Partner at Airtree Ventures.


Vullinghs also sets targets for “top-of-funnel performance” and ensures a data-led approach to measuring progress and staying accountable.


“You can’t manage what you don’t measure,” she says. “So measure the diversity of the founders you meet and how you were introduced to those founders. Over time you can see which channels work well and improve on those where the statistics are weaker.


“By measuring the gender balance at each stage of our investment funnel, we discovered that we convert women-led businesses through the funnel to investments at the same rate as men.


“But our problem is getting first meetings with women founders, so we spend a lot of time increasing our exposure to underrepresented founders in the ANZ startup ecosystem.”


Don’t reinvent the wheel


There are over 21 frameworks that cover diversity, equity, and inclusion (DEI), according to Pavri. So why not read up on a few, and choose one that applies?


“Leaving the moral case aside,” says Pavri, “we have enough research and evidence that shows that highly-diversified firms generate better company performance and investment returns. So for me, this is about simple facts and evidence. Why would you leave the diversity alpha off the table? It’s no brainer.”


Pavri points to the “2x Challenge”, which outlines a range of gender-based investment criteria, such as having 51 percent female ownership, or producing a product that specifically or disproportionately benefits women.


If a company meets just one of these multiple criteria, an investment into that company becomes “2X eligible”.


So setting up your own realistic investment criteria, based on one of these frameworks, is an excellent first step on your way to performing gender lens investment.