Creating a market for investors that includes a gender lens is an important frontier to achieving gender equality. In this interview, Gema Sacristan, Chief Investment Officer of IDB Invest, spoke with the Financial Alliance for Women about her vision for making Latin America the go-to reference for use cases in this space.
Financial Alliance for Women: The central tenet of gender-lens investing is that investments can simultaneously generate financial return while boosting gender equality; what are the main ways gender-lens investing can achieve this?
Gema Sacristan: There are three ways gender-lens investing can achieve the goals of generating financial returns and advancing gender equality: through investing in women-led or women-owned businesses, investing in companies supporting gender equality in the workplace, and investing in companies developing products and services that impact women’s quality of living. The data have shown time and time again that women’s businesses are good investments, that companies with stronger gender diversity perform better, and that when women thrive their families and communities benefit – so this is really a no-brainer.
Alliance: In the last few years, both public-market and private-equity gender-lens investments have grown significantly, yet they still represent a minimal portion of ESG investments more broadly. Why is this the case? How does the Latin America region compare to the rest of the world?
GS: ESG investing is still an emerging trend in the region in comparison to other parts of the world, like the United States and Europe. To give you a snapshot, we can compare the number of investors who are signatories to the Principles for Responsible Investment and utilize ESG criteria for their investments. Globally, there are about 2,500 members who manage US$80 trillion. In Latin America, there are only 78 members overseeing US$1.2 trillion – most of them in Brazil.
In terms of gender-lens investing, the region is also lagging. While there is data in developed markets showing that gender-lens investing is a growing trend — assets under management with a gender focus grew from US$100 million to US$2.4 billion between 2014 and 2018 — local investors are just starting to learn about the compelling business case. There are some pockets of progress, however. For example, in the banking sector – especially in micro-lending, which has driven a trend of expanding access to financing for women entrepreneurs.
We are optimistic about the future of gender-lens investing overall, as we see there is more demand for instruments such as social bonds, and we can expect this to drive more interest in gender bonds globally and in the region. In Latin America, the market for debt issued by smaller companies and banks still needs to be developed, especially in local currency. At the same time, there is a greater need for educating institutional and retail investors about the benefits of gender-lens investing. Little by little, more investors are becoming interested, but they are usually international investors looking for high-quality, hard-currency assets.
Alliance: Can you give us an overview of the types of gender-lens investment vehicles that are already out there? Which of these instruments have the greatest potential in attracting more capital for women?
GS: A few years ago, there were only a handful of investment opportunities to support women’s leadership or access to capital. As of today, gender-lens investing has been incorporated into a variety of investment vehicles in the private and public markets, which now include private debt, gender bonds, index funds, exchange traded funds (ETFs) and exchange traded notes, venture capital, and private equity.
ETFs and funds have the greatest potential in attracting capital for women, since these are the instruments institutional and retail investors prefer investing their money in.
Alliance: What is the definition of a gender bond? Why have so few been issued in the gender space (as compared to green bonds, for instance)? What’s your “blue sky” vision for their potential?
GS: Gender bonds are a subcategory of social bonds, and they are an emerging vehicle for companies committed to reducing gender inequality. The proceeds go into one of the three tiers of gender-lens investing I mentioned earlier: supporting women-led companies, companies that promote gender equality in the workplace, or companies that develop products and services targeting women.
In the beginning, the public sector led the way for gender bonds. Between 2013 and 2017, IFC and the Asian Development Bank issued US$354 million. More recently, it has been the private sector that has expanded the market. The Canadian Imperial Commerce Bank, Garanti BBVA in Turkey, and the National Australia Bank and QBE Insurance Group in Australia have issued US$1.7 billion in total between 2017 and 2018.
In August of this year, the Panama-based bank Banistmo – a subsidiary of Bancolombia – became the first private-sector issuer of a gender bond in Latin America. The US$50 million bond will be used to expand access to financing for women-led small- and medium-size companies. Globally, the Banistmo bond is the seventh gender bond and the fifth issued by the private sector. Prior to it, the region has had social bonds partially used towards women entrepreneurship, issued by BancoEstado in Chile and Banco Pichincha in Peru.
IDB Invest structured and bought the Banistmo bond in its entirety, as it is a key part of our strategy to contribute to the creation of this new asset class in the region. We are basically building a roadmap for companies and investors to tap into these instruments. At the end of August, after the Banistmo bond was issued, the Thailand-based Bank of Adyudhya announced it will also be issuing a gender bond.
Alliance: How have gender bonds typically been structured, what’s in it for the issuer, and what are the benefits to the bond holder?
GS: Globally, gender bonds have been issued as corporate bonds, and they are mainly focused on financing micro-, small- and medium-size enterprises (MSMEs) led by women or on fostering women’s leadership within organizations. From the perspective of the issuer, there are many benefits. A gender bond tells investors and consumers that your strategy to grow relies on the strong business case of attending to an underserved market. The Banistmo bond, for example, was structured to serve a segment of women-led MSMEs with a proven business model. For the bondholders, you get financial returns as well as social returns by helping to reduce gender inequality.
Besides corporate bonds, in the future I expect to see more bonds issued by banks that are backed against a pool of loans granted to women-led or -owned companies (covered bonds), in order to raise the credit profile of certain issuers and give comfort to the investors; as well as asset-backed bonds where banks sell a certain pool of loans to investors. This kind of structures (warehousing facilities to securitize portfolios) allow banks to get additional capacity to continue lending to women’s market.
Alliance: How do you ensure that the issuer is accountable for achieving the stated purpose of the bond?
GS: Gender bonds, to be considered as such, must comply with standards established in The Social Bond Principles of the International Capital Market Association (ICMA). This means there is a framework to ensure that the goals of the gender bond are met. The bond issuer gets a second-party opinion to accredit its compliance to the ICMA Principles, and it also is obligated to make annual reports to the market about the use of the proceeds.
In the case of the Banistmo bond, the bank received a second-party opinion issued by Vigeo Eiris, a company specializing in evaluating this type of bond. The opinion is public, and every year there will be a report about the companies that have been financed with the resources from the bond issuance.
Vigeo Eiris ranked the issuance with the highest score in level of commitment and contribution to sustainable development. Based on this second-party opinion, we can also assert that the Banistmo bond has the potential to contribute to four of the UN’s Social Development Goals: gender equality (SDG 5); decent work and economic growth (SDG 8); industry, innovation and infrastructure (SDG 9); and reduced inequalities (SDG 10).
Alliance: Last year IDB Invest launched Fund Mujer with OPIC, targeting women-owned/led businesses. Beyond investing in gender bonds, what other gender-lens investment strategies/funds are you working on? What types of institutions are you targeting for investments? Can Alliance members tap into this funding?
GS: The work of IDB Invest to foster women as a market for financial services companies has not been limited to gender bonds. Since 2012, we have been working with financial institutions under the women entrepreneurshipBaking (weB)program, which focuses on providing banks with financing and technical assistance so that they support women-led MSMEs. We have already worked with 21 banks in 12 countries. Twenty of those banks received loans, while one of them, Banistmo, issued a gender bond. Currently, we’re working on three new gender bonds in the Dominican Republic, Ecuador and Colombia.
We’re now expanding our work with funds. The first was Fondo Mujer, which was launched in October of 2018 by IDB Invest and OPIC. This was the first fund of its kind for the region, and it targets investment strategies that include financing micro-lenders, female entrepreneurs, companies with a significant share of women leaders, and firms that generate jobs or consumer products for women.
Fondo Mujer was originally planned to manage around US$200 million – 30 percent debt and 70 percent equity. In early September, we selected three fund managers, and we now expect that the fund raises two to three times what was planned.
Members of the Financial Alliance for Women can tap into these funds as investors. The managers are seeing growing interest from international and regional investors, and they are targeting institutional investors (pension funds, insurers), family offices and foundations, as well as multilateral banks and international impact investors.
Alliance: A majority of investment products and indices have historically focused on internal diversity only. Is there potential to expand this focus into a more holistic approach that includes a gender focus across an organization (e.g. customer-facing strategies, supplier diversity, etc.)?
GS: Yes, there is certainly potential to expand the current approach. IDB Group created the IndexAmericas in November of 2017, in partnership with S-Network Global Indexes. In March 2018, IndexAmericas launched a sub-index to recognize the 10 companies with operations in the region most committed to gender equality beyond internal diversity. This IndexAmericas Mujer considers 20 criteria grouped into three pillars: the workplace, the market and the community. As of today, this index is not tradable, but we expect that it will be in the future.
Alliance: Beyond investment products, there is also hard data that shows the lack of women in decision-making roles at investment firms. For instance, a Bella Private Markets study found that women-owned investment firms in the US only manage between 0.8 percent and 3.4 percent of assets, depending on asset class, and those levels are not growing. Why is it important to have more women as CIOs?
GS: There is indeed a big disparity in the way women and men populate the investing industry. The latest research by Morningstar shows that women represent only 7 percent of investment managers in the US$15 trillion mutual fund industry in the US, down from the 10 percent recorded in 2009. We care about having more women as CIOs not only because there is a moral imperative to close gender gaps in all economic activities, but because it is good for business and the investing industry itself.
A female CIO will tend to be more aware of the challenges that gender bias poses for women who want to access capital. Therefore, having more women managing money means unleashing more access to capital for this underserved market. Finally, women CIOs look for financial returns while driving responsible investing, thus accelerating the transition the investing community is currently undergoing.
Alliance: Women are values-based investors, and a good proportion of us would invest with a gender lens if the products were easily available. Thinking “blue sky” here, what is your vision 2025 for catalyzing more funding from female individual investors?
GS: Indeed, research shows that women’s mindset about responsible investing is set to shake up the impact investing industry. To capture the funding from female individual investors, we need more investment options in different asset classes. And as mentioned earlier, there is also a great need to raise awareness among institutional and retail investors – especially in Latin America – about gender-lens investment opportunities.
For now, while there aren’t many options available in Latin America, local and international investors interested in the region could look for these opportunities in more developed markets. The more educated they become about gender-lens investing, where such options are available, the more they will contribute to creating this new asset class.
There are also positive trends in increases of women’s wealth across the world and in the region, but very few financial institutions are capturing this opportunity. For instance, women account for 30-40% of household wealth in the Latin America region according to Credit Suisse; yet wealthy women globally feel misunderstood or disrespected by their financial advisor. By better serving women of wealth, retail financial institutions can catalyze more funding into gender lens investments.
Alliance: How can Alliance members help further advance the gender lens investing field? What is one “call to action” that they could implement today?
GS: As we have seen, there is an untapped business opportunity in financing women. All members can play a pivotal role in creating this new asset class by developing their own programs and investment options that support women. Whether you manage your own money or a financial institution’s, you can invest more in all segments of women.