A legal toolkit to boost gender lens investing

2x-challeng-legal-toolkit-gender-investing.jpg

This article was co-authored by Sukhvir Basran, Hogan Lovells, and Jessica Espinoza, 2X Challenge Chair and Senior Investment Manager, DEG and first published on HL Engage

Gender lens investing (“GLI”) has gained significant traction globally and a compelling business case combined with a strong impact case makes GLI attractive to impact-driven and purely commercial investors alike. Despite this and the emergence of key tools, training and resources during 2020, the funding gap to achieve the Sustainable Development Goal #5 (Gender Equality) remains a significant challenge. To truly mainstream GLI, investors have called for concrete guidance on how to structure a gender lens into the legal documentation of a transaction. Responding to this growing demand, Hogan Lovells and 2X Challenge have launched Aurora: The Gender Lens Project.

Gender lens investing is a new megatrend rapidly gaining traction across the global field of investment and finance. The full spectrum of capital allocators, spanning International Finance Institutions (IFIs) and Development Finance Institutions (DFIs) , private equity funds, commercial banks and institutional asset managers are increasingly mainstreaming a gender lens into their investment strategies across asset classes and geographies.

There are good reasons for this - the business case and impact case for gender-smart strategies in the private sector are compelling. The investment opportunity for capital allocators is significant: the women-owned micro, small and medium enterprises (MSME) finance gap in emerging markets alone amounts to $1.7 trillion. A recent IFC report reveals that gender-balanced teams in private equity generate a 20% higher net IRR. According to McKinsey, advancing women’s equality in the workplace would add $28 trillion to annual global GDP, equivalent to the economies of China and the USA combined. There is also ample evidence that investments in women are associated with important ripple effects as women in developing countries reinvest up to 90% of their income into their families and communities. Gender equality is a prerequisite for achieving all other SDGs and it is among the top ten most effective strategies for global climate action. In other words: investment in gender equality boosts ESG performance as well as the bottom line.

Despite this, at the current rate of progress, the World Economic Forum estimates it would still take 257 years to close the global economic gender gap.

The COVID-19 crisis is threatening to magnify existing inequities and to roll back progress made towards greater equality over the last decade, which only makes the call to action for a gender-smart recovery more urgent. We need to be ambitious in trying to unlock the full potential of gender lens investing and our goal must be to integrate a gender lens across the entire investment cycle and across the full risk-reward spectrum bringing in mainstream capital. The 2X Criteria developed by the 2X Challenge provide a powerful framework for investors globally to identify gender-smart business opportunities along the entire value chain. These gender lens criteria have been fully integrated into the impact management and measurement framework IRIS+ of the Global Impact Investor Network (GIIN) and have quickly emerged as a global standard. A series of practical investment toolkits have emerged over the course of 2020, offering investors guidance at every step of the investment process including the investment toolkits is the Fund Manager’s Guide to Gender-Smart Investing recently launched by IFC and CDC. Similarly, the annual GenderSmart Investing Summit offers an unprecedented global forum for the investors and financial institutions across public and private markets to engage in peer learning and share emerging best practice.

However, the field still encounters significant challenges, particularly in achieving an effective eco-system which encourages simple, efficient and cost-effective transactions. In particular, there is a growing demand for a legal toolkit providing investors globally with a standard set of gender lens definitions, principles and legal terms and conditions that can be structured into equity and debt transactions. In response to this growing industry demand for a legal playbook on gender lens investing, Hogan Lovells and the 2X Challenge are launching Aurora: The Gender Lens Project (“Project Aurora”). Project Aurora will be engaging with the spectrum of private sector investors and financial institutions over the course of the next months to develop the an industry approved “gold standard” for GLI definitions, precedent clause and structuring principles. This legal toolkit will promote investment rigor and standardization of legal terms and conditions, offer efficiency of structure, and further boost engagement and collaboration.

Project Aurora is being launched at the GenderSmart Investing Summit in February 2021 and consultations, feedback and views will be encouraged from financial institutions, investors, trade-bodies and international organizations. If you would like to review materials, be an observer or be part of second stage consultations click here.

 

Authored by Sukhvir Basran, Hogan Lovells, and Jessica Espinoza, 2X Challenge Chair and Senior Investment Manager, DEG.

Frank Tobé