Why Women Must Play a Bigger Role in Capital Markets

Women produce 60% of the world’s food and household goods and invest 90% of earnings back into their families and communities, but they earn only 10% of the income, according to Durreen Shahnaz, CEO and founder of Impact Investment Exchange (IIX), a Singapore-based organization that serves as a bridge between investors and development goals in Asia. Women don’t have significant access to global markets and funding and represent a minuscule part of the global financial system. At a recent conference in San Francisco titled “Women, Peace, and Parity: Using Finance as a Tool for Progress,” hosted by the IIX  and Knowledge@Wharton, panelists discussed why it is imperative for women to have a bigger voice in the capital markets.

Shahnaz said that while the financial markets have helped global GDP to grow more than 70 times over the last 100 years, they have also created massive inequalities. They have created an enormous gap between the haves and have-nots, which allowed ill-will and conflict to fester. Shahnaz pointed out that only when we close inequality gaps in our financial and economic systems and build an equitable society, can we move towards sustainable peace.

“We have to evolve from thinking of peace purely as a product of policy, to peace as a product of our systems. Systems that acknowledge and embrace women as an equal part of the society, systems that give value to societal and environment equity, and systems that promote inclusion. We need to build peace in a new way by changing the existing systems, including the financial system, within which every being operates. We have to empower women to participate in this peace-building.”

Shahnaz described IIX’s journey as “connecting the back streets of underserved communities with the Wall Streets of the world.” Since its inception in 2009, IIX has impacted the lives of more than 23 million disadvantaged people across 40 countries and used innovative finance to bring in more than $75 million in investments from the private sector to build a more equal, resilient and peaceful world. “Across all of our work, IIX seeks to bring women front and center of capital markets,” said Shahnaz.

After building a more inclusive financial system in Asia a decade ago, and recently embarking on a $100 million Women’s Livelihood Bond series in the same continent, IIX is now also focusing on women’s health in the U.S. Why? “The answer is very simple. It’s unacceptable that the health care figures among the underserved women in the U.S. are at par with many of the developing countries,” Shahnaz said: “In a wealthy society like ours, every woman, in spite of her color or socioeconomic background, deserves affordable, accessible and equitable health care.” Presenting IIX’s Innovative Finance for Sustainable Peace initiative and the Women’s Health initiative in the U.S., Shahnaz said: “Both these initiatives effectively use the financial markets for sustainable peace while putting women at the forefront of change.”

“We need to build peace in a new way by changing the existing systems, including the financial system, within which every being operates.” –Durreen Shahnaz

The Women’s Health Bond for the U.S. focuses on maternal health and female-specific cancers. Natasha Garcha, associate director of IIX’s capital markets team, said they want the conversation to shift from volume of care to value of care. “We need to make it affordable. We need to make it equitable. We need to make the system more responsive and give quality health care.” The bond is going to focus on funding prevention and early detection in order to save more lives in the present and reduce future costs for the system as a whole. She said the goal is to bring in private sector capital upfront, then make more efficient use of philanthropic funding going forward.

As part of its Innovative Finance for Sustainable Peace program, IIX has also come up with a “gender lens digital impact assessment tool.” The idea behind this is simple: You cannot use a finance tool for progress if you are not able to measure and articulate the outcomes you are intending to achieve. “We’ll be using digital technology to democratize the impact data collection and the analysis and verification process. This will allow us to create not just scale, but also tremendous transparency and efficiency in the gender lens investing movement,” said Garcha.

Building the Evidence

Katherine Klein, vice dean of the Wharton Social Impact Initiative (WSII) and professor of management at Wharton, spoke about the need to document all aspects of impact investing. The mission of her team, she explained, is to build and support the talent pipeline of students going into impact investing and business for social impact, and to build the evidence base around this. “We see ourselves as honest brokers,” said Klein. “As much as we love the promise of the business of social impact, we want to do our best to document it and see where is the financial performance, where is the impact and how strong is the impact.”

A recent report by Klein, Wharton doctoral candidate Shoshana Schwartz and WSII senior director Sandi M. Hunt, titled “Four for Women: A Framework for Evaluating Companies’ Impact on the Women They Employ,” documents the barriers, biases and limitations that many women continue to experience at work. The report shows that good employers knock down these obstacles and ensure that women are well-represented at every level and in every unit of the company, that they are paid fairly and well, they experience health and safety — not stress and harassment, and it’s an environment where women are happy to work. The report is designed to inform and inspire business leaders, investors and employers to work on the outcomes that matter most for women.

Talking about the report, Klein said, “The first criterion that we propose is essentially that the company employs a large percentage of women at every level and in every division, every unit of the company. … That number is 43%. Forty-three percent of full-time employees in the United States are women, so if women were represented across the board at every rank, in every unit, at every level, we would be 43% of that. We are not. We are not 43% of faculty at Wharton. We’re not 43% of your commissioners. We’re not 43% of board members. But it’s a thought-provoking number to hold on to.”

Mary-Ann Etiebet, executive director of Merck for Mothers, observed that investing in women is “not only the right thing to do, it’s the smart thing to do.” She said the only way to prove that women and their roles in society are valued is by putting value into the work and activities that women are doing. “The ripple effects are enormous. We need to just figure out how to capture them better so that we can actually talk about that value that we’re creating in the world.”

“Forty-three percent of full-time employees in the United States are women, so if women were represented across the board at every rank, in every unit, at every level, we would be 43% of that. We are not.” –Katherine Klein

For instance, Etiebet pointed out that when a mother dies, her child is 10 times less likely to finish school and 15 times less likely to have a full life expectancy. By investing in women, there’s a huge opportunity to make a difference in not only the lives of those women, but in their families and in the communities as well.

At Merck, Etiebet is responsible for implementing maternal health programs in high-impact partnerships that integrate the private sector’s expertise to design, deploy and scale solutions that empower women, equip health providers and strengthen health systems. She said one of the reasons for increasing maternal mortality in the U.S. (the rate of maternal deaths are higher today than they were in 1990) is that these women are not healthy before their pregnancies.

“One of the things that I’ve learned is that we’re not listening to our mothers,” Etiebet said. “We’re not thinking of them as real partners in the health care enterprise. And when we don’t listen to them, we are not actually taking care of them. But even more important than listening is we need to integrate what they’re telling us in our solutions.”

Talking about the potential and the challenges of mobilizing financial tools and financial innovation for women-related issues, Etiebet said that when her team participated in a development impact bond as outcome funders, it took them about 18 months to structure that bond. She cautioned that if it continues to take so long to structure these types of social impact bonds, it will not be possible to “crowd in that $33 billion that we need to meet the U.N.’s sustainable goals for maternal and child health.”

Etiebet said platforms that can bring people together with specific, complementary expertise are needed so that efforts are focused. She added: “The challenge is in having as good measures for financial returns on investments as for social returns. I think for health, it’s particularly difficult, because those returns, those impacts, those outcomes are seen only in five, 10, 15, 20, 30 years. And not everybody has that patience. But I think it’s our role to be able to figure out that modeling and communicate how investing in human capital, investing in health, serves everybody.”

The Route to Scale

Like Etiebet, Alan Seem, partner at law firm Jones Day, believes that the number of investors interested in the pure social impact bond is very small. But if social impact can be combined with actual financial returns that can be shown to partners and other investors, then there can be a much bigger pool of people who would be interested. In 2017, Seem served as the lead legal support for the creation of the first-of-its-kind Women’s Livelihood Bond from IIX. He said that one of the factors that made the bond a success was that IIX had pre-selected the impact enterprises and microfinance companies that would get the funds. The investors knew exactly where the money was going, and they could see a preview of what the businesses did and what their prospects were.

Leaders at IIX also promised to provide the social performance reports as they went along. This meant that investors would have measurable performance, both on the social side and the financial side. There were some safety nets, too. For instance, the bond had a first tranche guarantee from the U.S. Agency for International Development (USAID). Also, the first loss was provided by Shahnaz and her colleague. “As people get more and more familiar with these types of investments and there’s a good track record, hopefully you won’t need the safety nets. You can do it on a much more on-market basis,” Seem said.

Seem also spoke about the role of the legal profession in mobilizing capital and making a difference. One way, he said, was by doing pro bono work in women’s projects. This would give these projects legal representation that they may otherwise not get. In addition, lawyers or law firms could invest in these projects. Further, they could help by championing relevant legislation. He pointed out that California has recently come out with a law that requires companies headquartered in the state to have at least one woman on the board by 2019. Most other states don’t have any legislation like that on the books. “Frankly, there are going to be challenges to that, and I think that’s where lawyers can help push forward legislation,” Seem said. Another important role would be to hire women and support their careers so they have an opportunity to become partners.

From her own experience, Shahnaz observed that when it comes to accessing the financial markets to support women’s initiatives, one of the big issues that needs to be addressed is who is taking on the risk. She recalled that when IIX came up with the Women’s Livelihood Bond, bankers kept telling them to drop “women” from it and sell it as a high-yield bond. “We refused to do this. We put in our personal savings as the first loss. Otherwise, it wouldn’t have sold,” said Shahnaz. “The point is not that we did this but that this issue needs to be addressed.”

“The challenge is in having as good measures for financial returns on investments as for social returns.” –Mary-Ann Etiebet

Another perspective comes from Kathryn Kaufman, managing director for Global Women’s Issues at Overseas Private Investment Corporation (OPIC), who is responsible for the organization’s 2X Women’s Initiative that is committed to mobilizing $1 billion for women’s projects. She feels the reason a project needs a blended vehicle is not because it’s about women but because the aim is to drive a higher impact, which does come with risk and extra costs.

“When we’re just investing in women, that’s not extra risk and that’s not extra cost. So, we need to be really careful about when you need to have this cushion and when you need to talk about blended finance,” Kaufman said. “When you are talking about impact, I agree. You need to have some sort of blended vehicle.” She said that OPIC would like to participate in those vehicles and that it’s part of the organization’s role to be willing to take more risk and less return for that impact. But she is worried “about tagging women always with that.” Kaufman added that OPIC is going to be the “first ever U.S. government agency to become EDGE certified.” (EDGE is an internationally recognized standard for gender equality.)

Looking to the Future

The panelists also spoke about their dreams for the future. Kaufman said she hopes that when it comes to investing in women, or empowering them in any way, the response will not be that there are not enough women who fulfill the required criteria. “My dream would be to never hear that it’s a ‘pipeline’ issue. I think that’s the hardest thing for women to overcome — whether it’s a pipeline issue for us to invest in women, or it’s a pipeline issue for us to get women on boards. It’s an unacceptable answer. Because we make up 51% of the population. … There are plenty of women to invest in. So, I think a future where that is not an acceptable response is a good one.”

Etiebet would like to see the breaking down of boundaries and silos among health, education, economic empowerment and financial independence. Pointing out that the link among all these are critical and intrinsic, she said, “We can’t do our work unless we recognize that link and have that link be part and parcel of whatever it is that we’re doing.” Seem wants to see more focus on education of girls. This, he believes, will have one of the biggest impacts on world economy and global peace.

Klein noted that her team has “big plans for continuing the work” that they are doing and will “continue to engage more students and do more research.” She added: “Research shows that if you want to increase performance, if you want to increase motivation in any work setting, hard, specific goals are hugely beneficial. We have hard, specific goals in our report ‘Four for Women’.”

For Shahnaz, it’s about getting mainstream investors more involved in impact investing. “We are looking at not only replicating what we’re doing, but innovative ways to keep on unlocking the dollars, dealing with first loss, with various kinds of instruments of creating liquidity, bringing new investors in and so on. Hopefully, all that will happen.”

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