4 minutes reading time (854 words)
Want to invest in social change? There's a way to do that
Impact investment approaches have become increasingly sophisticated, targeting very specific improvements, such as increased gender equality and environmental protection. Gender lens investment, or GLI, can promote greater gender equality by increasing capital for women-run businesses and supporting enterprises that want to create more gender-equitable workplaces. Green finance can incentivize the adoption of energy efficient technologies or practices.
At MEDA we believe that women are key drivers of economic growth, engaging in business as consumers, employees, leaders, suppliers and community stakeholders. Yet, women are frequently overlooked and underrepresented in the private sector. Investors and businesses who seek to understand and respond to barriers women face will see both a financial and social return on their investments.
For more than 65 years, MEDA has catalyzed private capital for impact investing and blended finance opportunities across developing country contexts. MEDA has facilitated the flow of private capital as a direct investor, investor in funds and platforms, technical assistance provider, blended finance program manager and inclusive ecosystem builder. Through private sector engagement, we have contributed to solutions, enabling millions of those excluded from markets to achieve their socioeconomic aspirations in more inclusive and equitable market systems and sectors.
For many organizations, creating a gender equitable world is important, but daunting. Assessing the different implications gender has on economies, markets and investments is a large task. To support businesses, investors, funders and capacity builders in exploring how target companies can maximize the returns offered by gender equality, MEDA developed a Gender Equality Mainstreaming (GEM) toolkit that supports the development of Gender Lens Investing (GLI).
GLI is a subset of impact investing that specifically focuses on promoting gender equality in emerging markets. GLI creates change by deploying capital in a targeted way to underserved markets while providing technical assistance in tandem to fund managers and enterprises.
MEDA supports the process at multiple levels - from deployment decisions, to providing technical assistance and supporting enterprises to help them become investment-ready. By empowering women as leaders, employees, customers and suppliers, MEDA can transform companies to be gender equitable in addition to supporting business growth and impact.
As impact investment is becoming more ‘mainstream,’ many in the industry are looking to the future and seeking new frontiers for investment. Is it possible to go beyond GLI and leverage investment to create transformational change? What could this look like?
Investment have potential to drive a more inclusive business ecosystem. Inclusive ecosystems are ones in which a diverse group of people and businesses with varying interests are accommodated. Clients can choose from a range of appropriate, affordable products that meet their needs - prompting responsible business growth.
In the agroforestry sector it is necessary to secure long-term, patient capital (approximately 7 years) and allow for a grace period of about three years, so trees can mature. A functioning financial system would include funds that can deploy capital within these conditions in parallel to incubators and business development services providing additional support by mitigating risk and helping businesses grow sustainably. A whole ecosystem functions together, for shared growth and mutual benefit.
But a healthy business ecosystem is difficult to achieve. Why is this and what stops this from happening? Sometimes organizations work in silos and opportunities for collaboration are lost. The common goal is lost. People do not understand the benefits they could accrue if they participate and take some risks. Because investment is not restricted to one business, or even one single sector, it can be a force that brings market actors together, if harnessed effectively.
Maria Pacheco, CEO of Guatemalan social enterprise Wakami Global, reinforced this message and discussed the power and limits of investment, “Impact investment has created change, but it needs to be rethought to be able to really address all the social and environmental challenges facing humanity.
MEDA’s approach to maximizing the impact of investing is to combine investment with wraparound programming. Investment alone cannot achieve these goals of greater inclusion and business ecosystem transformation. There are structural barriers embedded in the investment sector, such as the need for profit, low tolerance for risk and bias toward certain sectors of business. For example, 70% of women led businesses are in the start-up or early stage growth, and often lack investment. MEDA works to de-risk the investment side while supporting businesses as they become viable for investment on the enterprise side.
With the GEM pilot, we took a ‘snapshot’ of the company through the GEM assessment and then developed an action plan. However, the reporting and the implementation periods were discrete and not overlapping – meaning there was no opportunity to adapt the approach over time. Although this is a general issue, it is exacerbated when seeking to improve gender equality outcomes because of the complex nature of gender equality efforts. Thus, it is important to both design our initiatives to be iterative and learning-oriented while helping our SME partners understand that achieving gender equality outcomes is a journey, not a quick solution.
MEDA looks forward to participating in the exciting changes in the impact investment space!