When it comes to evaluating an investment, especially overseas investments, the list of potential risks is long. There's currency risk, liquidity risk, geopolitical risk, regulatory risk, inflation risk, credit risk, climate risk, and more. Not usually on the list? The risk posed by high rates of gender-based violence.
US firms invest over $6 trillion overseas each year, representing a quarter of all foreign direct investment globally. As of September 2018, the Overseas Private Investment Corporation (OPIC), the United States' soon-to-be reformed development finance institution, had extended loans to US businesses investing abroad worth nearly $23 billion. These funds have been used, among other things, to build telecommunication towers in Ecuador, to develop a wind farm in Ukraine, and to extend affordable mortgage loans to homebuyers in Guatemala.
Enormous amounts of capital are deployed overseas through OPIC each year, both to earn a profit and to advance Washington's economic, foreign-policy, and national security priorities. Some of that money goes to countries with brutal rates of violence against women. In 2017, for example, US firms invested $44.5 billion in the software, pharmaceuticals, metals, and other sectors in India, said to be one of the world's most dangerous places for women. But in the minds of most investors, that rarely translates into financial risk worth paying attention to.
But gender-based violence, in addition to imposing incalculable costs on women, can have a profound impact on the productivity of a firm, industry, or region. In Papua New Guinea, for example, two-thirds of women are believed to have suffered some form of physical or sexual violence in their lifetime. The ensuing trauma can make them miss work, show up chronically late, or be less effective in their jobs. According to one study, firms in Papua New Guinea lose an average of 11 days of work days per staff member, per year to gender-based violence. One firm estimated the cost of that lost productivity at 9 percent of total salary expenses. According to the World Bank, violence against women costs some countries up to 3.7 percent of GDP, more than double what most governments spend on education.
While many development finance institutions and impact investors have reducing gender inequities as an explicit goal, few look systemically at the risks posed by gender-based violence and gender discrimination. When investors do look at gender, it's often related to head count—how many women-owned businesses were funded or how many women are on a company's board. Last month, for example, the US president's daughter and advisor Ivanka Trump and OPIC announced a $1 billion initiative to support "women-owned, women-led, and women-supporting projects in Sub-Saharan Africa." To be sure, increasing women's access to capital, products, and services is critical, but directing money to women won't necessarily change the systems that made capital hard for them to access in the first place.
"Moving money to women does not actually achieve gender equality," said Joy Anderson, the president and founder of the Criterion Institute think tank. "If we financed every woman entrepreneur on the planet, we still wouldn't have come close to solving gender inequality." Anderson points to the example of a woman who receives funding to grow her health care business. "She may employ lots of women as nurses, but within that you still might have underpaid nurses," she said. "There's this assumption that if it was flooded by women, women would change the system. Maybe. Maybe not."
The last decade has seen major improvements in addressing violence against women. Between 2008 and 2017, 47 countries introduced new laws against domestic violence, including Papua New Guinea, Ukraine, Algeria, Saudi Arabia, and the Netherlands. In 2017, the share of countries with no laws against domestic violence was 24 percent, down from 29 percent in 2013.
But that leaves one in four countries with no specific laws against domestic violence, and still more with laws that are incomplete or poorly enforced. In the majority of countries, for example, intimate partners who aren't spouses are excluded from domestic violence protections.
To accelerate the pace of reform, Anderson helped pioneer the field of gender lens investing, a kind of impact investing that focuses on achieving more equitable outcomes for women. Gender lens investors look at gender patterns—for example, levels of domestic violence, maternal mortality rates, gender wage disparities, girls' access to education, and women's labor force participation—and incorporate that information into their financial decision-making.
For example, women are the primary producers of food globally, but, in many countries, they have limited or no rights to land. Since they can't use land as collateral to obtain a loan, women in these countries can't scale their farming operations. That could pose a serious—or material, to use the wonky financial term—risk for someone considering an investment in the agricultural sector. A gender lens investor recognizes that risk and then uses the power of the purse to push for reforms. If enough investors do this, it can incentivize governments to address the systemic problem of discriminatory land use laws.
Importantly, gender lens investing isn't about divesting from areas with high rates of gender violence, which could make vulnerable women even worse off. "It's not that I'm going to walk away from it," said Anderson. "But I might adjust the terms; I might ask for risk mitigation around it, or increase the interest rate. Gender-based violence is one factor among many."
OPIC and many other development finance institutions offer insurance to help mitigate the risk to companies of things like war, civil strife, coups, expropriation, and currency restrictions. But OPIC, which has worked with Criterion to incorporate gender lens investing, does not yet list gender violence as one of the risks that companies need to watch out for. This, Anderson said, is because World Bank data, which is the source of political risk data for many such institutions, doesn't incorporate gender-based violence either.
Most political risk insurers don't, said Nancy Lee, an expert on development finance with the Center for Global Development. "To my knowledge, they do not insure against violence against women or discriminatory treatment of women," she said. "And that is probably because they don't see that as a significant commercial risk to the viability of the investment."
If large and influential organizations like the World Bank and OPIC did systemically factor gender-based violence into their country assessments, it would have a strong signaling effect. The global financial system has power that goes far beyond one-off financial decision-making. The priorities expressed in the financial sector have the power to move markets, even societies. If private-sector investors asked questions about patterns of gender-based violence, it would push governments to care.
While gender lens investing is still in its infancy, it's gaining traction. Project Sage, an initiative of the Wharton Social Impact Initiative, identified 87 venture capital funds using gender lens investing in 2018, up from 58 in 2017. And last November, the first ever gender-smart investing (another term for gender lens investing) summit was held in London with some of the biggest investors in the world in attendance, including UBS, Morgan Stanley, and Unilever. With Criterion's help, the governments of Australia and Canada have already begun to implement the approach.
Still, even as institutions are beginning to embrace the concept, gender lens investing continues to be treated for the most part as niche, applicable to only a small subset of impact-related investments, rather than as an approach that has relevance for the entire portfolio.
But the same was true of climate risk just a few decades ago.
Today, companies regularly include climate-related risks and opportunities in their financial filings, but that has only very recently become the case. It was just five years ago that the financier and former New York City mayor Michael Bloomberg set up a task force to provide investors with guidance about how to disclose risks related to climate change, and it released its final recommendations only in 2017. The following year, Mark Carney—the chair of the Financial Stability Board, an international body that monitors risks to the global financial system—said "climate disclosure is becoming mainstream."
The same can be true of gender-based violence, too, but only if the Bloombergs and Carneys of the world start recognizing it as the serious threat that it is.
Rikha Sharma Rani is a freelance writer based in the Bay area.