The Criterion Institute has released standards of practice in order to address the “quality of implementation” in gender lens investing.
In a report laying out the standards, the financial think tank said that although progress is already being made to support investors to articulate and track impact metrics, more is needed to identify new ways to improve the ability of investors to ensure that they are making the right changes necessary to achieve their social change outcomes.
The standards incorporate an analysis of power dynamics, and stress the importance of incorporating this into investment decisions.
“Understanding power dynamics at play is central for evolving implementation in the field because current finance practices are often embedded with power dynamics—many of them inequitable,” the report said.
“These practices become an obstacle to the social change being sought, yet because they usually go unexamined, their effects aren’t visible. Many investment firms declare gender equality as a goal, but they do not address power dynamics in their practices.”
The standards consist of principles (which should be applied when considering each standard), leverage points (which segment each part of the investment process to be analysed), approaches, and then the standards themselves.
These include, for example, that investment analysts incorporate patterns of gender inequalities to strengthen their evaluation of operating risks in investment opportunities. Or that investment firms challenge existing cost accounting norms and assumptions by valuing social inequity as an important cost factor in managing the complexity of transactions.
Each standard also includes an analysis of implementation, including the cost of the organisational changes required, analysis of the power a standard setter might need to implement the change (including carrots and sticks) and indicators of change aligned to the principles in order to assess if implementation is successful.
The standards have been designed to equip standard setters, including investors, with the tools they need to assess whether fund managers are able to achieve the goals of their investments. The Criterion Institute said it has developed the standards as a direct response to requests from gender lens investors.
“We have heard investors and standard setters saying that they are willing to ask for different practices but that they also want something that legitimises what they are asking for within the capability of finance. This common request is what moves beyond individual practices to a field-level standard,” it said.
The proposed approach to standards of practice has been built over years in collaboration with fund managers, activist organisations, and governments, drawing on work from leaders across the gender lens investing field.