As the team at Beyond Capital Ventures this year underwent an assessment of their gender policies and investment practices earlier this year, they realized they could do better. The woman-led investment firm is among the first batch of fund managers, investors and companies to go through a new gender-lens certification process from 2X Global, a nonprofit focused on the gender investing ecosystem.
Beyond Capital Ventures received 2X’s highest rating of “Best in Class.”
“Even they got inspired, just by looking at the questions, about what else a gender-smart fund could do and how to think about their team culture,” says 2X Global’s Jessica Espinoza.
2X Global launched its third-party certification process at its global summit in Nairobi this week to bring transparency and rigor to the growing field of gender-lens investing. The organization has been working since 2018 to encourage the global capital markets to direct more capital to and for women, and toward the issues impacting them. Its 2X Challenge sets investment and capital mobilization goals. 2X Criteria set baselines for investors, fund mangers and enterprises to target. Investing women-owned and -led businesses. Supporting the advancement of women in business leadership roles. Developing products and services that disproportionately benefit women.
Declaring 2X alignment or having an explicit gender strategy have now become almost universally expected of new emerging market fund managers looking to raise capital from development finance institutions, or DFIs.
Until now, organizations could self-declare 2X alignment. The new certification process requires both self-assessment and third-party validation.
“It’s to provide more transparency to investors and stakeholders to guard against credibility issues and ‘pink washing’, but also to be more honest about where we stand and what else we can do,” says Espinoza.
Mobilizing billions
Espinoza has been involved in the 2X Challenge since it launched at the G7 Summit in 2018. The Challenge then set a modest goal of mobilizing $3 billion for gender-lens investments by 2020. The original development finance institution members themselves invested almost $7 billion and helped catalyze an additional $4 billion from other public and private investors.
At this year’s G7 Summit, DFIs and multilateral banks pledged to invest an additional $20 billion by 2027.
“The overall gender-lens market is growing. Funds are raising more than in previous years,” says Espinoza. “Not necessarily because fundraising is easier, but because there’s more traction and more funds are coming to market.”
To provide greater visibility into where and how those dollars are flowing, the 2X team sought to develop a rigorous but accessible benchmarking mechanism. Certification happens in three parts. First is a self-assessment questionnaire that asks organizations about gender-related governance and accountability, ownership, leadership, employment, supply chains, products and services, and commitments to meet specified gender targets. The questionnaire uses “skip logic,” allowing users to fill in information they have, skip sections they can’t answer, and go into as much detail as they want on sections where they do have more information.
Assuming they meet the baseline 2X Criteria, applicants get an indicative rating of “good,” “advanced,” or “best in class.”
The third step is independent verification by one of 2X Global’s three partners: Value for Women, PwC and Sagana.
Methodological rigor
Developing the 2X Certification methodology took more than two years and input from more than 600 stakeholders. It was piloted earlier this year with two enterprises and three fund managers.
Built into the process are questions that urge organizations to go deeper on gender inclusion, regardless of what size organization they are, how they’re rated and what resources they have. It asks, for example, whether there are leadership and staff incentive mechanisms in place – performance reviews, compensation, bonuses – linked to gender targets. If the organization uses a third party to review pay equity. If a company proactively works with its suppliers to improve their gender-related policies and practices.
A goal is to encourage peer learning.
“Consider this mechanism an ode to progress, a nudge forward,” Danielle Burt, one of the architects of the certification’s methodology, wrote on LinkedIn.
Keys to success
The influence – or impact – of certification will depend on uptake. There are five early adopters, including Beyond Capital Ventures and AAvance, a woman-led fintech company focusing on migrants and the unbanked in Colombia. All five participated in the pilot.
Early adopters could serve as ambassadors for certification. AAvance, for example, “says they’re championing for other companies in Latin America to get certified,” says Espinoza.
Accessibility will be key to adoption, given the time, resources and costs of getting certified. The self-assessment tool is free for the first year. Each independent reviewer will charge a fee for their verification services. They’re free to set their own fee structures. 2X charges a fee, based on a sliding scale, for the certificate.
“This accessibility aspect is an important one. One piece of feedback we got was that it has to be robust enough to be credible, but also not too onerous,” acknowledges Espinoza, “and also not too expensive.”
But as more organizations, funds and investment instruments emerge with gender-inclusive labels, she adds, “it’s becoming important to differentiate more between those who are just getting started on their journey and those at the leading edge of the field… so we don’t become complacent, but also to see how we can further push the envelope.”
