Gender-Smart Investing Journeys: DFC
We speak to Charity Wallace, Managing Director for the Global Women's Issues office, and Alec Paxton, Director in the Social Enterprise Finance Team and the first chair of the 2X Challenge, about forging new public-private partnerships, institutional buy-in, and the importance of intentionality.
What were some of the organisational objectives in first integrating gender into investment decisions?
Charity Wallace (CW): When DFC (then OPIC) created this goal to mobilise one billion dollars towards gender-smart investments in five years, they looked at the initial portfolio and worried that they were never going to meet the goal in five years - but they actually surpassed it within the first year because they applied intentionality around gender lens investing. We've been able to mobilise over $3 billion over the last two years, $2.5B of which is direct investments from OPIC/DFC. And we've just announced a new goal to mobilise $6 billion over the next three years.
Could you tell us about the original drafting of the 2X Criteria and how you went about that?
Alec Paxton (AP): When we made a billion dollar commitment at DFC (then OPIC), the first question from our investment officers was, “What do you mean by investing in women?” It was a very simple, straightforward question. So we got 20 people together and spent 8 or so hours bouncing ideas around to come up with this really rough draft based on the experience of the people in the room. That was an early beta version of what eventually became the 2X Challenge criteria. We knew it wasn't perfect but we needed something, and it improved over time with input from others.
How did you go about socialising that within the organisation? How did some of the conversations with stakeholders go?
AP: It helps a lot when you get a new CEO that says his number one priority for OPIC is gender. That's what happened with Ray Washburn in 2016. That's a great way to get folks with a lot of other obligations and priorities to care about gender as well.
What about the group of champions that you brought together across the organisation?
AP: Before there was the 2X Challenge it was just OPIC 2X. We had people from almost every department in the organisation, certainly all those that would be immediately affected by this new approach, championing this internally. They were both men and women; it was probably 30% men. We brought in gender lens investing trainers to help people feel that they could have conversations with a client about what it means to care about gender, and how to think about it.
CW: To your point, we have champions that are both male and female. My frustration has always been that it's just a bunch of women in the room together but we actually need men to get on board in order for this to move forward.
You're on the IC, you're on the TA committee, you're in a senior level role - this isn't considered a niche within the organisation. You're right on the Investment Committee.
CW: It's really important that gender is embedded and integrated into the strategy and into the DNA of the organisation. The fact that I sit on the Investment Committee is critical to the way we look at transactions. I want to know that every single deal says something about gender.
AP: From the investment officer side, it really did change the conversation when Charity became one of five people on the Investment Committee. Now you need to be prepared, and everybody knows it. It's shifted gender from an optional thing for larger deals that are going to IC to something that needs to get at least a cursory and often a much deeper look. One of the things that we've learned is finding small ways to increase investment officers' knowledge and offer support - that's been really successful.
“We have both male and female champions. My frustration has always been that it’s just a bunch of women in the room but we need men to get on board in order for this to move forward. ”
What were the needs and constraints you considered when crafting the gender strategy and product (liquidity requirements, risk appetite, governance, organisational dynamics etc)?
CW: We utilise the suite of our products and financial tools in service of gender-smart investing, and some of our investment officers have been super creative in the way they've thought about incentivising some of our financial intermediaries or clients to increase that commitment towards women. One of them is doing a step down as it relates to interest rates, for example. And we're offering resources and tools for our DFC clients, as well as our investment officers. We also utilise our political risk insurance, and debt and technical assistance. So we have three that we've passed for technical assistance, two of which were 2X.
With regards to constraints in crafting, I don't know that there were constraints. Some clients understand the need for a gender strategy, and some you have to convince or provide additional tools. One of the challenges we have is encouraging them to take this step, and sometimes they feel like it's risky, but we can use the data to show them it's actually always a better investment.
Could you talk about your approach to partnerships and collaboration?
We have identified a number of private sector partners, and we're actually working to launch a new foundation outreach - identifying foundations that can provide some of the subsidy funding that would either enable us to do a transaction or make the transaction larger.
We also work with USAID and 11 sister agencies as part of WGDP’s whole of government approach. We're working with USAID and MasterCard on a transaction in India, and MasterCard will provide very specific technical assistance as well as some first loss subsidy funding. Another really good example is Maternal Outcomes Matters, a collaboration between USAID, DFC, Credit Suisse, and Merck for Mothers. We just launched a Nutrition Alliance with the Eleanor Cook Foundation, which started before the COVID crisis was in full swing, but now with the increase in food insecurity hunger is an even more critical challenge. The point is, the great part about being a DFI is that we can go into what may be considered riskier transactions, but we can bring in the private sector and other public sector partners and foundation partners. And we're using our leverage to do so.
What were the major moments of learning and insight?
AP: When we started out, we underestimated the resistance in the market to investing in women. We realised that as well as being really good at doing the work we needed to be good at selling it. Solid partnerships have also helped the market understand that this is increasingly something you at least need to pay attention to. We've also had a lot of understanding about to make institutional change happen. If we had to do this all over again, we probably would have put more money into training early on.
CW: For me, the major a-ha! moment was this intentionality - it drives people towards their goals. And you just have to get started. You actually have to put something out there. Others will come along. Then there was this value of leveraging platforms, leveraging your network and the partners that you have, because it increases the impact you can make.
One negative is the unintended consequences of using data: people get stuck on, say 30% of women on the board, but it was never supposed to stop there. If [someone is already at 30%] we need to push them to go to 40%, leveraging our power to push them beyond their comfort zone. And provide resources so that they feel comfortable making those larger commitments.
“When we started out, we underestimated the resistance in the market to investing in women. We realised that as well as being really good at doing the work we needed to be good at selling it. ”
How have other aspects of intersectionality, whether racial equity or LGBT, been layered onto your strategy?
AP: We're in the middle of starting that thought process and those decisions now. That is very much what I go to bed thinking about and what we have conversations about around the building, but I don't think that we've quite settled on it yet. So stay tuned.
CW: What we don't want to do is apply a Western lens. I think it's really important for us to be thoughtful about that. What's happening in the United States is so significant but as we look at emerging markets, we need to think through how to apply the principles of systemic inequality. I think that's the underlying piece of it. And to this idea of investing in local leaders, we are speaking with our new Africa Investment Advisors - five individuals that we've hired, who are African and they live on the continent, and will be the ones sourcing transactions and deals. One of the things that we have talked about is our tendency to invest in fund managers or companies that are Western-run or Western-created rather than locally run. So we want to push our funds group to invest in first time fund managers: how do you become a second time fund manager unless somebody invests for the first time? I feel like the DFIs have an opportunity to be leaders in that area as well.