Gender-Smart Investing Journeys: Jessica Espinoza, DEG
Jessica Espinoza is gender lead at Germany’s development finance institution, DEG, where she has been spearheading gender strategy across the organisation since 2018. Jessica co-leads the investment officer and tools working group at the Gender Finance Collaborative, and was recently announced as the new chair of the 2X Challenge. The following interview took place in July 2020.
What were the major turning points in your personal story that made you commit to this work?
I entered the financial industry to promote gender equality and social justice. I realised that you can make the greatest impact by moving capital: that was my main motivation for becoming an investor. The turning point for DEG came when our investees and mobilisation partners started asking about gender-smart solutions. This moved internal conversations from a focus on flexibility towards strategic business opportunities and intentionality. Previously there was this notion that the most desirable kind of investor should be flexible and allow investees to use funding without too many requirements. But we soon realised that this approach makes finance a commodity and what clients really value is support to explore opportunities with more intentionality around market trends, impact and gender. Our investees see gender-smart investing as an opportunity, and by promoting this we became a partner beyond finance.
What were some of the early conversations you had with stakeholders to try and move the work forward?
For a long time, I thought the business case for investing in women was clear, since there are so many studies out there. But to many, it wasn't clear at all. People were quite skeptical at the beginning. I think the three main reasons were, one, they didn't understand the business case. Two, they didn't know how to operationalise a commitment to gender equality. Finally, because they didn't know what it could look like in practice, they were concerned that it would be nothing more than pinkwashing. And so they were reluctant to engage. What really inspired action was the launch of the Gender Finance Collaborative and the 2X Challenge, and the excitement that came with international collaboration and peer learning. I made the case by demonstrating the significant level of demand for gender lens investing among our industry and mobilisation partners, and developing practical investment frameworks that made it very tangible, especially for investment officers.
“Once there are successful pilots and success stories, we bring the skeptics on board and convince them with practical evidence. This approach has allowed us to make significant progress pretty quickly”
Can you tell us more about those frameworks?
I think a huge milestone was the 2X Challenge. As one of the founding DFIs we helped to develop the five 2X criteria that define what it really means to invest in women and girls. By having that kind of framework, it became much easier for our investment people to understand what to look for in deals, where opportunities lie in different areas along the value chain, and what the business case looks like in different industries. We recently launched the 2X reference guide, an external tool to help investors use the 2X criteria in gender lens investing which we’ve been using internally for some time. We've also facilitated several exchanges between investment officers from all the different DFIs. So for example, investment officers working in the financial sector can discuss gender lens investing opportunities with their peers. We did the same for those focusing on agribusiness, and so on. It's very practical, giving them tools like key talking points for investees, or how to generate a gender-smart value creation plan.
What is it about DEG's specific gender-smart strategies that is different? What's your secret sauce?
Our gender lens investing strategy revolves around DEG's existing USP; we recently published a strategy paper about it. DEG is very much driven by the demand of our customers and market trends. The organisational culture is also bottom up, and we have flexibility to jointly develop solutions for investees across departments. This freedom has enabled us to respond to the specific needs of our customers, particularly around gender lens investing. We developed our signature gender-smart opportunity assessment, a data-driven advisory product. We collaborate with others to respond to new market trends and quickly develop something tangible. Once there are successful pilots and success stories, we bring the skeptics on board and convince them with practical evidence. This approach has allowed us to make significant progress pretty quickly and inspire others along the way.
Who else have you got on the team?
I'm the general lead, located in the strategy and impact department. In addition, we have an interdisciplinary, agile team across different departments. They all have other roles within DEG but are specifically interested in gender lens investing and dedicate their time to practical solutions in the space. Those are team members from our business support services (BSS team), where the gender-smart opportunities assessment is located. And our communications team, who help us with our GLI microsite and different publication and event formats. Then we have gender champions among our investment officers across the business departments, who are also active in the Gender Finance Collaborative. Then there are gender experts in our ESG team; on the one hand, our environmental and social specialists, and on the other hand, one of our corporate governance offices is specifically looking at gender. We also have different hierarchy level champions who are our sparring partners and help with more formal decision making within the organisation.
What have been your major moments of learning and insight since the launch of 2X?
There are many! For example, together with IFC, we subscribed to the first women entrepreneurship bonds in Asia Pacific, issued by a Thai bank. It was really interesting for us to see how you can structure gender bonds – initially for financial institutions, but then to go one step further and explore how corporates in different sectors could also potentially issue gender bonds, what this would look like in practice. The other big learning was around our TA and the gender-smart opportunity assessment. We started with financial institutions but now want to adapt it and roll it out for private equity funds, then corporates. Corporates across different sectors need a slightly different approach, which includes the business case for being more gender-smart across the value chain.
Can you think back to any organisational barriers or challenges you might have faced and how you managed to get around them?
Looking back, I probably spent too much time trying to convince people with external data or rational arguments, citing studies or evidence. The main barrier was that they simply didn't understand how gender finance was relevant to DEG's business model and to our customers, and how it would work in practice. So if I had to do it again, I would probably jump to practical solutions much faster. What has worked really well for us is to just take a pilot project, a customer that's interested, and then develop a new product or advisory service around it. What are the lessons? And could we replicate it at scale, or are adjustments needed? That's what people have found most convincing, to see that it's actually working in practice even if it's just an initial pilot that can then be scaled.
“Looking back, I probably spent too much time trying to convince people with external data or rational arguments, citing studies or evidence. The main barrier was that they simply didn’t understand how gender finance was relevant to DEG’s business model and to our customers, and how it would work in practice. ”
The other big learning I think is around partnerships. If you have never really thought about gender-smart solutions, it can seem overwhelming especially when there is so much pressure on business and deadlines. But there are partners out there who already have the solutions, and you just have to make the connection. For example, if you want to improve gender diversity in leadership, you can simply collaborate with The Boardroom Africa - you don't have to do everything yourself. And I think that that has convinced many of our people to take advantage of opportunities that are already out there.
In terms of external factors - whether the pandemic, policy shifts, cultural norms - what do you think has helped or hindered your strategy?
I think a major challenge is that there are serious structural barriers to women's equality. Take unequal inheritance laws or unequal land ownership for example. But at the same time, we see that the private sector can be quite creative at finding workarounds while these barriers exist. Our financial institution partners in some countries have identified ways to work with alternative collateral. So instead of requiring women to provide land titles, they accept jewelry or inventory, or let them build a track record or a financial credit history in a different way. That's been pretty inspiring to see. Other DFIs or MDBs that work directly with the public sector can have an integrated strategy where they focus on reforming discriminating laws and at the same time, enabling the private sector to become more gender-smart. This has worked well for IFC and the World Bank, for example. But DEG is quite far away from the public sector. So that's where we see some limitations.
Have any elements of your strategy changed since your launch? You mentioned the word intersectionality at the beginning of the interview.
My 2X Challenge colleagues and I are keen to explore how we could promote intersectional justice and diversity more broadly. We're still exploring opportunities and currently exchanging closely with practitioners across emerging market countries to gain a better understanding of context-specific complexities as well as potential strategies and solutions.
“How can we further refine our theory of change and really promote transformative change with our investments so that these frequently cited ripple effects actually materialise? ”
Are there any standout investments that illustrate your gender lens strategy?
The Thai gender bond example is a particularly innovative one – we hope to do more deals like that in the future. DEG also recently became a shareholder in BRAC Uganda Bank Ltd., a microfinance institution. I think this is an interesting deal because there's a significant gender lens impact. We were able to bend our investment criteria a little bit by investing a much smaller ticket size than we usually do, because we really love the company and the business model and saw the gender impact. 98% of the customers are women entrepreneurs, they have many women in the workforce, and they're actively making a commitment to further increase women's representation in senior management and on the board. So we think that this is also a case where our strategies and our interests are very much aligned and where we can make progress together.
What's the next step in DEG's gender-smart investing journey?
We are now also looking at our entire portfolio and together with the Austrian DFI OeEB we're conducting a solution-driven gender study. The consultancy Syspons will help us screen our entire portfolio of around 600 investees against the 2X criteria and we will explore ways to integrate gender metrics into our Development Effectiveness Rating (DERa). This will then enable us to actively monitor gender metrics in all of our portfolio companies periodically and tailor our solutions to key trends. As part of this study, we also hope to get a better understanding of the transformative potential of gender lens investing. We're interested in exploring to what extent investments can be gender sensitive, gender responsive, and importantly, gender transformative. How can we further refine our theory of change and really promote transformative change with our investments so that these frequently cited ripple effects actually materialise?
Another thing we're enthusiastic about is the growing interest in gender lens investing from the world's largest private capital providers. So one big focus will be on creating even more pipeline, and more mobilisation and co-investment opportunities.
What still needs to change, either within DEG or the wider ecosystem, to accelerate gender lens investing?
If we want to move more capital into the hands of women and local entrepreneurs with an intersectional lens, then I think we need more systemic change. It's staggering to see how little capital is invested into locally owned and women-led funds. Just recently, the SGB capital provider survey released by the Collaborative for Frontier Finance showed how incredibly small the share of investments into women-led or -owned funds is. One important reason is that many of those are first time fund managers, and many investors have quite strict investment criteria in terms of fund volume and track record. At the same time, because of historic inequalities and systemic barriers, we see that local women-led funds simply don't fulfil those criteria. They have the same target IRRs, the same discipline and purpose and they just fall through the cracks. So I think we have to do more work reflecting upon and rethinking our investment thesis, strategies and criteria, and challenge ourselves to promote that systemic change.