Getting started
The Investment Process section of the 2X Climate Finance Toolkit is targeted at investors and fund managers in private equity firms, DFIs, MDBs, funds, foundations and other financial institutions, to provide guidance on how to embed a climate and gender lens into new investments and investing strategies. This section and the wider Toolkit also include insights that may be of value to financial intermediaries and consultants working at the nexus of gender, climate and finance.
Knowing where to start
Gender-smart and climate finance criteria can be integrated throughout the investment cycle, at each stage of the process outlined below and detailed in the following pages of the Toolkit. Investors and fund managers can identify the right tools, knowledge resources, criteria and questions to ask during different steps in the process to integrate both a climate and gender-smart lens into investments, and to build their understanding and practical capabilities in the field.
As a preliminary step, investors and fund managers should first establish their entry point for investing with a climate and gender lens:
Which stage of the investment process are you currently at?
Climate finance and gender-smart criteria should be integrated as early in the investment process as possible; ideally at the strategy and origination stage if a deal has not already been sourced. If you have already sourced a deal or are part way through the process, there are still actions you can take at each stage to make the investment qualify as both climate and gender-smart finance.
Is this investment compatible with the goals of the Paris agreement?
Does the prospective investment already qualify as climate finance and/or gender-smart?
If the prospective investment does not meet one or both of the minimum criteria for climate finance and gender-smart finance outlined below, the first step is to establish the opportunities to meet the missing criteria to qualify in both areas.
If the proposed deal is Paris-aligned, but is unlikely to qualify as climate finance, investors should still seek to integrate a gender and climate lens to maximise positive impact and outcomes. The guidance for each step of the investment process can also be followed for a Paris-aligned gender-smart deal.
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Responsible and profitable investing during the climate emergency means that every investment a financial institution makes is compatible with, and should not undermine, the 1.5 degree warming trajectory and resilience goals of the Paris agreement. If a potential investee company or deal is not already, or cannot transition to, being 100% Paris aligned, you should not invest.
What does this mean in practice?
It is up to different financial institutions to set out their own Paris alignment approach. For many this includes:
Setting a Net Zero target (by 2050 latest) for portfolio
Excluding investment in high-emissions sectors (i.e. fossil fuels)
Assessing Paris alignment at the transaction level
Ensuring investee companies or projects are committed to Do No Significant Harm
To assess whether a potential deal is fully Paris-aligned, investors can refer to existing frameworks such as the Multilateral Development Banks’ (MDBs’) joint Paris Alignment approach, BII’s Paris alignment approach and EBRD’s Paris Agreement Alignment Methodology. Investors can refer to the EU Sustainable Finance Taxonomy for guidance on ensuring economic activities are aligned with its Do No Significant Harm (DNSH) principle. Implementing the recommendations of the TCFD is another good tool for managing physical and transition risks to support Paris alignment.
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A prospective deal must demonstrate how it will make a substantial contribution to climate change mitigation or adaptation [link to updated definitions page] to qualify as climate finance, based on recognised criteria from a credible climate finance taxonomy such as the joint MDB methodology for tracking climate finance or the European Union (EU) Taxonomy for Sustainable Activities. This should be supported by evidence that the investment is Paris-aligned, will mitigate both physical and transition climate-related risks (which can be assessed through due diligence questions aligned with the TCFD), and will do no significant harm through the economic activities proposed.
While 100% of the economic activities of the investee company or project must be Paris aligned, it is sufficient for only a proportion of the deal to be classified as climate finance. The investor can set a minimum threshold for the percentage of the deal that must qualify, for example 20%.
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Fulfilling ONE of the below criteria makes an investment 2X eligible.
Was the company founded by a woman, or do women own a majority share of the business?
Do women represent at least 30% of board members, or at least 20-30% of senior managers, depending on the sector?
Do women make up 30-50% or more of the workforce, depending on the sector?
Does the investment specifically target female customers and/or design products or services tailored to women customers? Or does it address a problem disproportionately impacting women?
For financial institutions and funds, is there any opportunity for 30% of the loan proceeds or portfolio companies to meet the 2X Direct Criteria (above)?