There are very few women-owned (and led) consultancies that advise stakeholders – be they entrepreneurs or asset managers – across the capital spectrum of philanthropy and impact investing, to venture capital and all things environmental, social and governance (ESG). Within this, there are even fewer companies focusing on emerging markets, especially women-run businesses and entrepreneurs in need of funding. Enter, centre stage, Lebec Consulting, founded and run by Alix Lebec.
Over an hour-long Zoom call, nay masterclass, Lebec sat down with Investment Monitor to deliver a loud and clear message of existential import: the battle against climate change and global economic inequality cannot be won without more women (and diversity) in corporate and financial institution boardrooms. With 20 years of experience across the World Bank, the Clinton Global Initiative, Water.org and Water Equity, Lebec talked fluently and passionately about overhauling the entire approach to how ‘investment risk’ is defined and how the right type of investment is incentivised.
Lebec says that a paradigm shift is needed in mainstream finance in order to take bigger bets on emerging, women-led businesses with high growth and impact potential, including first-time female fund managers.
“We need diversity all the way to the top,” says Lebec. “Can you believe that 98% of financial assets are still directed and controlled by white men?”
“White men are not the enemy, we need men to be part of the solutions, but we need to recognise that women lead and invest differently. They are more risk-aware, which includes integrating climate and inequality in their risk assessment.”
Lebec also contends that women are more likely to invest in other women and in diverse teams. In other words, when women from around the world are at the decision-making table, the team will see opportunities at the intersection of impact and financial returns in ways that an all-white, male team would not, she adds.
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Seeing opportunities where others do not? Taking big bets on start-ups and businesses in new markets with high-growth and value-creation potential? That is the very definition of venture capital.
Women’s insights and experience change decision-making
Although Lebec says that ethnic and class diversity among male leaders is also essential, she focuses the discussion on the unique qualities that women bring to the table.
“We can absolutely stress that women lead and invest differently. The Covid-19 pandemic was also a great example of stronger women leadership,” explains Lebec. “We saw the women heads of state in Denmark, Finland, and New Zealand all handled the pandemic in ways that were deemed to be more responsive, compassionate and transparent – and yet three-quarters of the world’s parliamentary seats are still held by men.”
To support her claims, Lebec highlights a study from BNP Paribas that found that a majority of women high-net-worth entrepreneurs (51%) already include sustainable investments in their portfolio. “Studies also show that women lead with more empathy and are more likely to prioritise the long term in their investments, whereas men tend to prioritise short-term performance.”
Lebec contends it is no coincidence that there are more women in chief sustainability officer roles across global corporate and financial institutions. Note: there is a higher proportion of women in ESG decision-making roles compared with the financial industry, and global ESG assets are on track to exceed $53trn by 2025 (representing more than one-third of the $140.5trn in projected total assets under management). It is also important to note, however, that only 14% of financial institutions around the world are headed by women – so there is much work left to do.
Lebec also points to experiences that are, generally speaking, unique to women, from menstruation to childcare and family needs. In developing and emerging markets, women are the ones responsible for their family’s water and food needs and security. “They have unique insights as consumers who understand their family’s needs, and as entrepreneurs, they understand how to reach last-mile women consumers and low-income families,” she adds.
In fact, women and girls also undertake more than 75% of unpaid care work worldwide. According to Oxfam, the unpaid labour of women and girls contributes about $10.8trn per year to the global economy. The impact this has on the unequal power structures faced by women when trying to participate in the workplace and generate wealth has been widely documented by leaders such as Eve Rodsky, Melinda Gates and Reshma Saujani.
Lebec emphasises that women’s voices and perspectives matter when thinking about climate change solutions and policies. “If it is just men in the room, then they might think, for example, that optimising public transportation routes around 9am and 5pm makes most sense, as it does for most men; but for women, who are far more likely to have domestic responsibilities such as school runs, it simply does not,” says Lebec.
Environmental policies often affect women and households living in poverty in the most adverse way because these voices and their needs are not heard at the leadership table. “For example, clean cookstoves are a much healthier and easier way for women to cook for their family, but many were taken off the market after they were deemed (by men) not to be making enough of a dent in reducing carbon emissions,” adds Lebec. This decision, however, completely disregarded that, for many women who are responsible for the kitchen, clean cookstoves brought a major improvement to their health and living conditions.
Last but not least, Lebec points out that innovation occurs on the front line, not in comfortable corporate offices. “It is women who are often responsible for getting food and water for their families in most emerging markets,” she says. “From Haiti to India and Kenya, they have to walk hours to find water when there is drought or an unsustainable water system. As women are the ones on the front line of climate change, they should also be in the room shaping financial and public policy decisions on solutions.”
Huge funding gap for women-run businesses
Lebec Consulting actively scouts emerging markets for high-growth businesses led by women and those that have long-term profitability potential.
Lebec explains how there is a huge amount of women-led small to medium-size enterprises (SMEs) that are able to get microloans, only then to run into problems as they start growing. In short: their financing needs become too small for larger financial institutions but too big for microfinance.
“Consequently, they become stuck in what is called the ‘missing middle’,” says Lebec. “And because they are women in very unequal power structures, they often don’t own land or have access to generational wealth; they don’t have the collateral to be able to secure bigger chunks of financing.” Yet these are very promising business models that often improve the lives of local communities, preserve the local environment, and (with the right support) grow to achieve long-term profitability.
Due to structural bias and inequities, women-owned and led businesses face far, far more hurdles than those run by men when heading into Series B or C funding in the venture capital industry. It is already difficult for women-led businesses to raise capital at the early stages, but it gets even harder at later stages of scale. Sallie Krawcheck, co-founder and CEO of Ellevest, calls it the “Series B cliff”.
For women in emerging markets, these challenges are particularly profound. Take the example of Praava Health, founded and led by Sylvana Sinha, which has leveraged technology and healthcare value chains to reimagine Bangladesh’s healthcare system and address critical issues such as the prevalence of counterfeit prescription drugs and lack of quality care in what is one of the world’s fastest-growing countries. In recent years Praava Health has built a successful and profitable business model extremely quickly, helping nearly 400,000 patients. Yet despite achieving unit level profitability within its first year of operations, it has not attracted institutional capital.
“For a business that hit every metric in a key emerging economy, why was a Series B raise nearly impossible?” asks Lebec. “While these businesses are deemed overly risky, we have no issues throwing capital at failed, unproven business ventures in the US that then turn out to be fraudulent, such as Theranos and FTX, which once made the Forbes front page.” It is safe to say that one almost never sees a woman CEO from an emerging market on the front page of Forbes or Fortune, despite the many contenders with businesses that create social, environmental and financial value.
Another example of a leading women-led company is Frontier Markets, founded and led by Ajaita Shah, which has reached Indian consumers – particularly women – in ways and places that traditional e-commerce businesses have failed to do. Leveraging technology, supply chains and local female entrepreneur networks, Frontier Markets has increased the efficiency of getting affordable goods and services to last-mile consumers in remote places. Although the company received initial financing from Beyond Capital Ventures and Acumen, Lebec laments that fact that it is still not seen by traditional venture capital investors as a major opportunity.
Billions of lives are at stake
But beyond Praava and Frontier, why should investors take more interest in emerging markets? For one, advanced economies have an ethical obligation to do so, says Lebec, as some developing and emerging economies, such as Pakistan, are the least responsible for climate change.
There is also the fact that 85% of the world’s population lives in emerging markets (the driver of global GDP growth). According to a new report by Standard Chartered, private capital from developed markets could help boost household consumption in emerging markets by 4.5% on average each day between 2021 and 2060.
As women are the ones typically buying goods and services, including food and water, for their families, they shape those households’ consumption behaviours – meaning they have unique insights and perspectives that companies, financial institutions and policymakers will need. In short, there is no net-zero transition without women in emerging economies, says Lebec.
If emerging markets continue on the path they are on today – lacking the additional $94.8trn capital they need to transition to net zero in time to meet long-term global warming targets – the world is likely to see catastrophic global temperature increases of at least 3°C by 2100. In other words, fighting climate change and global economic inequality means focusing on emerging markets’ enormous consumer demographic, albeit with an emphasis on women-led businesses that are uniquely positioned to respond to, and shape, consumer behaviour in their economies.
As highlighted by a report from Root Capital, a whopping 2.5 billion people around the world depend on the agricultural industry. Yet smallholder farmers and agribusinesses, many of which are led by women, struggle significantly to get the debt financing they need, explains Lebec.
Root Capital’s report shows that, when one invests in women-led agribusinesses in emerging economies, one sees companies that are more stable, more profitable and even better positioned to attract additional financing later. “Investing in those types of agri-SMEs, very vulnerable ecosystems, is going to be vital to reducing carbon emissions,” says Lebec. “It should absolutely be a top priority.”
Totally redefining risk models
The Praavas and Frontiers of this world are not getting the funding they deserve, in large part due to outdated models and definitions of financial risk.
Today, risk continues to be primarily assessed based on past performance, but the world in 2022 is not that of 20 years ago, or even just a year ago. So there has to be a better way for risk to take into account climate risk and future risk, says Lebec. “Is it really less risky, for instance, to invest in a business model today that is so exploitative of natural resources and people that there is going to be no viability or no chance that we can invest in that area in ten years from now?” asks Lebec. “How is that less risky than investing in something that harnesses the environment and local communities in ways that have long-term profitability?”
As a result, today’s risk calculations exclude many opportunities in emerging markets. “This is a huge problem; we just have to stop the quarterly earning calls,” says Lebec. “Short-term profitability is not leadership, and all of this impacts the bias around women-led businesses, especially if these businesses are focused on less exploitative extraction, production and consumption behaviours and models and laying the groundwork for long-term profitability.” Short-term performance at all costs is a false concept of success, she adds.
The irony here is that across the impact investment industry (including development finance institutions, the venture capital industry and anything connected with ESG), there is a need to get an enormous amount of capital out the door. However, so much of it continues to sit on the sidelines due to outdated notions of fiduciary duty and definitions of risk and success, as well as the lack of diversity and incentive mechanisms across the leadership pyramid to invest differently and in ways that will create greater health, happiness and a sustainable future.
Instead, capital markets continue to double down on businesses and market disruptions that sound familiar despite the failure rates and lack of value-add of companies like Theranos, WeWork and FTX. “We continue to de-prioritise women in emerging markets despite their tremendous potential and value to our global economy,” says Lebec. “It is a massive missed opportunity. We need a new lens, we need new rules, new referees, new leaders.”
The same is true for the ESG world. To avoid greenwashing, Lebec says that the world has to move on from ‘safe’ public equities and passive ways of mitigating risk, and instead invest more proactively in multiple asset classes, including impact investment funds and women-led businesses. “We need to get past traditional transactions that might not meet institutional investors’ needs, bias and lack of urgency,” she says. “A creative portfolio approach to impact and long-term profitability means decision-makers who, because of their diversity, will be able to bring the best innovation and leadership to the table, such as women from emerging markets.”
As recently stated by Marisa Drew, chief sustainability officer at Standard Chartered: a dollar invested in climate adaptation effectively generates five to seven times that investment in risk avoided or GDP degradation avoided; More specifically, if, over the coming decade, we were to invest $1.7tn in climate-resilient infrastructure, agriculture, water systems and nature-based solutions, it could generate $7.1tn in net benefits.
Climate inaction will cost the global economy $178trn over the next five decades. “If tomorrow, we showed up at work differently, meaning leadership in the boardroom, we would add $43trn to the global economy over that period,” says Lebec. “We need a radically disruptive stance to end this perception of emerging markets as overly risky. We need to end the idea that, in this global economic downturn, we must resort to what we know and let things trickle down. No. This myopic thinking is just going to elevate future risk for the global economy.”
One of the only ways to achieve this radical shift is to incentivise the private and public sector with sticks and carrots. Lebec does not want to see people getting a bonus unless they have addressed the gender pay gap in their company or financial institution, and half of their investment portfolio is dedicated to solving global inequality or the global water and climate crisis, for example. “These are your new parameters. That is what needs to change,” she says.
If capital markets follow her advice, they will reach new consumers and have healthy financial returns in places they never looked at before and in completely new ways. They are also more likely to avoid scandals and pave the way for a more sustainable future. Diverse leadership across all companies and institutions, whatever the size, is the surest path to addressing the world’s most pressing issues of existential scale.