Opportunity

What the financial industry perceives to be unchartered territories, on a closer look, may have faint footprints of early trailblazers. Across the globe are remarkable fund managers who are living out the goals of gender lens investing. They have innovated processes, disrupted norms in investment analysis and adapted structures to shift power dynamics. One would assume that these fund managers who innately challenge the status quo of traditional finance are being applauded by the ecosystem stakeholders but on the contrary, their practices are being questioned and devalued. This inability to identify and celebrate fund managers who are shifting systems in finance not only is discouraging to the trailblazers but also is a missed opportunity to catalyze transformative shifts in the financial system.

These fund managers have advanced practices. But their practices are not the standard of the field. How can we enable the identification and recognition of advanced practices?

Over the past three years, with support from the government of Canada, Criterion has been able to formalize a system of standards of practice. The Standards of Practice system consists of a coherent and consistent logic that explores the existing practice in investment, analyzes the power dynamics within that practice, and then names a way to shift it as the standard of practice.

We have built the standards, tested them for realistic adoption with asset owners and managers, and gained commitments from those who can demand improvement in standards of practice. To strengthen the case for the standards, we need to hold up the advanced practices that are already in place amongst leaders in this field.

A key challenge is that the many fund managers who have advanced practices have not had the opportunity to document them. They have learned from their experience in context and adapted. However, the resources or opportunities have not been available for the fund managers to systematically map the advancement of their processes. Some practices are so instinctive to them that the uniqueness of those practices is not recognized. As a result, they are not able to differentiate advanced practice from business as usual.

This lack of opportunity for the fund managers to conduct in-depth assessment of their own practices and discovering and documenting their unique approaches means that asset owners and other stakeholders do not recognize the significance of their practices and then unjustly place these advanced practitioners in the same category as other fund managers that meet the minimal requirement to be a gender lens fund. What fund managers lack is a way to articulate how their advanced practices are leading to more aligned social outcomes.

The advanced practices being utilized by different fund managers are contextual in nature but can be building blocks of a much broader framework that unlocks new dimensions on use of finance as an enabler of social change. It is thus crucial to connect the different pieces in the ecosystem to get a comprehensive understanding of how financial systems can be transformed.
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Our Initiative – A Spotlight on Advanced Practice

Through the Advanced Practice initiative, we will function as field builder, researcher, and convener. We will work with fund managers who have or who are developing advanced practices. We will design processes to document their practices and articulate them, with attribution, within the system of standards that Criterion has developed. By including these practices in the systems of standards, we can help leaders articulate their practices through a coherent framework around power. Naming what they are already doing to shift power imbalances will showcase their distinct leadership.

Additionally, we will create a collaborative environment and convene the trailblazers to exchange insights and explore the layers and nuances of one another’s practices. By engaging in this initiative, fund managers will not only augment their individual capabilities but also contribute to a larger narrative of transformation within the sector. The power of this group lies in its collective effort to elevate practices and drive meaningful change, positioning them at the forefront of investment practices.

In the absence of knowledge sharing in the broader ecosystem, the minimum standard has become the norm, and the value of advanced practices is not recognized or rewarded. This slows the progression of the ecosystem and results in inefficient resource utilization. Thus, through the initiative, we will broadcast the identified advanced practices, of the exemplar funds to those who are looking to improve their practices. The advanced practitioners will be recognized as leaders and the documentation of their practices can serve as the guidance for the broader industry. This documentation will also be crucial for standard setters like asset owners who want to ask for more from asset managers.

Through this initiative, we expect that raising the bar on the standards of practice will shift the current paradigm from meeting minimum standards. This set of fund managers who have pushed the envelope with their advanced practices will be differentiated, creating a race to the top.

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Through the initiative, the Fund Managers will be able to: ‍

identify and document their advanced practices design internal mechanisms to continue practices mapping enhance a culture of continuous improvement strengthen collaboration with industry stakeholders prepare for investment risks stemming from systemic inequities demonstrate leadership in gender lens investing contribute to transformational shifts in the industry provide a unique value proposition to gender lens investors

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The Approach

The initiative will have five core components:

1. Assessing and mapping practices with fund managers who exemplify advanced practices. This is a collaborative, knowledge-driven process where the Criterion team and partners work with fund managers to recognize and document practices that address power dynamics. Additionally, fund managers will be placed in peer groups, capturing diverse experiences and insights to forge pathways for more effective and equitable outcomes in the world of finance. Fund managers will explore power dynamics and identify best practices, enabling them to refine and enhance their own strategies. This is more than just an expertise exchange; it is an opportunity to lead a movement that shapes the future of investment.
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2. ‍Collaboration on emerging practices within the ecosystem. Fund managers do not operate in a vacuum, they are part of a chain of relationships within the ecosystem. The value chain actors have their own sets of practices and varying degrees of influence on the system and one another. Thus, we will find advanced practices not only in fund structures led by managers, but also within structures and processes of other players in the value chain. For example, fund documentation is not created within the bounds of an individual fund, but with the legal system where clauses and covenants flow through. This means that there are different inflection points within financial systems that can catalyze transformations. Finance is inherently relational, so it is imperative to engage multiple stakeholders to identify and refine shifts in structures.
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3. Continued documentation of standards of practice. Inclusion in the broader ecosystem validates the approaches of the fund managers and allows us to build out from individual, fragmented practices to a broader, multi-faceted structure that provides coherence and consistency for others who want to adopt or ask for better practices alongside targeting better outcomes.
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4. Sustained influence of standard setters, those who can use their power to ask and advocate for more. This initiative will accelerate the adoption of a comprehensive system of standards by providing case studies that can be used as evidence by standard setters. Additionally, this will provide a much needed and well-deserved visibility to those who have advanced practices to asset
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5. Development of a curriculum with detailed guidance on advanced practices. This initiative will a broader set of case studies and documented processes for those who provide specialized technical assistance and support to fund managers, in Criterion’s language, those who provide the translation function.
   
   These five workstreams will work together in a coherent program that can continue Criterion’s and our partners’ efforts to improve practice in the field of gender lens investing. For persistently improving practices is the only way we will achieve the goals that the field has set out.
   
   Within these five workstreams we will also have an intentional sub-focus on the intersections of climate and gender. We will publish knowledge products that move away from superficial approaches to looking only at representation and examining how diversity and inclusion leads to advanced practices within climate and gender funds. Women and diverse managers who are leading funds investing in addressing climate change are often held out for being better able to further the gender-climate targets. Through this initiative, we want to document case studies that provide evidence on how women-led funds are incorporating diversity and inclusion in their advanced practices. Through this focus of the work, we will have the opportunity to uncover a deeper understanding of the gender-climate nexus and its implications.
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Resourcing

Criterion is actively fundraising for this effort and is prepared to begin implementation. We are raising funds from foundations for this initiative. In addition, we are requesting the Fund Managers to contribute US$25,000 over the three years of the initiative. This is split into an annual participation fee of US$5,000 per annum, and a fee for the focus research component of US$10,000 that is timed as per the convenience of the fund manager.

Being part of the initiative provides a unique opportunity to Fund Managers to articulate their practices through a coherent framework around power and gender dynamics in their local contexts. In addition to collaborating with trailblazing Fund Managers globally, participants contribute to raising the benchmark in the industry and catalyzing transformational shifts. The recognition of their advanced practices helps distinguish the Fund Managers and further strengthens their credibility among asset owners. This also means that Criterion is committing to you as a long-term partner.
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Next steps

Through the collaborative efforts of this initiative, we have the potential to catalyze transformative shifts in the gender lens investing ecosystem and to advance Criterion’s key priorities, fundamentally. We look forward to getting started.