Posts

,

Diversity, Equality and Inclusion in Impact Investment

Tara Sabre Collier, Social Entrepreneur in Residence at the Skoll Centre for Social Entrepreneurship and Skoll Scholar alumna joins Chris Blues, Programme Manager for Social Ventures at the Skoll Centre, in examining inequalities within the Impact Investment industry.

Inequality is one of the greatest challenges of our time, hampering growth, spurring strife and instability and impeding human development.

Income inequality has been worsening across countries since the turn of the century and is likely to be tremendously exacerbated by COVID-19. The impact investment sector has been a powerful force for progress towards many SDGs but needs to take a critical look at how, as a sector, it is advancing or exacerbating SDG 10. In most of the world, income and wealth inequality are inextricably tied to race, ethnicity, gender, national/origin migration status but most impact investors have not fully interrogated their roles in fostering equity and inclusion across their organizations and portfolios.

There is no aggregate global diversity and inclusion data for the impact investment industry.

Data from the UK, one of the world’s leading countries for impact investment, show a clear discrepancy in the ecosystem, with people of colour occupying less than 7% and women outnumbered 2:1 in board directorships. While the UK does not necessarily represent the entire impact investment industry, it is an important global hub. Moreover, there are a number of global commonalities in terms of wealth distribution, private capital markets and philanthropy that indicate other Western impact investment markets will similarly fall short. The impact investment industry hybridises investment, philanthropy, and social enterprise traits; talent, staffing and leadership trends will reflect this DNA. A few global highlights from these sectors (across UK and USA) reveal less than admirable diversity and inclusion track record.

Venture Capital

The United States is the world’s leading VC market. White men are 30% of the country’s population yet nearly 80% of VCs and 80-90% of leadership in venture-backed companies. This demographic disparity, is replicated in the European VC ecosystem. Furthermore, research shows that venture capitalists are far more likely to partner with people who share their gender or race, leading to far less funding for women entrepreneurs and founders of colour.

Philanthropy

Women are about 56% of US philanthropic foundations CEOs, but people of colour only occupy 11% of said roles, despite a significant philanthropic emphasis on serving communities of colour in the US. There’s now evidence that this disparity is reflected in philanthropic funding for social entrepreneurs of colour, with a recent Bridgespan study showing Black-led social enterprises have 76% smaller net assets than white-led counterparts, mostly attributed to bias.

Social sector

Just 3% of UK charity CEOs were of non-white backgrounds, despite the fact that a large share of the UK sector’s work likewise addresses communities of colour. On the international front, an older study indicated less than 10% of the largest international NGOs had African board members, despite Africa being the largest market for INGO grant funding and programs.  Likewise, despite women comprising 70% of INGO staff, women are still vastly under-represented (i.e. approximately 30%) as CEOs and leaders of these organizations.

These select examples demonstrate a pattern of diversity paucity which contravenes the vision of impact investing.

Two painted multicoloured hands, holding hands

If the impact investing industry replicates these disparities, there is a risk of reinforcing income inequality, instead of combatting it.

The representation gap also points to a possible market failure whereby impact capital is likely not being efficiently distributed to many promising ventures with potential to solve societal challenges because of a disconnect between primarily Western white male funders and under-represented social enterprise founders, especially in the Global South. Furthermore, the lack of representation in impact investment teams and portfolios would likely detract from the sector’s financial performance, given the proven linkages between gender/racial diversity and financial performance. There’s no dearth of evidence for the commercial benefits of representation but nevertheless a handful are mentioned below:

While the corporate sector continues to rise to the occasion on diversity and inclusion efforts, the impact investment industry is yet to get on board with really advancing the inclusion agenda beyond gender. In the face of what we are learning from the COVID-19 pandemic, there is no time like now to decidedly develop diversity and inclusion initiatives that will improve financial/social returns. If impact investors are truly serious about the SDGs, including SDG 10, we must fight the hazards of inequality, starting with our own industry.

Authors:
Chris Blues, Programme Manager for Social Ventures, Skoll Centre for Social Entrepreneurship

Tara Sabre-Collier, Social Entrepreneur in Residence, Skoll Centre for Social Entrepreneurship

A new decade of impact investment: Three tactics to accelerate towards the SDGs

Tara Sabre Collier is not only a 2012-13 Skoll Scholar and Oxford MBA graduate- in 2019 she joined the Centre as a Social Entrepreneur in Residence. She has extensive experience in the world of social finance and international development, as a social entrepreneur and impact investment advisor.  As we begin a new year and decade, Tara Sabre shines a light on how far we’ve come (and how far we have to go) in achieving the UN SDGs.

This January kicks off an inflection point to consider the realities we have created since 2010 and those we aim to create by 2030. As of 2020, we now have ten years remaining to reach the UN Sustainable Development Goals, which serve as guiding pillars for envisioning a better future for the world.

Twenty years ago, the last time the UN set forth the ambitious Millenium Development Goals, we fell short of accomplishing some of the outcomes we envisaged. 2020 is different and can be a watershed moment for global development. Today, the private sector and public sector have partnered at historically unprecedented levels to tackle the world’s challenges. New allies have emerged, leveraging far greater amounts of philanthropic and commercial capital and every kind of vehicle in between. Impact investing, which was valued over $500 billion in 2018, continue to grow by leaps and bounds. By 2025, 30% of family offices expect to allocate 25% or more of the funds to social impact investments.

Nonetheless, the size of the impact investment required to reach the SDGs appears daunting in some cases. For example, achievement of SDG #7 (universal access to affordable and clean energy) would require $1.3-1.4 trillion per year until 2030. So how do we (the impact investment ecosystem) improve our odds of reaching the SDGs by 2030?

One important tactic that impact investors can take on is to pursue synergies across multiple SDGs. Researchers at Aberdeen University and University of Potsdam have already embarked upon fascinating research to analyze and forecast the synergies and trade-offs across the SDGs. This provides an evidence base for impact investors to accelerate and measure progress investing in multiple-SDG strategies, from gender-smart agribusiness development to climate-friendly infrastructure.

Another tactic is to innovate cross-sector partnerships. When impact investors pour capital into agriculture or education enterprises that impact SDGs, the business enabling environment can make or break the potential financial success and social impact of said ventures.  This is why alignment between impact investors and public sector will continue to be crucial; innovation can play a vital role in amplifying these alignments. Development impact bonds were the last decade’s major step towards innovating cross-sector alliances. The 2020s are an opportunity to bring technology, such as big data, blockchain and AI modalities, to continue innovating these alliances for more effectiveness.

Perhaps the most important tactic to accomplish the SDGs is to counteract “impact washing, i.e. the practice of funds or enterprises claiming impact in bad faith without generating any demonstrable social or environmental benefits. B Lab is one of the oldest sector-agnostic certification initiatives to bring accountability and transparency to the social enterprise ecosystem. And IFC launched their own impact investment standards in 2019. But for intentionally aligning impact investment with reaching the SDGs specifically, the Future Fit Business Benchmark is potentially one of the most powerful new tools for companies to understand and operationalize their impact.

Twenty years ago, there was no impact investment industry, no development impact bonds, no blockchain, no social impact certification agencies and barely any smartphones! And yet, despite the shortcomings, the period of the Millennium Development Goals was marked by biggest drop in global poverty in recorded history. Today, we have a fleet of new technological advancement, more supportive business enabling environments and a thriving new asset class supercharging our progress towards global development. Even with the enormous scope of the Sustainable Development Goals, with continued progress we may be on pace to accomplish them this decade.