A global moment of reckoning: Covid-19, inequality and impact investing
Inequality is at the heart of multiple crises we are living through at the moment and the impact investment industry can play a transformative role in our collective healing – but will it?
Covid-19 is not just a health crisis – it unearthed broader crises in equity, access and wellbeing that were occurring beneath the surface in several parts of the world. In more recent weeks, the killings of George Floyd, Armaud Arbery and Breonna Taylor further shined light on the miscarriages of justice and the epidemic of inequality that likewise had long been worsening.
The near-term implications of Covid-19 are questions of healthcare and mortality rates but the long-term fallout will be economic devastation with disproportionate effects on women, people of colour and the most vulnerable. In tandem, the Black Lives Matter movement has spurred greater discussion regarding equity and representation, which may help mitigate the effects of this fallout, if companies and governments honour the pledges they are now making. To truly advance long-term sustainability, impact investors must likewise begin tackling questions of equality head-on, including within their own ranks.
The call to action is about way more than police brutality – it is about prejudices which turn into barriers, reflected across the economic and political spectrum
There is already significant historical evidence that pandemics typically increase economic inequality. But the largest global economic contraction since the Great Depression is rolling back generations of progress and worsening existing economic disparities.
For example, nearly 40% of African-American jobs are in vulnerable sectors and 40% of revenues in black businesses are within the five most vulnerable sectors for Covid-19 disruption. These setbacks are even more jarring considering African-Americans faced nearly double unemployment and accrue only a fraction of net wealth of white counterparts. Already, initial estimates indicate that in the US 90% of women and minority-owned companies will be denied payroll protection (one of the main government-sponsored funding streams that helps SMEs cover interim costs), which has significant potential to widen the wealth gap. And these disparities in health, wealth and employment are almost identical with people of colour here in the UK. Understanding these disparities is key to understanding the impact thesis behind the global racial equity call to action, which is about way more than police brutality – it is about prejudices which turn into barriers, which are then reflected across the economic and political spectrum, from unrepresentative corporate leadership to biased policy design.
It has been encouraging to see swathes of impact investors rise to the occasion, with the launch of numerous Covid-19 relief vehicles. Likewise, it has been heartening to see industry associations like the Global Impact Investing Network release statements about racial equity.
But we need a more defined, proactive and strategic stance in order for the impact investment industry to actually meet its financial and social targets, while definitively addressing SDG 10 [reduced inequalities]. Gender lens investing will likely fall short without an intersectional approach and investing for racial equity must also consider the diverse identities (including gender, religion and national origin!) and barriers of people of colour. Equality impact investing, an emerging field that brings this multi-dimensional focus on equality to impact investment, would be a well-timed approach for impact investors to consider as part of the long-term arsenal.
We need a more defined, proactive and strategic stance for the impact investment industry to actually meet its financial and social targets, while definitively addressing inequalities
While many impact investors do focus on benefitting the most vulnerable or underserved, equality impact investing would mean taking intentionality and measurement to the next level. Equality impact investing is similar to gender lens investing but transcends other key components of representation, such as race, national origin, religion and beyond, as relevant to the respective history, society and economy. This evolution beyond just gender lens is important, given the evidence for how traditional diversity programmes may create further asymmetries by only benefitting historically more privileged women and the fact that the majority of gender lens investors are still neglecting integration of race. The main pillars of the equality impact investing approach are investing into traditionally excluded entrepreneurs, investing into organisations with diverse leadership and impactful, demographically inclusive value chains, investing into equality-focused organisations and building improved equality within the impact investment organisations and ecosystems.
Stretching the impact investment industry
While equality impact investing is even more necessary and compelling in a post-Covid world, it will require stretching from the impact investment industry. Initial research shows that the impact investment industry is plagued by insufficient representativeness in leadership, similar to counterpart industries such as finance and charity sectors.
The lack of representation in leadership informs misaligned investment decision making, leading to a world where philanthropists under-invest in social entrepreneurs of colour, even as those these entrepreneurs are more likely to have insights into solving problems in their communities. It leads to a world where 90% of social entrepreneurs funded in east Africa have American or European founders. Equality impact investing would compel impact funders to address these shortcomings within their own leadership and teams, which could ripple out in the form of more representative portfolios over time. Hopefully, this representation would translate into more effective business models that integrate better market knowledge and consumer understanding, which would help more social enterprises scale and solve local and global challenges.
Post-Covid, we are embarking on a new world together, a world where blended finance and cross-sector collaboration are more appropriate, welcome and supported than ever. We can choose to rebuild in more inclusive ways, and experience the synergies of more equitable economies, such as better safety, health and wellbeing across the board. Equality impact investing presents a well-timed strategy to reach our common goals, if we are willing to sacrifice to make representation and equity a priority.
- Tara Sabre Collier is a social entrepreneur in residence at Said Business School, Oxford University, and interim gender lead at the Shell Foundation.
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