Impacting on inequality – can social investors think outside the diversity box?

As a social investors survey is launched to find out, Ceri Goddard of the Equality Impact Investing project explains why we are asking.

 

On the face of it Equality Impact Investing (EII), the use of capital to tackle inequality, seems a straightforward and compelling proposition. It goes something like this.  Impact investing seeks to tackle key social challenges. Inequality is near universally acknowledged as one of the greatest that we face, especially given it also drives or exacerbates others. We know our society, economy and culture are increasingly out of balance with huge amounts of resource, power and influence concentrated at one end of the spectrum. For the rest of us there are still major inequalities between what different people and groups can have, can be and can do in their lives. And the more out of balance, the more unstable we as a society become (1).

So diverting capital into social venturing that, at that very least, does not exploit these inequalities and ideally addresses them seems not just the right, but the obvious, thing to do. Indeed initial research from the EII project suggests that this is something that many social investors want to be doing. However it also indicates that actual use of equality impact investing strategies is currently limited. And where they are being used they appear to be confined to the “diversity box”. In this “box” we see work to increase the diversity of both those making investments and those receiving them. For example investing in more women, BME or disabled people led ventures. This is not to say this diversity work is not a hugely important and pressing need.

Increasing diversity in all aspects of the investment process, but in particular decision-making, addresses the current “representation gap” in assessing likely impact and building investment portfolios. It is also linked with more effective, and ultimately more profitable, decision-making. Investing in diverse social entrepreneurs also plugs another gap – the discriminatory credit gap[1] that can be seen between women and men or white and BME entrepreneurs for example. There is also evidence that in the case of investing in social entrepreneurs who are women, both financial and social returns are  likely to be higher.

However, this diversity focused approach only looks at who is making and spending investment, not how it is being spent and for what purpose.  To maximize equality impact there are at least another two key EII strategies that can be harnessed.  Firstly, investing in ventures which exhibit good equality practice, not only in terms of diversity, but in other areas such as employment practice or supply chain choices and standards. Secondly, perhaps the most obvious and certainly the most direct EII strategy, is to invest in social ventures that are directly focused on tackling inequality – what we term ‘equality ventures’. These can in turn be broadly divided into two types – those working to address the symptoms of inequality and those working to tackle the root causes, although there are of course equality ventures that deliver both.

So to summarise, there are at least four main types of equality impact strategies that social investors and intermediaries could in theory be harnessing to address inequality and advance equality. Getting their own house in order, investing in a more diverse range of entrepreneurs, investing in ventures with good equality practice, and investing in ventures that are mission-focused on tackling inequality. However to move from theory to practice we need to understand more about what investors are already doing, what else they would like to do and what in practical terms would enable this to happen.

This is where the social investor survey comes in. Its takes no more than 10 minutes to complete, is nearly all multiple choice questions and all inputs will be treated in confidence. If we are to fully realise the potential of impact investing to tackle inequality our next steps can’t be based on what appears to be the case. They need to be informed by the reality of social investment, how investors are currently engaging with equality, and what you say will make a difference.

Ceri Goddard
Associate Director: Social Justice, Dartington Hall Trust

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