Empowering change: strategies for fostering inclusivity in impact investing

Effectively facilitating justice, equity, diversity, and inclusion stands as one of the most important professional responsibilities. While the impact investment sector has made strides toward advancing the Sustainable Development Goals (SDGs), we must take a discerning look at how, as a sector, we are addressing inequality both through our portfolios and internal operations, policies and values.

The state of the sector

One of the main challenges in tackling this issue is the dearth of comprehensive global diversity and inclusion data for the impact investment industry. However, insights unveil an unmistakable diversity deficit within the sector.

According to research by the Skoll Centre, those from Black and Racially Minoritised communities in the UK represent less than 7% of board directorships, and women are outnumbered two to one. Similar patterns are seen in related sectors, underscoring a systemic problem. In venture capital, which plays a pivotal role in financing innovative startups, white men disproportionately occupy leadership positions despite only making up around 30% of the population. Studies indicate that due to unconscious bias, venture capitalists are more inclined to collaborate with individuals who share elements of their identity, including their gender or race, resulting in reduced funding opportunities for women and Black and Racially Minoritised entrepreneurs.

The social sector, tasked with addressing societal challenges, similarly grapples with diversity hurdles. As of the most recent National Council of Voluntary Organisations (NCVO) study, only 3% of UK charity CEOs are from non-white backgrounds, despite the sector’s extensive work within various communities. Trends across impact investing, philanthropy and the social sector underscore a pervasive pattern of diversity disparities that contradicts the fundamental essence of social impact.

Why prioritise Justice, Equity, Diversity and Inclusion?

If the impact investment industry fails to foster inclusive environments, it risks inadvertently reinforcing inequality instead of mitigating it. This underrepresentation indicates a potential market failure wherein impact capital is not efficiently allocated to promising ventures led by social enterprise founders from historically excluded communities. The absence of diversity within impact investment teams and portfolios could detract from the sector’s financial performance, as findings consistently highlight the positive correlation between diversity and financial success.

1. Alignment with Social Impact Goals: Impact investment firms and organisations have a primary mission to address pressing social and environmental challenges. Promoting JEDI aligns with these goals by addressing systemic inequalities that often perpetuate these issues. Achieving social impact requires addressing the root causes of disparities and ensuring that minoritised communities have equal access to opportunities.
2. Ethical and Moral Imperative: IT should go without saying that fostering JEDI is not just a strategic choice; it’s an ethical and moral imperative. It reflects a commitment to fairness, justice, and human rights. It acknowledges that every individual, regardless of their background, deserves equal opportunities and respect.
3. Enhanced Decision-Making: Diverse teams are more likely to make better decisions. A variety of perspectives and experiences can lead to more innovative solutions, improved risk management, and a deeper understanding of the diverse markets impact investors often engage with. A study by McKinsey & Co. uncovered that companies in the top quartile for racial and ethnic diversity were 35% more likely to surpass national industry medians regarding financial returns.
4. Market Relevance and Responsiveness: Consumer and investor preferences are shifting towards companies and organisations that embrace diversity and inclusion. Impact investment firms that fail to embrace JEDI may become less relevant and less attractive to a changing marketplace. Organisations with diverse leadership teams have reported higher revenues from innovation, as demonstrated by a study from Boston Consulting Group.
5. Mitigating Bias and Discrimination: JEDI initiatives help mitigate unconscious organisational biases and discrimination. They create an environment where individuals are evaluated based on their abilities and contributions rather than their gender, race, or other characteristics.
6. Attracting and Retaining Talent: A commitment to JEDI can make impact investment firms more attractive to a broader talent pool. Candidates with relevant lived experience are more likely to seek out organisations that prioritise inclusivity, and inclusive workplaces are better equipped to retain talented employees.
7. Reducing Inequality and Poverty: Impact investment firms are uniquely positioned to address socioeconomic disparities. By promoting JEDI, these firms can contribute to reducing inequality, poverty, and social exclusion, which are often at the heart of the issues they seek to address.
8. Enhancing Reputation and Brand: Organisations that prioritise JEDI tend to have a better reputation and stronger brand recognition. This can lead to increased investor trust, partnerships, and opportunities for collaboration.
9. Long-Term Sustainability: Building a culture of JEDI is essential for the long-term sustainability of impact investment firms. It creates a foundation for continued growth and impact by ensuring the organisation remains adaptable and responsive to evolving societal norms and challenges.

Accelerating Progress: Inclusivity Strategies for Senior Leaders

JEDI practices go beyond mere compliance or tick-box exercises; it’s about creating a culture that values and respects the unique perspectives and backgrounds of all employees. Inclusivity must precede diversity as a primary focus because it’s not enough to attract diverse talent; that talent must be nurtured and provided with a safe, empowering environment in which they can thrive. There is no perfectly finished JEDI strategy, it’s an ongoing dialogue and consistent process of iteration. With this in mind, here are some strategies for senior leaders to consider during their journey to fostering an inclusive workplace.

Commit to Inclusive Leadership:

• Engage Openly: Demonstrate a commitment to diversity and inclusion through your own actions and behaviour by actively engaging in conversations with your team.
• Form an Inclusive Leadership Team: If appropriate, create a dedicated team of leaders responsible for driving diversity and inclusion initiatives. While everyone in the organisation has a role to play in upholding inclusivity, their role is to ensure that these principles are properly integrated into all aspects of the organisation.
• Publicly Communicate Commitment: Clearly and honestly communicate the organisation’s commitment to diversity and inclusion in public statements, interviews, and articles. Use your platform to advocate for these values.

Set Clear Goals:

• Conduct a Diversity Audit: Begin by assessing the current state of diversity within the organisation. Collect data on demographics, representation at various levels, and areas where diversity gaps exist.
• Establish Specific Goals: Develop specific, measurable, achievable, relevant, and time-bound diversity goals. For example, aim to increase the representation of historically excluded groups in leadership positions by a certain percentage within a defined timeframe. Remember that metrics like this are just one element of a much wider strategy.
• Incorporate Goals into Strategic Plans: Integrate these goals into the organisation’s strategic plans, making them an integral part of the company’s mission and vision.
• Regular Progress Reporting: Set up a system to regularly track and report progress on diversity goals to hold leaders accountable. Share this information transparently with employees and stakeholders.

Create Inclusive Hiring Practices:

• Consider Implementing Blind Resume Screening: Remove names, gender, and other potentially bias-inducing information from resumes during the initial screening process to focus solely on qualifications.
• Diverse Interview Panels: Ensure that interview panels represent a range of backgrounds and experiences. This helps reduce bias and promotes varied perspectives in hiring decisions.
• Inclusive Job Descriptions: Review and revise job descriptions to remove biased language and requirements that may discourage historically excluded candidates from applying. Use gender-neutral terms.
• Training for Hiring Teams: Provide training to hiring teams on unconscious bias, inclusive interviewing techniques, and the importance of inclusivity in recruitment.

Invest in Training and Education:

• Mandatory Diversity Training: Make justice, diversity, equity, and inclusion training mandatory for all employees, including senior leadership. Offer a range of training formats, including workshops, webinars, and e-learning modules.
• Ongoing Learning: Encourage continuous learning by providing access to resources such as books, articles, and podcasts on diversity and inclusion. Create opportunities for employees to discuss and apply what they’ve learned.
• Inclusive Leadership Workshops: Organise workshops specifically tailored for senior leaders to deepen their understanding of inclusive leadership and equip them with the tools to drive change.

Promote Diverse Leadership:

• Succession Planning: Develop a succession plan that identifies high-potential employees from underrepresented groups and provides them with opportunities for career advancement.
• Mentorship and Sponsorship: Establish formal mentorship and sponsorship programs that pair emerging diverse talent with senior leaders who can provide guidance and advocacy.
• Diversity in Leadership Training: Create leadership development programs that focus on building diverse leadership skills, including cross-cultural competence and inclusive decision-making.

Support Inclusive Partnerships:

• Strategic Collaborations: Partner with organisations and initiatives that are dedicated to promoting diversity and inclusion in the impact investment space. Collaborate on joint initiatives, events, or investments.
• Diversity-Focused Investments: Allocate a portion of your investment portfolio to support-led impact ventures and funds. This demonstrates a commitment to investing in diversity.

Measure Impact:

• Impact Assessment: Regularly assess the impact of your diversity and inclusion efforts using metrics such as employee satisfaction, retention rates, and the diversity of leadership teams.
• Employee Feedback: Solicit employee feedback through surveys, focus groups, and one-on-one interviews to understand their experiences and gather suggestions for improvement.
• External Audits: Consider engaging external diversity and inclusion experts or auditors to objectively assess your progress.

Lead by Example:

• Inclusive Decision-Making: Ensure that inclusion is considered in all decision-making processes, from hiring to project selection. Encourage diverse perspectives and voices at the table.
• Visibility: Be visible and accessible to employees from all backgrounds. Attend JEDI events, engage in open dialogues, and actively participate in ERGs (Employee Resource Groups).
• Champion Inclusive Practices: Celebrate and recognise employees and teams that embody inclusive practices. Highlight success stories that demonstrate the positive impact of JEDI.

In many ways, senior leaders hold the key to accelerating progress in their organisations. Inclusive environments serve as the foundation for achieving the goals of impact investing—addressing societal challenges and driving positive change. Inclusive environments promote creativity, innovation, and better decision-making by drawing from a wide range of experiences and viewpoints, enhancing employee engagement, retention, and overall organisational success.