Racial equity investing isn’t about ticking a diversity box. It’s about understanding and investing to tackle social inequities in the U.S. – from education to healthcare, transportation and housing, to access to finance – that largely divide along racial lines.
“Investing to advance racial equity demands particular attention to and understanding of the interconnectedness of social equity’s underlying themes,” says Erin Harkless from the mission investing group at Cambridge Associates. Cambridge Associates is out with a new report that parses strategies for racial equity impact investing.
One approach is to deploy capital in support of investment managers, entrepreneurs, and communities of color, which face a continued capital gap. Another is to back companies with products and services that benefit racially diverse constituencies and have positive workplace cultures.
- Growth market: The buying power of racial minorities in the U.S. grew 138% from 2000 to 2016 to $2.2 trillion, faster than any other group, according to the Selig Center for Economic Growth. Raising the average incomes of people of color to that of white people would generate $1 trillion in additional earnings, says the Kellogg Foundation.
- Follow the leaders. Daryn Dodson of Illumen Capital is training fund managers to overcome implicit biases and find hidden value in minority-led companies. Kesha Cash’s Impact America Fund is backing companies serving real needs in communities of color. EveryTable (backed by Kimbal Musk, Acumen America and TOMS Social Enterprise) is finding customers in low-income communities by making healthy food more affordable.
- Cross-cutting. Cambridge makes the point that racial equity opportunities cut across a variety of social issues – a point stressed by Andrea Armeni of Transform Finance. “If you care about racial justice, you should care about the quality of jobs in your portfolio,” said Armeni on a recent call. “More low quality jobs tend to accrue to communities of color, in particular, to women of color.”