Giving Compass' Take:
- Here are three conventional tools and practices within the impact investing world that need to change to better address inequality.
- What steps can donors take in tandem with impact investors to create a more equitable economy?
- Learn more about impact investing here.
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There is no question that we are in a time of divisiveness in America. Racial and economic inequality are tearing at our social fabric. That tearing will continue with great force as low-wage workers and Black, Indigenous, and people of color (BIPOC) communities attempt to emerge from a pandemic-induced recession that, for many, is likely to have a long tail.
A study just released by the Federal Reserve Bank of Dallas, for example, found an unexpected pandemic impact: Average hourly wages are increasing despite an economic slowdown. The reason? A “compositional change” in the labor market as low-wage workers are forced out of the market at much higher rates than other workers.
Another discouraging study, this one by the Federal Reserve Bank of New York, concludes “there is little reason to think that accommodative monetary policy plays a significant role in reducing racial inequities in the way often discussed. On the contrary, it may well accentuate inequalities for extended periods.”
Our tools, both macro- and micro-economic, are inadequate for our times. Even impact investors who have long sought to create a more just and equitable economy often take their tools and practices from a conventional toolbox that—let’s admit it—is not doing enough to get at inequality.
To accelerate true progress toward an inclusive economy, we need to challenge three sacred cows of investing:
- A narrow focus on shareholder returns at the expense of a broader universe of stakeholders.
- Valuing the short term over the long run.
- Adhering to conventional formulas of risk and reward.
Many of the solutions to inequality lie at the intersection of the public and private sectors. That means impact investors should not only take creative approaches to capital but also support public policies that advance community investing. Two great resources for setting a policy agenda can be found in the U.S. Impact Investing Alliance report, and in a white paper by the Urban Institute, Strategies for Advancing Impact Investing through Public Policy.
Read the full article about impact investing by Annie Donovan at LISC.