Why Closing the Racial Equity Gap Requires an Inward Look into Business Operations and Decision Making

Marie Gray, DEI Intern at the Intentional Endowment Network in this post shares strategies that both investors and firms can use to integrate and increase racial equity in their investment practices.

The focus for my internship at the Intentional Endowment Network (IEN) has been supporting operations related to Diversity Equity and Inclusion (DEI). Being able to focus entirely on the subject has exposed me to genuine learning opportunities that have challenged and broadened many of the business concepts that were central to my Master degree I earned from the Fletcher School of Law and Diplomacy at Tufts University. In particular, I'm learning about the innovative ways the IEN network helps investors create business models that cultivate a more just society.

My experience thus far has solidified my belief that a business is, as Rachel Robasciotti, Founder and CEO of Adasina Social Capital so eloquently put in the Adasina Social Justice Investing Update on May 27th, their DNA-the voices businesses choose to empower and integrate into their processes. In other words, investors not only can be agents of change by implementing an effective external investment strategy but can also address inequity by first identifying inequalities embedded in their internal processes. In this post, I want to share with you the knowledge I gleaned on how both investors and firms integrate strategies that increase racial equity.


Addressing DEI Challenges

Racial injustice presents itself often in the challenges women and BIPOC led businesses face in attracting capital, as well as barriers to entry to employment. Many investors within the IEN are addressing both issues by asking critical questions about their investment methodologies and hiring practices by striving to undo the damage of unconscious bias while broadening investment and hiring criteria. Beyond the hiring process, fiduciaries have also focused on cultivating inclusive environments and increasing retention amongst traditionally underrepresented communities by providing opportunities for training, upward mobility, and establishing feedback loops. 

Firms that prioritize both creating greater inclusion in the recruiting process and also in the day-to-day operations are the ones that have been most successful in reducing barriers to entry for communities of color and women. Nonetheless, fiduciaries are still learning how to find minority-run businesses to invest in and face challenges in integrating diverse individuals into the leadership. Both will be necessary to reach genuine and long-term diversity and inclusion outcomes outside of and within the firm.

One of the primary challenges in finding women-led and/or BIPOC businesses to invest in or investment firms to work with is that the characteristics of what investors deem to be a viable investment is inherently exclusionary. Those who cannot meet the current standards are more likely to be subject to higher interest rates and stricter covenants. Are those really equitable terms? Susanna Gibbons, Managing Director of Carlson Funds Enterprise, explained it best: historical data is not a good determinant of future success and neither is size. Instead, when determining the likelihood of future success, fiduciaries should broaden the criteria to be inclusive for new entrants, particularly those who are women or are from the BIPOC community. 

This means as Tynesia Boyea-Robinson highlighted in the Creating Racial Equity Standards for Investing webinar, that investors need to be asking questions about how equitable their assessment methodologies are when working with minority-led businesses and investment firms. For example, Tynesia, CEO of CapEQ, advocated for investors to reflect deeply on whether or not their definition of risk is limited. If so, investors need to find ways to rethink risk in order to make due diligence and terms formation more inclusive. In summation, investors need to focus on reducing dependence on historical data while thoroughly addressing how race and gender-based bias have embedded themselves in investment decision-making. One critical way investors can address implicit discrimination is by integrating diverse voices into leadership.


Ways Investors Have Used to Integrate DEI into Leadership

IEN has long said that businesses who are serious about integrating DEI into their operations need to integrate diverse voices into decision-making.  I thought I’d share one method that investors have used to integrate diversity into leadership as well as an IEN-endorsed justification for promoting diverse voices into decision making. 

  • A method to increase diverse representation in leadership positions has been to rethink knowledge and expertise. If you are executing an investment strategy that is mindful of underrepresented communities, you must find ways to integrate the voices of those who have firsthand experience of how capitalism has shaped and impacted their communities. Combining business expertise with community voice will generate investment and/or business strategy that is not only feasible but also takes into consideration the distinct needs and realities of the BIPOC community.
  • Traditional financial theory suggests that investors need to diversify their portfolio across asset classes and sectors to mitigate risk and plan for future trends; the same theory applies to selecting diverse people and should be applied particularly when it comes to thinking about plans for a firm’s future. The IEN Racial Equity Primer highlights that by 2032 the majority of the labor force and participants of the economy will be people of color as the portion of white Americans in the United States continues to shrink. If the people of color continue to be disproportionately impacted by the wealth gap, consumer spending will be adversely affected, hurting the profit margins of firms and in turn, investors. Therefore increasing the wealth of racial minorities by providing them with meaningful jobs and opportunities for upward mobility will bolster consumer spending.
  • Finally, understanding how changing demographics will impact preferences could provide firms who prioritize listening to diverse individuals with a competitive advantage. In other words, integrating diversity into leadership is simply a smart long-term business strategy. 

I ultimately observe that the shift IEN Network is trying to implement requires vulnerability, a word that I know does not get thrown around much in this industry. However, we should not fear it. Having the ability to ask difficult questions about how racial inequality and gender discrimination exists is critical to understanding what practices we need to get rid of and which ones to decimate. By identifying harm, we can undo it and create solutions that are financially viable and serve the BIPOC community and women. 

Thank you for taking the time to read this blog and for engaging with the IEN network. For all you have taught me and shown me what is possible in the DEI space this summer, I will always be grateful.

Keep in touch with Marie Gray here

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