Investing for justice

Part 1: Why

Investing for Justice

Part 1: Why  |  Part 2: How

By Ammara Shirazi


Social and racial justice are complex systemic issues and for some people, discussing them can  make them feel uncomfortable. However, if we are going to commit to learning, unlearning and striving for change, then these issues need to be faced in order to overcome them. Like my colleagues at Rally, I’m bothered by injustices in the world, generally, and in particular the specific world in which we operate – the financial world. Changing how the financial sector operates and is structured can help reduce some of those injustices.


Long-standing systemic oppression is reflected in, and reinforced by, the financial sector

Some say the financial system is broken because it has failed to include everyone. I don’t. I say it is working as it was designed and intended: to keep those with power in and those without, out.

A lot of the structures and policies that stem from white supremacy, patriarchy and classism have been replicated in different parts of society. The financial system’s institutional and structural systemic oppression is based on factors such as race, gender and class. The financial sector is no different with respect to those who have capital, allocate capital and receive capital. It is dominated by straight white men.


Data reveals extent of inequities

The lack of diversity in the investment industry perpetuates inequity because who deploys capital and who it benefits often reflects the composition of the investors and asset managers.

For example, evidence indicates that women receive a fraction of the funding that men get. Funding disparities are also present across ethnically diverse founders. This issue isn’t only at the venture level. At the fund level, fund managers who are diverse also have a harder time raising capital. And on the funding side of the table, there is less diversity (of all types) at all levels.

Although the following statistics are primarily from the US, I have not seen any evidence to indicate the patterns and disparities are materially different in Canada:

  • In 2019, just 2.8% of venture capital funding ($3.3B US) went to women-founded ventures[1]
  • Female founders raised $1.9B US (~2.2%) in 2017 of which only $250M US (~0.003%) went to Black female founders[2],[3]
  • Although women of colour open 89% of businesses, they get less than 1% of venture capital funding[4]
  • In 2017, 1% of venture capital funding went to Black founders[5]
  • Women of colour receive lower seed-stage average investment ($42,000 US) than the average founder ($1M US)[6]
  • In the investment and asset management space, firms owned by white men manage 98.7% of the $69.1T US managed within the US[7]


Business ownership inequities

This issue does not only manifest itself within private markets or small and early-stage companies. It is present in larger companies and across industries:

  • Only five Fortune 500 American CEOs (1%) are Black despite the fact that Black individuals are 13.4% of the US population[8]
  • Only 13 Global 500 companies (2.6%) are led by women and none by women of colour[9]


The need for change

Systemic inequities have exacerbated a wealth gap and created different economic outcomes, leaving some segments of the population underserved and excluded. As a result, socioeconomic development has declined in terms of education, health and economic mobility. Not only does this damage the prospects for livelihoods of current and future generations by restricting or limiting their potential and access to resources, it is unethical when intentional or politically or racially motivated.


Data also shows benefit of diversity

Beyond addressing these equity issues for their own sake, there is a growing body of evidence that shows diverse companies perform better and are likely to be more successful. For example, McKinsey research has found:

  • Gender-diverse and ethnically diverse companies outperform competitors by 15% and 35% respectively [10]
  • Empowering women could add $12T – $28T US to the global economy by 2025[11]


Some positive signs… but not enough being done

Change is happening. We are seeing more investment into efforts that may help to diversify the financial sector. Research from Veris Wealth Partners’ and Wharton Social Impact shows that as of 2019 $5.65B US was deployed globally in public and private markets to increase diversity in organizations and focus on solutions for women and girls.[12][13] Earlier this year, Prime Minister Trudeau announced a $231M program to help Black entrepreneurs get loans from national banks to tackle systemic racism in Canada.[14] The funding will come from the federal government and eight financial institutions. In addition to access to capital, this program will also support mentorship, financial planning services and business training. In the US, Citigroup recently announced that Jane Fraser will become its next CEO, making her the first woman to lead a Wall Street bank.[15] Meanwhile in Canada, Laurentian Bank announced Rania Llewellyn as its new CEO, the first woman to lead a major bank in Canada and the first woman of colour to do so in both Canada or the US.

But these efforts are minimal and piecemeal. Much larger change, and change at a systems level, is needed. Thankfully, such change is possible.