Understand Equality Impact Investing - Definition, key premises and principles
What is equality impact investing? How can this toolkit help me in the journey?
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What is equality impact investing?
Equality Impact Investing (EII) is a form of impact investing that tackles inequality and advances equality. It seeks a positive, intentional and significant reduction in the impact and/or causes of inequality by:
Understanding what EII is and how to apply its key premises and principles
Setting explicit equality impact goals
Using one or more EII strategies to deliver equality impact goals
Integrating these across investment process activities
Reviewing, learning and contributing to the field of EII
EII brings together the established aims, premises and principles of the equality and human rights field with that of impact investing.
What do we mean by Impact investment?
Impact Investment is generally understood as investment made with the intention to generate positive, measurable social and environmental impact alongside a financial return. However, EII includes investment across the full spectrum of capital including those that accept full loss of capital (e.g., philanthropy).
What do we mean by tackling inequality and advancing human rights?
In the context of EII, tackling inequality means measurably reducing unfair differences in the extent to which people with different characteristics or statuses are able to enjoy their human rights and freedoms. Human rights are universally recognised rights and freedoms (civil, political, economic, social, cultural and environmental) that all people need to flourish as individuals and participate in society. EII recognises inequality as a multi-dimensional and structural challenge because, as illustrated in the figure below, these differences can be seen in different people or groups:
Outcomes in different areas or domains of their life
Treatment in institutional processes
Status in legal or social/cultural structures
In EII, reducing inequality and advancing human rights can involve reducing inequality:
+ In different areas or domains
Inequalities in different “domains”, such as education, work, living standards or participation, which reflect the things or areas in life that are important to people and enable them to flourish.
+ For people with different characteristics or status
Inequalities for particular groups of people based on their "characteristics", such as age, disability, religion, race, sex, sexual orientation or status such as socio-economic class, location or at risk of harm in one or several ways. People may experience a combination of multiple forms of discrimination or disadvantage (i.e., intersectionality).
+ In different ways (outcomes, process and structures)
Outcomes: the results achieved in terms of the actual position and lived experiences of individuals and groups.
Process: the extent that steps are being taken or efforts made, or not, to meet obligations, to ensure people are being treated equitably that flow from human rights standards, for example, in primary law, policies, targets, guidelines, inspection and regulatory frameworks, and resource allocation.
Structures: Both in formal commitments to equality and human rights in principle in laws and treaties and social and cultural attitudes that shape and impact peoples lives and life chances.
Because of this, EII should be understood as a broad field of impact investing that encompasses, rather than replaces, others concerned with specific inequality challenges such as Gender Lens Investing or Racial Justice Investing. To understand more about inequality, see this section: Identify inequality challenges.
Key EII premises and principles
Although a form of impacting investing, EII’s defining premises and principles are drawn from those of the wider equality and human rights movement.
EII Premises
+ Inequality is not inevitable and change is possible.
Inequality is not natural or inevitable but the result of discrimination (differential treatment in people’s daily lives or by a system that is unjust or prejudicial). Critically, advancing human rights and equality should be viewed as a floor and not a ceiling; so not only about ensuring minimum standards that no one or no groups should be able to fall below but also about achieving a society that unleashes all people’s, and thus our collective potential.
+ Inequality is multi-dimensional and systemic.
Inequality is a multi-dimensional challenge that can be seen and measured in the differences between what resources individuals have, and what they are actually able to be and do. People’s lives have many different dimensions, such as their health, knowledge, relationships, wealth, power, and many others. These dimensions are further influenced by the wider system people are in, such as their organisations, their communities, the society, their nations, and so on. Moreover different forms of inequality such as poverty or discrimination, racism or sexism interlink with and impact each other.
+ There is no such thing as an equality impact “neutral” investment or investor.
Any investment makes either negative equality impact or positive equality impact. Therefore, the impact of investments on inequality will depend on the extent to which investors make conscious choices and efforts to avoid the negative (the red zone in the equality impact continuum below) or support the positive (the orange or green zone).
EII Principles
Impact investors should conduct equality impact investing based on the following principles:
+ EII can be used across the spectrum of capital.
Because human rights are a floor not a ceiling, EII should be used across the spectrum of capital, from minimising negative impact to proactively having positive impact.
+ EII should avoid generating inequality diversion or inequality reordering.
EII should avoid generating inequality diversion or inequality reordering i.e., whereby reducing one inequality reinforces or worsens another.
+ EII should be integrated into existing common investment processes.
Because EII is a form of impact investing, it does not require whole new systems. EII can be integrated into existing common investment processes.
+ Both investors and the people and communities whose lives they seek to impact need to be meaningfully enabled to play their part.
Because bringing rights to life requires both those protecting, respecting and fulfilling them, and those claiming them, to be empowered to do so; both investors and the people and communities whose lives they seek to impact need to be meaningfully enabled to play their part.
+ Investors should improve their own practices to advance equality, diversity and inclusion (EDI).
Investors should consider the equality impacts of their own internal operational practices and diversity. While this is not a prerequisite to engage in EII, it is important for investors to recognise that these internal practices will inform their overall performance as investors and effectiveness in EII. This principle can also be operationalised as an EII strategy. Investors should ensure their own practices are consistent with its mission and values, and the expectations it sets for others based on its investment philosophy.
What is EII trying to achieve and how?
The figure sets out a summary of EII’s Theory of Change. To address the overall challenge and problem we are trying to address – Discrimination and Inequality – through equality impact investing, we have set out five key strategies that can be followed to produce positive outcomes and impact.
Why become an equality impact investor?
As a field, impact investing is concerned with tackling the key social and economic and environmental challenges of our times. Inequality is one of the most significant of these challenges and impacts and drives many others that concern investors. Reducing inequality both within and between countries is also a core Sustainable Development Goal (SDG 10). The SDGs recognise that “we cannot achieve sustainable development and make the planet better for all if people are excluded from opportunities, services and the chance for a better life” (SDGs, 2018). As of 2020, 80% of impact investors are now working to advance the SDGs (GIIN, 2020).
SDG 10 aims to advance human rights for all without discrimination. Some targets for SDG 10 are:
By 2030, progressively achieve & sustain income growth of the bottom 40% of the population at a rate higher than national average.
By 2030, empower & promote the social, economic & political inclusion of all, irrespective of age, sex, disability, race, ethnicity, origin, religion or economic or other status.
Ensure equal opportunity & reduce inequalities of outcome, including by eliminating discriminatory laws, policies & practices & promoting appropriate legislation, policies and action in this regard.
Adopt policies, especially fiscal, wage & social protection policies, & progressively achieve greater equality.
The figure shows how SDG 10 aims to tackle inequalities in different people and groups’ ability to enjoy their basic human rights and their “capabilities”. Taking a “capabilities approach” to sustainable development involves looking at, and tackling inequalities in, the extent different people and groups have “real” opportunities to fulfil their potential.
EII actors and their roles
Equality impact investing (EII) is a nascent and constantly developing field. Broadly speaking, there are four types of actors and some play more than one role. Critically EII brings together actors from both the impact investing and equality and human rights movement.
Infrastructure development actors develop enabling conditions for EII and ultimately contribute to a more robust EII ecosystem.
Impact enablers who provide knowledge and evidence and build the capacity of actors in the field.
Investors who provide EII capital, such as finance wholesalers, impact funds, and social investment teams in corporates.
Impact organisations or enterprises who directly impact inequality. These can be social impact focused organisations such as Voluntary, Community or Social Enterprise (VCSE) organisations or enterprises that work in ways, or deliver activities, products or services that reflect and seek to tackle inequality. This includes a subset of organisations or activities whose impact focus is wholly on reducing inequality / advancing equality.
Glossary
Below are terms often used and their definitions, which are generally accepted though not finite and are widely debated.
Impact Investing is investment that aims to address specific societal challenges and generate impact along with a financial return.
Human rights are universal and inalienable rights and freedoms that belong to everyone. They reflect the conditions that all people need to both flourish as human beings and participate as members of society. Human rights include civil, political, cultural, social, economic and environmental rights and recognise how these different rights are interdependent and interrelated.
Equality is where all people have their human rights and freedoms equally respected, protected and fulfilled, without discrimination on the basis of their characteristics, such as race, gender, disability, religion or belief, sexual orientation and age, or their status, such as socio-economic group, geographical location or citizenship. Equality is a core human rights principle as well as being a human right – the right not to be discriminated against in the enjoyment of one's human rights.
Inequality is where unfair differences exist in the extent to which people with different characteristics, intersecting characteristics, or statuses, can realise their human rights and freedoms. These differences can be seen in their status, treatment, or outcomes in one or more aspects of their lives (e.g., economic, social, cultural, political and/or environmental).
Intersectional inequality is where that people’s social identities or status can overlap, creating compounding experiences of discrimination. For example people may not experience race inequality as separate from inequality based on their gender, class, sexuality or citizenship or socio economic status.
Structural inequality is built-in or embedded bias within organisations, institutions, governments or social or cultural norms which provide advantages for some people and groups and marginalises or produces disadvantages for others.
Vertical inequalities refer to how resources such as income, levels of health, education, and political power, are unevenly distributed amongst individuals in a population.
Horizontal inequalities are the differences in resources between different categories or groups of people, such as women, and LGBT (lesbian, gay, bisexual and trans), BME (black and minority ethnic), disabled and older or younger people.
An equity approach, or treating different people and groups equitably, is not about treating everyone “the same” but recognising that some people and groups will need to be treated differently to ensure equality, non-discrimination and inclusion.
Diversity is any dimension that can be used to differentiate groups and people from one another.
Inclusion or inclusive practice is where there is proactive effort made to ensure organisational culture, policies and practice reflect diversity and do not directly or indirectly discriminate against people and groups with different characteristics or status.
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