The Importance + Impact Of Diverse-Led Climate Funds
Low-income communities of color are increasingly bearing the brunt of rising greenhouse gas emissions (GHGs), soaring global temperatures, and the catastrophic weather events that are becoming part of our new normal.
Currently, however, the institutions shaping policies and investing capital do not reflect the communities most affected by climate change. Data demonstrates a severe lack of representation for women and people of color in venture capital, tech, and the broader business community.
Of all US-based VC partners, for example, only 4.9% are women and less than 3% of all US VC goes to Black and Latinx founders. Moreover, analyzing data from 2,000 listed companies over a 10-year period, BIS found that a 1 percentage point increase in the share of female managers lead to a 0.5 percent decrease in CO2 emissions. The data is clear – a lack of diversity at the fund level means missed investment opportunities from outside of traditional networks as well as lower investment performance.
To address this, comprehensive action needs to take place to distribute capital to those who recognize these issues the most: diverse and underrepresented companies and asset managers.
With our Climate Justice Initiative for Diverse Emerging Fund Managers, VC Include is addressing three key challenges we’ve identified in our research:
+ The devastating effects of climate change on communities of color
+ The lack of diverse asset managers & companies
+ The exclusion of underrepresented companies in the green economy
CHALLENGE #1: Low Income, Communities Of Color Bear The Burden Of Environmental Injustice
Dozens of reports and articles demonstrate how poor communities and communities of color bear more of the burden of climate change. Academics, activists, and world-renowned leaders recognize how much racial, economic, and environmental inequities are intertwined.
Climate Justice Alliance’s co-chair, Elizabeth Yeampierre, for example, draws a direct line from slavery and the rapacious exploitation of natural resources to current issues of environmental justice on communities of color. “I think about people who got the worst food, the worst health care, the worst treatment, and then when freed, were given lands that were eventually surrounded by things like petrochemical industries,” says Yeampierre. These legacies of inequality inevitably, affect the current daily lives of millions of people.
Thus, high-poverty areas - most of which are communities of color - have suffered from exposure to harsh environments for hundreds of years. These situations are not new. Fracking wastewater disposal wells, as demonstrated in this article published by The Conversation, flush toxic chemicals back into the ground of high poverty neighborhoods. Unsurprisingly, these wells are more often found in areas with a population of more than 80% people of color.
In addition, gas flaring - which is the highly visible practice of burning off waste gas during oil production - also plagues communities with a higher LatinX population twice as often than majority white neighborhoods. This flaring of gases has been linked to respiratory and cardiovascular problems. The list goes on.
These actions signify a clear lack of respect for communities of color. “When we pollute the hell out of a place, that’s a way of saying that the place—and the people and all the other life that calls that place home—are of no value,” Hop Hopkins writes in Sierra Club. Then, the lack of respect turns into blatant forms of disease and death.
In Cancer Alley in Louisiana, so many Black folks have died from the poison that drives our extractive economy that nowadays, the area is known as Death Alley. It should not be a surprise that most of the towns there are majority Black. Similarly, the Navajo Nation has experienced deathly amounts of poison for decades, due to uranium mines and coal plants contaminating the wells, groundwater, and the air. Sacrificed zones imply sacrificed people.
CHALLENGE #2: Exclusion Of Underrepresented Communities In The Green Economy
According to the US Bureau of Labor Statistics, green jobs are defined in two ways: jobs in businesses that produce goods or provide services that benefit the environment or conserve natural resources; or jobs in which workers' duties involve making their establishment's production processes more environmentally friendly or use fewer natural resources.
On average, green jobs are high-road jobs, which means they typically have better pay and benefits than average jobs, and offer upward career mobility and safe workplaces. These employment opportunities are across a broad spectrum of responsibilities supporting sustainability: from electricians, contractors, engineers, and developers.
The past decade has marked unprecedented growth in green jobs. Cities, states, and local governments have demonstrated renewed commitments to implementing workforce development initiatives to promote green job growth. For example, a recent report found that by 2050 in Los Angeles alone, green jobs could grow nearly 80 percent, from 338,000 to 600,000 jobs. As all industries engage in sustainability efforts in order to address climate change, these jobs are only expected to increase over time.
Yet, these jobs are often barred from underrepresented communities, and reserved for historically overrepresented demographics. There is a clear lack of representation of people of color and women within these jobs. A 2019 study by the Solar Foundation and Solar Energy Industries Association (SEIA) found that among all senior executives reported by solar firms, 88 percent are white and 80 percent are men. Another report from the National Association of State Energy Officials (NASEO) and the Energy Futures Initiative found that for energy efficiency jobs, women and Black workers substantially lag the national workforce averages.
If these trends continue, the low-carbon economy will be just as extractive as its predecessor, according to a recent Greenbiz article. In order to address this immediate need, corporations, governments, and higher education institutions need to prioritize efforts toward accelerating economic recovery, bolstering the workforce pipeline, and advancing equity & inclusion.
CHALLENGE #3: Lack Of + Explicit Bias Against Diverse Asset Managers
Recent research by philanthropic organizations, business publications, and higher educational institutions alike proves the clear underrepresentation of diverse asset managers. Currently, 98.7% of asset management firms are owned by white men. That’s a devastating statistic brought to light by a 2019 Knight Foundation analysis. The data for staff at investment firms exemplifies a similar lack of diversity.
Also 88% of senior fund managers are white, and even junior positions such as analysts and associate managers are more than 70% white. Women, meanwhile, make up only 8% of professional investors.
Delving deeper, the lack of representation of underrepresented communities at the leadership, founding, and executive-management level of Fortune 500 companies and startups alike is overwhelming. As of 2018, there were only 3 black CEOs out of all firms, and only 1 out of 5 board members is non-White. Within startups, LatinX employees make up 17% of the U.S. working-age population, but only 2.6% of startup executives. Similarly, Black employees comprise 13% of the working-age population, yet amount to only 2.1% of startup executives.
This issue speaks then, to the need for more voices at all levels, but specifically, within asset management firms. Furthermore, minority and women-owned firms perform at a similar level or even better than their peer firms, as the Knight Foundation shows.
Erika Davis with the Center of Social Impact and Innovation at Georgetown University describes, “It’s the norm—white men manage money, therefore they’re the ones who can manage money.” Bias continues to deter capital from flowing to underrepresented asset managers.
This highlights severe underrepresentation of LatinX and Black employees at the leadership level of startups nationally, respectively at 85% and 82%.
VC Include’s Climate Justice Initiative for Diverse Emerging Fund Managers will address the above-mentioned challenges with the following three key solutions.
SOLUTION #1: Investing In Diverse Managers Focused On Climate Change
Despite historic underrepresentation in the investment industry, funds managed by diverse-owned firms have consistently outperformed in private markets. VC Include recognizes and rewards this performance.
Via our Climate Justice Initiative, we will demonstrate that investing in funds managed by underrepresented investors will lead to better outcomes for people and planet. The initiative, backed by the Hewlett Foundation, is focusing on emerging investors and founders in Private Equity, Venture Capital, Impact and Public Market funds raising their first, second or third fund committed to climate solutions. Selected funds will receive a minimum investment of $100K from the initiative.
SOLUTION #2: Tracking Investments From Diverse Managers Focused On Climate Change
Venture capitalists are missing out on as much as $4 trillion in value by not investing in more diverse founders. To bridge this gap, VC Include has built the infrastructure for a more inclusive green economy.
By providing capital for underrepresented fund managers, VC Include is a forerunner in connecting diverse founders with managers focused on investing capital through ESG and other environmentally-focused impact metrics. We will ask for data related to the climate impact of their portfolio investments and make a summary of that data public on our website or through a publicly available article.
SOLUTION #3: Tracking Job Creation + Workforce Development Efforts Of VC Include Funds + Companies
Underrepresented communities have mostly been left out of workforce development conversations. Climate-focused initiatives within corporations and governmental agencies prioritize the creation of green jobs; however, disadvantaged communities do not benefit from these initiatives.
Training and investment into diverse sustainability-focused managers will directly impact the amount of jobs offered to low-income communities of color. VC Include is well positioned to track all workforce development initiatives led by our fund managers and companies after this initial funding.
VC Include is leading the charge in bridging the gap between the communities most affected by climate change and the investors and start-ups they need to solve their Climate Justice challenges. If you would like to stay up-to-date with our Climate Justice Initiative, please sign up for our newsletter below!