By Paul Gompers and Silpa Kovvali. Researchers have struggled to establish a causal relationship between diversity and financial performance—especially at large companies, where decision rights and incentives can be murky, and the effects of any given choice can be tough to pin down. So the authors chose a “lab rat” with fewer barriers to understanding: the venture capital industry.

VC firms are fairly flat: Every investor is a decision maker, and choices have clear business consequences. Using publicly available information, researchers can see how similar or different decision makers are and compare decision quality on the basis of investments’ performance.

After examining tens of thousands of VC investments, Paul Gompers has found that diversity significantly improves financial performance on measures such as profitable investments at the individual portfolio-company level and overall fund returns. And even though associating with similar people can have social benefits for people who do so, it can lead investors and firms to leave a lot of money on the table.

In this article Gompers and Silpa Kovvali describe the research and provide recommendations for reaping the business benefits of diversity.

Resource is a nationwide project to support and connect entrepreneur support organizations (ESOs) led by and focused on founders of color.

Startup investing has a diversity problem: Black, Latinx and Indigenous founders receive less than ten percent of startup funding.

Resource will build a community of practice around these ecosystem leaders.

From Root Capital. Recognizing the impact of climate change on women and the important role of women in mitigating its effects, in 2019 Root Capital launched its first-ever climate resilience-focused Gender Equity Grants (GEGs) in Mexico and Central America. This report, prepared by Value for Women, examines the effectiveness and relative impact of this intervention. It also recommends best practices for investors, donors, and other organizations working to promote rural women’s climate resilience through agricultural enterprises.

From Just Capital. In this unprecedented moment, workers, customers, communities, and investors are calling on corporate America to drive change, but it continues to be challenging to assess how companies are taking concrete action to advance racial equity in America today.

JUST Capital has launched this Corporate Racial Equity Tracker to fill that gap and incentivize companies to take meaningful steps to advance racial equity. The first iteration offers an in-depth accounting of the state of disclosure by the 100 largest U.S. employers, through 22 data points across six specific dimensions of racial equity.

From Morgan Stanley. This guide from Morgan Stanley seeks to provide an actionable framework for investors to understand the risks and financial impact associated with perpetuating racial inequality, and to identify ways to allocate capital toward opportunities to promote racial justice. No single investor will be able to right these deeply embedded cultural imbalances alone. It will take a far-reaching effort by a range of investors—including individuals, families and institutions. Furthermore, a comprehensive approach to counter racism and bias will require wide-ranging and coordinated action across public and private sectors, including corporations, governments and nonprofits.

From Morgan Stanley. Morgan Stanley’s second annual survey of venture capitalists reveals the intensified dialogue around racial inequality has captured investor attention and shifted their attitudes significantly. The increased focus on this issue is leading to investment strategies that include more actions to address disparities in funding for multicultural- and women-founded companies, which are well-documented for women and Black entreprenuers.

From Transform Finance. What would investment to communities look like if those very communities were part of the process? This report makes the case for grassroots engagement, participation, and governance over investments.

From FCDO/DIT and Palladium. Despite Black female entrepreneurs being one of the fastest growing entrepreneur groups in the US, they receive a disproportionately small amount of investment. In 2019, less than 9% of investment went to female founders, and less than 3% went to founders of color in the US. In the UK, only 0.5% of start-ups with Black founders received VC investment. Recent studies have shown the importance of diversity in building more equitable societies. Investment rates and current trends suggest Black Female Entrepreneurs’ (BFEs) fair access to investment resources requires attention. Despite Black female entrepreneurs being one of the fastest growing entrepreneur groups in the US, they receive a disproportionately small amount of investment. In 2019, less than 9% of investment went to female founders, and less than 3% went to founders of color in the US. In the UK, only 0.5% of start-ups with Black founders received VC investment.

Recent studies have shown the importance of diversity in building more equitable societies. Investment rates and current trends suggest Black Female Entrepreneurs’ (BFEs) fair access to investment resources requires attention.

The FCDO/DIT partnered with Palladium Impact Capital to conduct a market study examining the barriers to investment that BFEs experience in the UK and the US, and potential pathways to removing them.

The Diversity Forum is a collective on a mission to drive inclusive social investment in the UK, through the convening of sector-wide groups, commissioning research, and knowledge sharing.

From Trilium Asset Management. The Black Lives Matter movement is igniting corporate America to examine diversity, equity, inclusion, and systemic racism both within their “four walls” and externally, as they realize that their actions affect more than just their employees. In this piece, the authros explore what Trillium can do and has done as an investment firm, an employer, and an advocate for change.

From the Rockefeller Brothers Fund (RBF). RBF is committed to becoming an anti-racist, anti-sexist institution where each person, in their uniqueness, knows they are valued and belong. Diversity, equity, inclusion, and belonging are critical to our mission of advancing a more just, sustainable, and peaceful world. Read the full Commitment to Diversity, Equity, and Inclusion.

From Morgan Stanley. Morgan Stanley’s second annual survey of venture capitalists reveals the intensified dialogue around racial inequality has captured investor attention and shifted their attitudes significantly. The increased focus on this issue is leading to investment strategies that include more actions to address disparities in funding for multicultural- and women-founded companies, which are well-documented for women and Black entreprenuers.

From ILPA. The ILPA Diversity in Action initiative brings together limited partners and general partners who share a commitment to advancing diversity, equity and inclusion in the private equity industry. The goal of the initiative is to motivate market participants to engage in the journey towards becoming more diverse and inclusive and to build momentum around the adoption of specific actions that advance DEI over time.

From Glenmede. Racial equity investing seeks to advance racial equity and/or tackle racial inequities in the U.S. while generating financial returns. This investment strategy seeks to close racial disparities in wealth and access to opportunities, resources, and decision-making. Racial equity investing has powerful potential for impact because of its focus on revitalizing socioeconomically marginalized communities. At the same time, this investment strategy may help investors stay ahead of critical demographic trends, serve a growing consumer base, enhance risk management, and identify investment opportunities that can have unique sources of alpha.

From Morgan Stanley. Hosted by Carla Harris. ‘In the wake of continued violence against black lives, we are revisiting conversations with black entrepreneurs and investors whose stories advance our understanding of how these injustices are lived and overcome.’

By Brent Kessel, Rachel J. Robasciotti, Tracy Gray, and Erika Seth Davies. BIPOC asset managers consistently state that existing financial industry due diligence standards result in institutional assets continuing to be managed by the same firms, which are overwhelmingly white. While asset allocators may have initial conversations with many BIPOC managers, they are notably missing from institutional portfolios. Often BIPOC managers are eliminated from the selection pool based on historical industry standards for due diligence that reinforce existing social inequities.

To catalyze movement of capital to BIPOC managers, signatory asset owners, consultants, and financial intermediaries, on behalf of asset owners who value BIPOC manager inclusion, commit to making specific shifts in their due diligence processes.

From Black Women in Asset Management. ‘As Black women professionals in the asset management industry, we call on investment firms and institutional investors in our industry to go beyond solidarity statements and instead commit to action, activism, and accountability to dismantle the racial inequities plaguing society. It is the responsibility of all of us to drive change…

‘Our industry must come together and put purpose and values into action. We all know it makes good business sense. Closing the racial wealth gap in the US alone would create an additional $1 trillion in earnings and add $8 trillion to GDP. In the UK, equal participation and progression across ethnicities would add £24 billion per year to the British economy. The impacts of bias and systemic racism in the private and public sector continues to leave money on the table.’

Nearly five decades after the Civil Rights Movement, Black Americans and other communities of color continue to struggle for equity in the United States. The wealth gap data for Native, Latinx, and Black communities are indicative of the underlying symptoms of inequities in our society. The combination of COVID-19’s disproportionate impact on black and brown lives and the brutal murder of George Floyd has served as a lightning rod. In this moment, the issue of racial equity is on the minds of investors, foundations, and corporations. How do we seize this moment to redirect capital to create opportunities for greater social and economic prosperity.

Panelists explore opportunities and challenges to investing in communities of color to support entrepreneurship, wealth-building, and greater professional inclusion.

From the British Venture Capital Association. Investors and professionals from the venture investment community have released best practice guidelines to help increase investment in under-represented founders and drive diversity and returns across the investment sector. The ‘’Guidance and best practice examples for VCs, private equity and institutional investors’’ document was written by leading investors and professionals including Atomico, Pollen Street Capital, Ada Ventures, Adelpha, Astia, KPMG, Diversity VC and Diversio.

The guidelines have been published by the British Venture Capital Association as a resource offering practical advice and best practice suggestions for all investors, regardless of what stage or sector they invest in, with a focus on four key areas:

1. Talent acquisition, retention and development.

2. Internal education, culture and policy.

3. Outreach, access to dealflow, and unconscious investment bias.

4. Influence, external guidance and portfolio management.