Current Trends Impact Investing, Technology and DEI

April 13, 2022

By Michael Morris and Arthel McDaniel

Investing; technology; and diversity, equity and inclusion (“DEI”) have all been top issues impacting how businesses operate. In March 2022, EisnerAmper; Lawrence Financial; Polsinell; and Scherzer International co-hosted the Financing Forum, which discussed current trends in those areas. Specifically, the panelists explored issues affecting current business operations, various new DEI policies and procedures that are in place, and the impact of DEI on business itself.

Panelists included:

  • Arthel McDaniel, Principal, Polsinelli (moderator)
  • Adriana Embus, Associate, Include Ventures
  • Mele Miller, COO, Seattle Credit Union
  • Parren James, SVP, New Island Capital Management

Impact Investments

Businesses are urged to stay mission-driven and answer to investors on the internal rate of return. For example, it is important to serve the community to create transformational impact and focus on being mission-driven, yet also remain profit-conscious. There is no tradeoff.

DEI Policies and Procedures

Businesses are also encouraged to have certain policies and procedures in place around DEI. One panelist affirmed that when investing in a deal and/or JV, looking at the organization charts for DEI is a priority. Some companies might prefer to work with partners who have a plan and specific policies for DEI. Those plans and policies should correlate to specific DEI goals, which should be tracked through transparent reporting (e.g., pay equity, staff diversity, investments in DEI training). Reporting is critical because it details how and when organizations are making progress, which is important to recognize.

Another panelist’s approach is to align the firm’s mission with its operations. It’s all about building trust in the community through multiple channels and policy changes. For example, instead of tellers at the bank, the bank chooses to hire and train financial resource professionals. Regarding retail, the bank focuses on credit repair and micro lending. The team focuses on small businesses and how to help them succeed. Some companies might have employees who speak more than a dozen languages, on average between two and five at each branch. Some might have employees at every level where more than 50% of their workforce is a person of color, including the board of directors.

DEI can also be operationalized through products and services, which was shared by another panelist. For example, websites and marketing materials have been transcribed into four languages. In addition, creating products based on community lending needs—such as citizenship loans—is key to DEI.

DEI Measurements  

When investing in other funds and/or technology startups, there are specific DEI measurements that these companies are graded on, including:

  • Who isn’t at the table?
  • Is the indigenous community represented?
  • Does everyone on the team have the same background?
  • Do the investors and board members have the same background?
  • Are DEI goals a factor in compensation for senior leaders?
  • Does the firm make intentional efforts to transition or promote women and people of color to more senior roles?

It’s important to have a framework in place to measure the level of impact that DEI has on a business. One sample framework highly regarded as a viable reference point is by The Rockefeller Brothers Fund:

  • Ownership: Do women and people of color hold majority (51% or more) ownership in the firm?
  • Leadership: Are women and people of color voting members of the investment committee and/or a portfolio manager for the fund/strategy?
  • Next Generation Pipeline: Does the firm make intentional efforts to transition women and people of color to more senior roles?
  • Diverse-Led Portfolio Companies: Does the venture capital and private equity fund commit to a minimum of 30% portfolio companies led by women and people of color?

The panel challenged the audience to take these DEI policies back to their companies and question the policies that they currently have in place as well as identify the procedures they may be missing.

About Michael Morris

Mr. Morris is a Director of Business Development, specializing in accounting, tax, and consulting services across a broad range of industries including financial services, real estate, and family offices.