Bias-Reducing Investment Practices (ID8539)

Describes practices the investing organization implemented during the reporting period to reduce biases in investment criteria, policies, and processes that have disproportionately negative effects on entrepreneurs who are from groups historically marginalized due to race and/or ethnicity. See usage guidance for specific practices to address.

Reporting Format Text
Metric Type Metric
Metric Level Investing Organization
IRIS Metric Citation IRIS, 2022. Bias-Reducing Investment Practices (ID8539). v5.3.

Footnote

Organizations should footnote all assumptions used, including progress on shifting practices and what further practices the organization is considering changing.

Usage Guidance

This metric is intended to describe bias-reducing investing practices employed by investors during the reporting period.
Specific practices for asset owners to describe, when applicable, include the following, drawn from the Due Diligence 2.0 Commitment (https://www.duediligencecommitment.com/):
- Consideration of track record alternatives for fund managers, investment strategies, and investment products
- Expansion of relevant experience in evaluating stability of partnership with individual investment managers
- Evaluation of alternative proxies for financial stability of a manager, including (a) the manager’s history of operating effectively with lower than industry-standard budgets, (b) growth momentum in assets under management (AUM), (c) AUM growth in previous position(s) at prior firm(s), and (d) what happens to the underlying investments in the event of firm insolvency
- Minimization of requests for time by reducing asks for meeting time with historically marginalized managers and condensing, standardizing, and supporting managers with RFIs and RFPs
- Contextualization of fees
- Inclusion of historically unrecognized risks in analysis
- Investment as an anchor/seed investor or as part of a first close without lower fee requirement
- Provision of transparency on minimum thresholds and deal-breakers when circulating RFPs or RFIs
- Provision of clear, detailed, and timely feedback to historically marginalized managers who are rejected
Specific practices for direct investors to describe, when applicable, include the following, drawn in part from Path to 15|55’s “How Usable Capital Will Unleash Black Business Growth” (https://www.pathto1555.org/_files/ugd/baac54_b384b1919ac848f4b25f37bd5bf69036.pdf):
- Consideration of alternatives to credit scores in assessing credit worthiness
- Consideration of alternatives to collateral and personal guarantees in underwriting
- Provision of interest rates based on ability to pay (rather than risk-based rates)
- Provision of terms including event-based repayment schedules
- Involvement of the local community in due diligence and investment decision-making
- Provision of flexible/patient capital to defray risk of commercial capital via loss reserves/subordinated positions
For further guidance, organizations (and especially asset owners) should consult the Due Diligence 2.0 Commitment (https://www.duediligencecommitment.com/), from which much of the above list is drawn. While common biased practices are included above, the list is not comprehensive. Investing organizations are strongly encouraged to include an assessment of their investment terms, policies, and practices as part of their regular racial equity audits.
For further details on the specified practices in addition to the resources linked above, see the Curated Resources section of the IRIS+ Racial Equity Strategic Goal. This metric aligns with the Corporate Racial Equity Alliance’s (https://corporateracialequityalliance.org/) Investor Blueprint for Racial Equity.

Impact Categories & Themes

SDG Goals & Targets

Metric History

June 2022 - IRIS v5.3 Released (current version)

New metric. Bias-Reducing Investment Practices (ID8539) was developed via the IRIS+ Racial Equity Expert Subgroup.

Footnote

IRIS Metrics Work Better in Sets