A crisis can heighten unconscious bias, but slowing down can interrupt it
  • Unconscious bias, including racial bias, is heightened in a crisis (like the pandemic)
  • If investors focus on low-risk, familiar strategies, they may be unintentionally continuing biased decision-making
  • Black business owners have been especially hard-hit in the coronavirus, and there is longstanding research on how black people are shut out of economic activity

In times of fear and scarcity — like, say, a global pandemic — humans are wired to retreat into what they know and avoid taking risks. At best, this means using tried-and-true methods to problem-solve efficiently, and self-soothing with favorite movies and comfort foods. At worst, those tried-and-true methods reflect conscious or unconscious bias and perpetuate (or worsen) problems instead of solving them. 

“Moments like this reveal character; they don’t create it,” Illumen Capital CEO Daryn Dodson said in an interview with Karma. “There’s a ton of issues that have been around for a long time that this is exposing.”

Dodson, a longtime impact investor and advocate for racial equity, is referring to the systemic inequalities magnified by the current crisis. That includes health outcomes — among other appalling statistics, black Americans make up more than 60 percent of COVID-19 deaths in the U.S. — as well as economic ones. For investors with an understandably low-risk appetite during a crisis, the challenge is, ironically, the increased risk of continued bias. 

“If impact investing doesn’t get it right, how else are we gonna get it right?”

The widely-criticized Paycheck Protection Program neatly illustrates this risk-bias cycle. The PPP relied on pre-approved lenders as a means of quickly disbursing the funds to struggling business owners — a move that was easy to understand, given the chaos of the moment. However, most of those pre-approved lenders did not serve Black or brown business owners. That problem predated the coronavirus, but is now exacerbated by it: more than 90 percent of black business owners were locked out of the first round of funds, aggravating the existing racial wealth gap. 

Illumen Capital works with the social scientists at Stanford University’s SPARQ to understand and mitigate this bias in the world of impact investing. “If impact investing doesn’t get it right, how else are we gonna get it right?” Dodson said, in explaining the firm’s strategy. Last year, their research found that investors were more likely to invest in high-performing fund management teams led by white men than equally qualified black men, something Dodson and others have pointed out is likely in violation of fiduciary duty. 

Dr. Jennifer Eberhardt, a MacArthur “genius grant” recipient and the director of SPARQ, has written extensively about the human brain’s tendency to categorize and automate — an impulse that is heightened during times of stress, unearthing unconscious biases that the person may not consciously want or feel. 

“The brain needs to sort ­everything — the food we eat, the furniture we use, whatever. We also sort people,” she explained to Time in 2019. “That sorting can lead to bias; once we have categories, we have beliefs and feelings about what’s in those categories.” 

In another interview, she stressed that unconscious bias and bigotry were, from a psychology perspective, two different things: “You don’t have to be a bigot to be biased. You don’t have to be a bad person. You can have these biases that are triggered that can have real devastating impacts despite your intentions and despite your desires.”

In a moment as fraught with anxiety and uncertainty as this one, how can investors interrupt the risk-bias cycle? Illumen Capital, whose investors collectively manage more than $1 trillion, treats bias as a block between the habits that build inequities and the common humanity. 

This theory of change certainly has relevance beyond the world of finance, but for investors, it means understanding that bias prevents everyone, including the investors themselves, from becoming successful. A 2019 Morgan Stanley report estimated that investors who did not have women or people of color represented in their portfolios were missing out on a trillion-dollar market. 

“We need to bring asset managers into the conversation about how 1.3% of $69 trillion in capital is owned by women and people of color” in the context of America’s long history of violence, discrimination, and other embodiments of racism, said Dodson. “We’re very careful to say that we believe in other people’s humanity, and they [investors] also can see other people’s humanity, and realize that biases keep them away from the value that they represent in markets.”

Illumen does this work with bias training that begins with Impact Experience, an intensive in-person community workshop with impact investors, foundations, entrepreneurs, artists and local leaders, and continues with follow-up training and study. The in-person portion will be going virtual for the first time in early June.

In addition to bias training, Eberhardt and her team say that the best way to mitigate bias is to be aware of it and, though this may be counterintuitive in a crisis, slow down. “We can decide to slow ourselves down so that we’re not acting on our biases,” she said in 2019. “Our institutions can do the same, whether it’s tech companies or police departments or schools.”

Illumen Capital estimates $69 trillion in capital is owned by women and people of color. An earlier version of this piece incorrectly said it was $79 trillion.