Inclusion – an opportunity for all citizens and places to contribute and benefit from economic growth – can broaden and increase demand and prosperity. As public- and private-sector leaders increasingly integrate equity into their policy and growth strategies, investors need to manage the risks and opportunities that arise from the value of this social and economic investment.
Unequal access to economic opportunities and economic inequality can negatively impact growth and prosperity. For example, inequality tends to lower aggregate demand, reduce the size of talent pools, and constrain innovation, entrepreneurialism and productivity. In short, a more inclusive and equitable economy can increase living standards and prosperity.
Unequal opportunities for all citizens and places to contribute and benefit from economic growth disproportionately affect women, racial and ethnic minorities, and certain communities. The effects of the current pandemic may have increased this further.
Gaps in economic opportunity have grown. Income inequality worsens wealth inequality. Black and Hispanic families are less likely to own homes and have much lower average retirement savings. Inequality and economic exclusion persist across generations because lower living standards constrains education, skills and access to labour markets, which limits social and economic mobility. At the same time, community investment and infrastructure development are often lower in underserved populations.
Public- and private-sector leaders are increasingly integrating equity into their policy and growth strategies. Greater community investment, for example, improving public social sector goods and services such as health and education, opening channels for greater participation in the financial system, developing inclusive business development strategies, and addressing wage gaps, can improve economic opportunity and participation, and living standards and growth. In turn, this will affect the financial system and the long-term risk and return of financial assets.
Social-, equity-, and inclusive-related policies are increasingly evident in the following economic sectors.
An active investor will need to track each of the effects from policy changes designed to address disparities in economic opportunity, including the risk of policy failure, and take a position on each. We are developing economic and investment tools that will help investors understand and manage inherent risk and opportunity – across financial inclusion, health, education, and community sectors – to benefit from the potential value of this new social and economic investment and/or provide finance to create positive social impact.
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