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An update on our EDI Actions

We are pleased to announce that Nesta Investments which includes Nesta Impact Ventures and Arts & Culture Finance (“ACF”) has been certified as a Level 2 Firm under the Diversity VC Standard. The Diversity VC Standard is an assessment and certification process that measures the internal and external Equity Diversity and Inclusion (“EDI”) related policies and programmes an investment fund has in place, and funds that meet a set of predetermined criteria are eligible to receive either Level 1 or Level 2 certification which indicates their commitment to EDI.

This certification partly reflects the ambitious EDI goals adopted by wider Nesta last year which have been accompanied by a number of policies and processes which aim to improve the diversity of staff and foster an inclusive culture at work. It also partly reflects the work ACF has done internally which culminated in a decision late last year to set the following ambition for the Arts and Culture Impact Fund (“ACIF”), a £23m social impact investment fund that seeks to invest in arts, culture and heritage organisations across the UK, that:

14% of the overall ACIF portfolio, by investment value, should consist of investments made in organisations led by people experiencing racial inequity, to be reflective of the diversity of the UK population.

Crucially, the above ambition was approved by our investors which include Arts Council England, National Lottery Heritage Fund, Big Society Capital, Bank of America, Esmée Fairbairn Foundation, Freelands Foundation and Nesta. We also had an open discussion with our Investment Committee about what changes might be needed in our assessment process to ensure we meet this target. The changes discussed, based on an analysis of the barriers faced by diverse-led organisations in our historical and current pipeline, include:

  1. Accepting a higher level of financial risk, which could mean a number of things such as the age of the organisation, the level of reserves, size and capacity of the management team and board.
  2. Recognising greater racial diversity in the leadership of arts and culture organisations as an important social outcome in itself (in contrast to the usual focus on the “need”, “depth” and “scale” of social impact generated for external beneficiaries of the organisation, click here to read more about our usual approach to assessing social impact).

Equity recognises the lack of a level playing field, that all groups are not starting at the same place and that treating everyone the same way can risk some groups being consistently excluded from access to the same opportunities and resources as others. The above changes in the assessment process therefore acknowledge and address the now well-documented issue that organisations led by people experiencing racial inequity have historically been underfunded by public[1], private[2] and social finance[3] sectors in the UK and therefore are more likely to struggle to meet the fund’s financial and impact investment criteria. 

We hope that making the above changes will help enable a more racially equitable distribution of our funding. At the same time, we must acknowledge the limitations of our current funding offer. For e.g., the minimum size of investment we currently offer under ACIF is £150k which can be prohibitively large when you consider that an estimated 65% of BAME charities and community groups operating nationally have an average turnover of less than £10k per annum.[4] Debt financing is also often not appropriate for very early-stage ventures (which the majority of Black and Asian led applicants in our pipeline so far have been) as they face high levels of uncertainty around future revenues and require a more patient equity-style form of investment. Another key gap in the market is the availability of early-stage development funding and capacity building support which many diverse-led organisations need before they can be ready to apply for and take on repayable finance. We will continue to actively signpost to targeted initiatives by other organisations that have emerged to address this gap, such as the ones highlighted in this blog post.

Some other key actions we have taken over the past year to advance EDI are:

  1. Asking for diversity data both from the organisations applying to us for investment and those already in our portfolio. This is to help us continuously monitor if certain groups are facing barriers in progressing through the investment “funnel”, and if the answer is yes, to look at what changes might be needed in our internal processes to improve their chances of success.
  2. More targeted marketing efforts in partnership with organisations like Do it Now Now, a brilliant social enterprise committed to the empowerment of Black people with a focus on financial inclusion, entrepreneurship and employment.
  3. Incorporating EDI-related questions in our due diligence process that we ask of all organisations who come to us seeking investment. These include questions around whether they have an Equality and Diversity or Equal Opportunities Policy in place, the diversity of their senior management team and Board, whether they are a Real Living Wage Employer, and whether the demographic composition of their audiences and beneficiaries is reflective of the communities they seek to serve. The aim of these questions is not to be prescriptive or set minimum criteria, but to kickstart what we believe is an important conversation and understand if the organisation’s track record or ambitions in this area can help strengthen the case for investment.
  4. Asking for and reviewing feedback from organisations at different stages of the investment process – from enquiry to application to portfolio stage – in order to identify pain points and areas for improvement that need to be addressed to make our investment process more inclusive and accessible.

So how are we doing so far, how diverse is the current ACF portfolio? 33% of the portfolio organisations who filled up the diversity survey said that they were majority-led by people experiencing racial inequity and 40% said they were majority-led by women. We define “majority-led” as organisations where 51% or more of the board and senior management team identify with a particular characteristic. However this should be caveated with the fact we have only achieved a 50% response rate so far from the 30 organisations in our live portfolio (across past and open funds), and diverse-led organisations have been more responsive in filling up the survey. Disappointingly, none of the organisations that responded to the survey have said that they are majority-led by people who self-define as disabled or LGBTQIA+ and only 7% are majority-led by people who self-define as educationally or economically disadvantaged, leaving us much room for improvement. We want to emphasise here that this is very much a beginning and our EDI action plan is very much a living, breathing document that will evolve and change as we identify new barriers and opportunities. We aim to publish an update like this one on our website on EDI actions taken and progress made on an annual basis. Please reach out to us if you have any questions, suggestions or comments. Finally, we would like to acknowledge great work being done by others in the social investment sector that has provided extremely valuable learning for us including Social Investment Business, Big Issue Invest, UnLtd and the Equality Impact Investing Project.

Image credit: Muse Projects

 [1] Only 2.6% of Arts Council England NPO funding in 2018-19 went to organisations where 51% or more of the board and senior management were from a Black or minority ethnic background (
[2] Black African and Black Caribbean groups are 4x and 3.5x more likely to be denied a loan respectively compared to White groups ( Only 1.7% of all venture capital investment made at seed, early and late stage between 2009-2019 in the UK went to companies with all-minoritised-ethnic teams (
[3] A recent study commissioned by Access, SIB and Power to Change found that BAME-led organisations applying for social investment or social investment related programmes have a lower success rate and receive smaller investment amounts per individual organisation than non-BAME-led organisations (