In response to the climate and social crises, the United Nations has established a set of Sustainable Development Goals, to be achieved by 2030. These are organised in 17 concrete objectives to tackle global issues in order to reach a sustainable and peaceful future for everyone, everywhere. In this piece, we analyse alternate avenues for family offices exploring impact investing who wish to contribute to the 4th SDG, which aims to provide access to a full course of free primary and secondary education for all children in the world by 2030, regardless of their gender or family income.
Quality education aims to develop students’ transversal skills in an inclusive and equitable manner. In addition to breaking the cycle of poverty and improving quality of life, education has the power to open the world, facilitate the development of innovative solutions, and enable a violence-free climate. Education is therefore the foundation for many other SDGs. Since 2000, major progress has been made in improving access to education and enrollment at all levels, especially for girls.
The need for impact and investing in education
Despite progress in access to education in recent decades, 61 million primary school-age children remain out of school, 50% of whom live in conflict-affected areas. Enrollment rates increased from 60% to 78% in sub-Saharan Africa and from 80% to 94% in South Asia between 2000 and 2012, rates that are still insufficient but that mark a clear improvement.
Today, 617 million young people in the world lack basic literacy and mathematical skills. This represents 60% of children and adolescents worldwide, a worrying figure. Indeed, even if enrolment rates have increased, access to quality education is not only about school attendance, although this is obviously part of it. It also requires properly trained teachers and good infrastructure conditions, including access to water and electricity in schools.
Girls remain disadvantaged in this sector as in many others. In developing countries, 1 in 4 girls is not in school, perpetuating the cycle of poverty, inequality, forced marriage, and maternal and infant mortality.
Geographically, more than half of the world’s out-of-school children live in sub-Saharan Africa, making it the continent most affected by the lack of basic skills.
In France, primary and secondary school are compulsory and the enrollment rate between the ages of 4 and 14 is 100%. However, a strong inequality persists between the school results of students according to their social class. According to figures published by the National Education in 2017, the least advantaged third graders score an average of 57 out of 100 in French and 58 in mathematics, while the most privileged quarter reaches 87 and 85. Education significantly reduces income and gender inequality, as every additional year of education is associated with a reduction in the Gini coefficient of 1.4 percentage points.
How can impact investing address this education crisis?
It is now possible to demand more than a financial return adapted to a risk level from your investments. Impact investing places a third dimension at the core of your investment strategy: to have a positive impact on the world.
Regarding quality education, the investment themes are as follows:
- Access to education
- Education systems
- Skill enhancement
Access to education
Logically, the first vector of action is to provide access to basic education. One of the targets of SDG 4 is that all young people and a considerable proportion of adults (men and women) should be able to read, write and count. It is therefore essential that all the world’s children must be able to go to school first.
This is the goal of the private Social-Alpha Bastion Impact Debt Fund, which provides debt and equity financing to profitable and scalable businesses that generate measurable impact on poverty reduction and environmental protection in developing countries, particularly through education platforms. The Owl Ventures Fund invests in technology companies that democratize access to education.
Education systems
Online education can also be an important lever for SDG 4, as it can reach many people with lower marginal costs. Matr, which is an example of a direct deal, recruits graduates in India and Sri Lanka and trains them to become online teachers. Through this, they provide affordable tutoring to an underserved market.
SDG 4 also aims to improve higher education and increase the number of youth and adults with the skills, including technical and vocational skills, needed for employment, decent work and entrepreneurship. Even in developed countries, this level of education is often unaffordable, and students often go into debt to acquire the skills they need to find a job. This is the case in the United States, where individual student debt totals more than$1.6 billion. To address this, the company Blair connects college students with investors through a revenue-sharing arrangement. Students repay the investment with a percentage of their earnings after graduation, and the estimated IRR is 14% with a 7-year investment period.
Upskilling
In today’s world, technologies and companies are changing at an increasing rate, which translates into a need to constantly improve one’s skills. Continuous learning and the acquisition of technical as well as social and emotional skills are essential for people to find decent jobs. Venture Capital’s Fresco fund invests in startups that use technology to support employees in their skill acquisition and well-being.
In New Delhi, the India-based startup Lal10 has helped more than 1,200 rural artisans increase their wages by 25% by aggregating requests from large textile companies and creating a mobile app that allows detailed tracking of supply and demand, something that was previously impossible. Thanks to Lal10, artisans have been able to improve their skills and thus their income.