In this Digital CxO Leadership Insights Series video, Bonnie Schneider sits down with Daryn Dodson, CEO of Illumen Capital, to discuss the important role companies can play in addressing the unequal impact the climate crisis has on low-income communities. Daryn emphasizes the need for companies to prioritize diversity, equity and inclusion (DEI) in their relief efforts in order to create a more sustainable future.
Bonnie Schneider: Hi, I’m Bonnie Schneider for Digital CxO. And joining me now is Daryn Dodson. Daryn is the CEO of Illumen Capital. He is here to discuss how in times of this climate crisis, corporate leadership can prioritize equity when addressing relief efforts to disasters. And Darren will also explain the dynamics around impact investing. Darren, thank you so much for joining us.
Daryn Dodson: Oh, it’s great to be here. Thanks, Bonnie for having me.
Bonnie Schneider: My pleasure. Well, can you tell us a little bit about your background and your journey to become CEO of Illumen Capital?
Daryn Dodson: Sure. I grew up in Washington DC. I spent some time working on anti-predatory lending policy after graduating from Duke and focused on economics and public policy, passing laws that would prevent low-income homeowners from getting overcharged to the tune of $9 billion and predatory mortgage lending fees, then went to Stanford Business School where I had the opportunity to work with 70 of my classmates on responding to Hurricane Katrina, ultimately moving there. And then working on recovery. I’m sure we’ll talk more about that. After that went into the impact investing field – spent eight years there, in terms of managing a portfolio of 44 funds and 40 companies on five continents, and then finally launched Illumen Capital to address a major issue within the field of financial education, particularly around implicit biases, facing women and people of color in multiple business verticals. But with climate innovation, and the responses, some of the challenges that communities face around the country around the world as a part of that thesis.
Bonnie Schneider: That is really fascinating. I know a lot of the executives that are watching would be interested in some of the work that you’ve done. Can you kind of take us more into that – in terms of bias and, and just some of the things that you’ve discovered through your work?
Daryn Dodson: Sure, after eight years in the investment business, one of the things that we did is we did a systematic study with Stanford University. So Illumen Capital partnered with Stanford University to secretly test 180 asset allocators that deploy over $4 trillion in capital for bias. And what we found lo and behold, was that asset allocators hold bias that’s so great, that they would overlook the value of the company that they might invest into, because they’re tripped up by the race or gender of the leader of that company, ultimately leaving massive amounts of money on the table systematically in their decision-making process. What that means also is if we can help them to get those decisions right, to get past the biases and see the humanity of people and the value that they bring to the marketplace, then we can also help them make more economic value in the process of understanding that.
Bonnie Schneider: Now Illumen Capital, in reading about it, seems to have a unique data set. Is that part of it? What is some of the research that you found? Can you talk about the unique data that Illumen Capital leans into?
Daryn Dodson: Sure, we often conduct, in collaboration with our research partners, cutting edge research to better understand how these important areas of bias show up in investment decision making. Some of that unique research focuses on decision making processes. When private equity, venture capital and growth funds are making decisions about the largest areas of resource allocation within their funds and firms. So, we look at the bias that shows up when they’re selecting portfolio companies, for example, we look at the bias that shows up when they’re selecting board members for those portfolio companies. We look at the bias that shows up in the hiring, retention, attraction of talent, verticals of those companies. So, there’s some recent news showing that diversity positions within technology companies are being shed at super high rates now that there’s increased inflation and market turmoil. One of the things that we would we would note is that a lot of the gains that have been made since 2020, with the challenging events of 2020, including George Floyd, and other, you know, kind of reckonings across the country – when we look at what gains were made, many of them had been pushed back because the economic pressure sort of leaded to taking away some of these areas. We will also note that it’s surprising to us at Illumen Capital that there would be a de-structuring of diversity, equity and inclusion programs in some of the largest tech companies in the world, because that leads to outperformance from our point of view. Because without these key infrastructures and teams, as we see in venture capital and private equity space, then we lose our edge to be able to recruit the best talent in the world.
Bonnie Schneider: So that’s a very good point, especially in lieu of the recent layoffs in the tech industry that we’ve been reading about, as well. Going into what you touched upon with impact investing. Can you explain what that is for those that are watching that may not be familiar with the term?
Daryn Dodson: Yes. For us at Illumen Capital, what impact investing is, is it’s investing in strategies that are market rate. And we have three separate verticals that we look at, we look at transformative environmental solutions. We look at health and wellness solutions. And then we look at education, technology solutions within markets. And when we look at these solutions, we note that these are some of the biggest problems facing our world, right? So if we’re able to solve some of these problems, then market and economic value can really be enhanced. And because they’re such terrific problems facing our world, the ability to solve the foremost problems in the world in positive ways, and then also to make market rate returns in part of the impact investing movement – Illumen Capital is with it.
Bonnie Schneider: You know, it’s interesting, I mentioned it before we got started that I’m an author, as well. And I just wrote a book called “Taking the Heat” that talks a lot about climate change and how it impacts health and wellness, particularly for those in low income areas, marginalized communities. And I know that in your work as a corporate leader, that your focus on responding to this climate crisis is something that you talk about. Can you explain what a corporate leadership’s mindset should be, because we’re seeing so many of these extreme weather events happening over and over again, and impacting so many that are, unfortunately, in the most vulnerable positions?
Daryn Dodson: It’s a great question. And I’m excited to read your book as well. The thing from our perspective at Illumen Capital is that when we look at transformative environmental solutions, we have to look holistically at the impact that they have on some of the CO2 dimensions, we have to look at methane within agriculture; many of these big challenges facing our world and make sure that when we’re solving them, we’re adding economic value and outperformance through the talented folks that are throughout our system. For example, we recently invested in a fund, and it was led by a PhD in material science, (two PhDs in material science). And it happens that one is African and one is African American. And they have created some of the foremost solutions in the world in terms of water accessibility. So, if they get overlooked because they’re black, then the world loses one of the great solutions and transformative environmental technologies that can help solve for the distress of the larger markets, increased volatility, due to, you know, challenges facing communities across the country and around the world. So, if we’re looking for transformative solutions, we don’t want to see people artificially get discounted that could add tremendous value to the overall GDP economy and indeed, put a dent in the rising co2 admissions and methane emissions around the world.
Bonnie Schneider: When leadership is faced with a disaster – let’s say there is something that happens in their individual community. For example, flooding in Northern California; how would you recommend that leaders address these issues? Do you think that it should be coming up in the corporate boardroom and kind of having the awareness of these climate crisis that are happening?
Daryn Dodson: Absolutely, absolutely. I think that we don’t want leaders to have that their head in the ground in their own communities as waters are rising and they’re other massive challenges. I know that after Hurricane Katrina in New Orleans, where I spent three years is working with entrepreneurs that were rebuilding their lives and adding to the tax base and overall growth and resurgence of the great city of New Orleans – one of the things that’s really, really hard to see – it’s kind of like being a frog in water that’s continuing to boil. I think it’s easy to take for granted that right around us are massive challenges that are represented by the growing challenges of climate change in the world. But once these 10 year or increasingly, five-year events happen, that kind of shocks us into the reality that – these challenges exist. Like hurricane Katrina, or hurricane Harvey or hurricane Maria – these different challenges kind of show us what the future looks like, if we don’t begin to act now.
Bonnie Schneider: That’s a great point. And, really, with your life experience living in various parts of the country, you’ve probably seen many different types of disasters, in the places that you’ve lived in the communities there – from Washington and North Carolina, to California. All these states, unfortunately, all affected by the climate crisis that we endure. I want to get a little bit more into equity. And if you can explain a little bit more about what that means and where corporate leadership should be addressing it overall. And maybe if you have even some examples?
Daryn Dodson: Sure. One of the big examples stems from not only understanding the data but understanding people’s perception of the data. So, when we think about, for example, the fact that black Americans have 10% of the wealth of white Americans. What’s striking about that number, is the number itself is striking. But it’s even more striking that when we look at the average American’s point of view on that number, through Dr. Jennifer Richeson’s research at Yale, we find that the perception is that it’s almost equal about 90% of the wealth when we ask people. What that means is that if we’re leading a corporation, and we understand that, we must help people understand how much work has to be done, in order to unlock the capital flows that would bring about adding significant innovation to the economy. To those that are undercapitalized by, essentially almost 90%. And we have to realize that most of the employees and the corporations believe that it’s about equal. So, both of those things are massive challenges to overcome, not dissimilar from climate change. But we do know that in addressing these problems within climate change, and within the artificial de-capitalization and perception that black Americans have equal amounts of wealth, that when we begin to unlock and sort of knock on these problems and create solutions – that we can add percentage points to the GDP, which of course everyone would love at a time like this within the country, as we’re struggling to grow and beat inflation and other aspects of decreasing volatility in the world.
Bonnie Schneider: That’s a great point and a terrific point to end on as well, especially as we venture into 2023. Now wrapping up the first month of the year. Darren, thank you so much for joining us. This was a really interesting conversation, and I appreciate your time on Digital CxO.
Daryn Dodson: Thanks, Bonnie, take care. It’s been great to be here with you.
Bonnie Schneider: Thank you.