Education has historically been surprisingly far down the list of priorities for impact investors. Just 3 percent of impact investors’ AUM is allocated towards education, according to a 2020 survey from the Global Impact Investing Network.
Covid-19, however, brought huge disruption to education around the world – highlighting existing problems and widening disparities in access and outcomes. “We saw an overall increase in learning loss, but particularly for some of the least advantaged communities in our society, a real widening of that gap in terms of educational attainment,” says Iain Ware, a managing director at Bain Capital Double Impact.
Data from the National Assessment of Educational Progress shows racial disparities on certain metrics widened considerably in the US during the pandemic, while the gap between rich and poor also grew.
In other parts of the world, the damage has been ever greater. South Asian countries imposed full or partial school closures for an average of 84 weeks during the pandemic; in Latin America, closures averaged 77 weeks. Sub-Saharan African countries did not close schools for as long (34 weeks on average – similar to Europe and North America), but the difficulties in accessing online learning in the absence of widespread broadband access still resulted in grave damage to education. In Tanzania, for example, just 1 percent of pupils could participate in online classes, according to a report by McKinsey.
Does edtech pass the test?
In both developed and emerging markets, impact investors in education often focus on edtech. Ware highlights the value of services that allow students in areas where specialists are in short supply to access greater support through remote learning. “We think it’s a really important moment now to find ways to try and remedy that learning loss and find innovative solutions that can help people get back on a better educational trajectory.”
Richard Hardy, investment director for Africa at impact investment manager BlueOrchard, part of the Schroders Group, argues that edtech can also be a crucial part of the solution in emerging markets. “Technological innovation will be key in delivering scalable low-cost education solutions that can deliver both high levels of impact and attractive returns for investors,” he says. Hardy adds that the more traditional approach in emerging markets of focusing on “secondary transactions and platform roll-ups” typically serves higher income groups, thereby achieving lower impact.
Edtech providers have often made big promises without always providing convincing proof that their services have a positive effect on outcomes. “There is some fatigue among students and parents and teachers and administrators with the proliferation of edtech platforms,” says John Rogers, a partner and education sector lead at TPG’s Rise Fund. “The most efficacious will have staying power, while others may see their growth slow down.”
It is hard to see how an effective investment strategy in education – at least over the long-term – can neglect impact. Logic suggests that a product or service that does not improve outcomes, widen access or deliver other benefits to students will ultimately be a commercial failure. “You can’t take shortcuts on your underwriting of outcomes and quality,” says Rogers. “If you do, that’s going to catch up with you.”