Investments aligned with this Strategic Goal aim to prepare the current and future workforce for the rapid and evolving changes already taking place in economies and the work that people do. Such efforts include developing the skills needed to harness opportunities from new technologies, as well as those related to shifting to net-zero economies and low-carbon means of production and service delivery.

What

Dimensions of Impact: WHAT

Investors interested in deploying this strategy should consider the scale of the addressable problem, what positive outcomes might be, and how important the change would be to the people (or planet) experiencing it.

Key questions in this dimension include:

What problem does the investment aim to address? For the target stakeholders experiencing the problem, how important is this change?

Transformative changes affecting work include globalization, the emergence of the platform economy, climate change, rapid urbanization, remote work, and advances in automation and artificial intelligence (AI) (1). AI, automation, and robotics, among other technological advances, will create new jobs in certain sectors and occupations and replace humans’ jobs in others. Workers who perform more routine and lower-skilled tasks may stand at greatest risk of having their jobs automated. Moreover, economic and regulatory changes in light of climate change will likely leave workers in low-skilled, high-carbon industries behind. In general, the negative effects of these transformative trends will fall disproportionately on the most vulnerable.

The current workforce requires opportunities for lifelong learning and training, while new entrants to the workforce need educational systems to prepare and equip them with relevant job skills. A skilled workforce is a prerequisite to make the transition to a greener economy happen – but skills gaps are already recognized as a major bottleneck in a number of sectors, such as renewable energy, energy and resource efficiency. Global skills-mismatches across many countries and sectors have large costs for workers, employers, and societies. Studies have show that skills deficits have important consequences on job satisfaction and wages (21). Over-qualified workers, for example earn less than their equally-qualified and well-matched counterparts and are more likely to leave their job. For employers, skills mismatches reduce productivity and business growth. For society, skills mismatches could reduce the return on investments in education, raise the costs of providing unemployment benefits, and lower income tax revenues (22).

Skills that are relevant to both present and future labor-market needs can improve employability and allow people to find jobs that realize their potential, thereby contributing to individual well-being and societal cohesion (2). Human talent underpins our economic capacity to innovate, catalyzing economic growth.

Investments aiming to improve job skills for the future can:

  • build job-relevant skills (by investing, for example, in professional and vocational education, workforce development, and job reskilling and multi-skilling);
  • facilitate labor mobility and job matching (by investing, for example, in intermediation or employment services);
  • encourage the provision of high-quality, affordable, and innovative training (by investing, for example, in technology-enabled training services and platforms); and
  • ensure that everyone has the opportunity to learn (by investing, for example, in equality and inclusion, lifelong and second-chance education, and entrepreneurial skills development).

Target stakeholders can then experience the following commonly sought outcomes, among others:

  • Raised incomes and improved livelihood opportunities
  • Increased ability to find, grow, and retain employment or work
  • Improved career advancement opportunities

Note that investments that focus on youth or the school-to-work transition are covered by the Strategic Goal, ‘Improving the Successful Transition of Youth into the Workforce and Society,’ part of the Impact Theme, ‘Access to Quality Education.’

What is the scale of the problem?

Digitization, automation, and advances in artificial intelligence are already causing changes that disrupt the nature of work. A wide variety of jobs—from blue-collar ‘manual’ jobs to workers in the knowledge economy and white-collar roles—are susceptible to replacement by automation (3). A recent study found that one quarter of U.S. jobs stands at high risk of automation (4). Globally, as many as 375 million workers, or about 14% of the global workforce, may soon need to switch occupational categories and will require retraining and reskilling (5).

Poorly managing transitions related to the future of work risks deepening existing labor market challenges. In developed countries, between 10% and 30% of workers are skills-mismatched—as are 30% to 70% of workers in developing countries (6).

Effects will vary by sector. In agriculture, a critical sector in developing economies employing the largest share of both women (28%) and men (29%), 58% of today’s workforce could be automated (7). Other sectors at high risk of automation include hotels and restaurants, wholesale and retail trade, and construction and manufacturing, all sectors that often form a core part of industrial strategy and plans for economic transformation in developing countries.

Who

Dimensions of Impact: WHO

Investors interested in deploying this strategy should consider whom they want to target, as almost every strategy has a host of potential beneficiaries. While some investors may target women of color living in a particular rural area, others may set targets more broadly, e.g., women. Investors interested in targeting particular populations should focus on strategies that have been shown to benefit those populations.

Key questions in this dimension include:

Who (people, planet, or both) is helped through investments aligned with this Strategic Goal?

Target stakeholders of investments aligned with this Strategic Goal are those who are less able to access the digital tools, knowledge, or resources to successfully upskill and retrain, or those who are already more vulnerable to disruption in employment.

  • Women: In 2018, women were still 26 percentage points less likely to be employed than men (8). Women, especially women of color, already receive inequitable dividends for education; 41.5% of adult women with a university degree are either unemployed or outside the labor force, compared to just 17.2% of university-educated men. Even women who are employed have lower-quality participation in terms of pay and career progression. Future disruptions will likely widen these gender gaps. In middle-income countries, for example, manufacturing now occupies almost 18% of employed women, compared to 14.1% of men. The occupations in which women are concentrated are those which can be most easily automated (9). Investments can support companies or training centers to offer gender-responsive trainings that recognize women’s different training needs, actively recruit female trainers and trainees, provide gender-friendly teaching environments, and link training to employment outcomes (10).
  • Those in Vulnerable Employment: In OECD countries, lower-skilled workers are three times less likely to participate in on-the-job training over a 12-month period compared to workers in non-automatable positions; training may thus focus on those who need it least (11). Investments could support inclusive trainings for those workers who are usually excluded and incentivize investees to offer those employees career-development opportunities.
  • People with Disabilities: From an early age, many people with disabilities face challenges in education and frequently have unequal access to vocational training opportunities (12). Investments made in training centers can support including people with disabilities in delivered trainings. Investments can also encourage investee companies to offer relevant training to those workers with disabilities, enabling opportunities for career advancement.
  • Individuals from Deprived Communities and Disadvantaged or Marginalized Groups, Including Migrants, Refugees, and Incarcerated Populations: In 2019, total labor underutilization globally stood at an estimated 473 million, of whom 188 million were unemployed and 165 million were ‘underutilized’ in terms of their time (13). Investments in skills and training programs can help provide economic opportunities for previously disadvantaged people (by location, race, or ethnicity) and facilitate social equality more broadly.

Other stakeholders typically targeted through this Strategic Goal include the following.

  • Governments at the Local, State, and National Levels benefit from improved economic outputs (higher productivity and growth) of a better-skilled labor force that is more resilient to future-of-work transitions.
  • Service Providers (companies and organizations offering vocational and lifelong training services) can benefit from impact investors’ investments, which in turn can facilitate the knowledge and networks required to improve their support to employers and employees in response to changing labor-market needs.
  • Employers gain access to a higher-skilled workforce, improving long-term business performance by reducing skills shortages and lowering staff turnover. Micro, Small, and Medium-Sized Enterprises (MSMEs) are particularly less likely to invest in job training given their financial, technical, and time limitations (14). Thus, investments in MSMEs could maximize their growth potential by enhancing skills in business planning, management, and technology.

What are the geographic attributes of those who are affected?

Changes in the demand for labor and skills will be felt globally. A recent study by the Brookings Institution, for example, found that one-quarter of U.S. jobs stand at risk of automation (15). The effects of future-of-work transitions may be particularly acute in low- and middle-income countries that already tend to face greater inequalities and skills gaps. ILO evidence shows that robotization in middle-income countries has already led to a significant drop in employment (about 14%) between 2005 and 2014 (16). A study in Cambodia, Indonesia, the Philippines, Thailand, and Vietnam estimated that 56% of all employment in these countries is at high risk of displacement as a result of technology over the next decade (17).

Contribution

Dimensions of Impact: CONTRIBUTION

Investors considering investing in a company or portfolio aligned with this strategy should consider whether the effect they want to have compares to what is likely to happen anyway. Is the investment's contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How much and Who?

Key questions in this dimension include:

How can investments in line with this Strategic Goal contribute to outcomes, and are these investments’ effects likely better, worse, or neutral than what would happen otherwise

Organizations can consider contribution at two levels — at the enterprise level and at the investor level. At the enterprise level, contribution is “the extent to which the enterprise contributed to an outcome by considering what would have otherwise happened in absence of their activities (i.e. a counterfactual scenario).” To learn more about methods for assessing counterfactuals, see the Impact Management Project.

At the investor level, investments in projects that improve job skills for the future can contribute toward solutions as follows.

  • Signal that impact matters. By investing in projects targeting improvements in job skills, investors signal intention to respond to the changing realities of the world of work (caused by new technologies, information and communications technology (ICT), or the green economy) and encourage greater workforce resilience.
  • Engage actively. Using investors’ own expertise and leveraging their networks to improve outcomes, Technical Assistance (TA) and capacity-building could be aimed at maximizing the impact of investments by unlocking potential skills development, for example by building capacities among investee management to more proactively implement upskilling programs for employees.
  • Growing new or undersupplied capital markets. The future of work and the transition to a green economy will disrupt labor markets and will require workers to reskill and upskill. During the transition, rising unemployment, poverty, and inequality are all risks that can only be managed through more proactive involvement in training among enterprises and workers. Capital targeted at enterprises investing in such training is therefore urgently needed.
  • Providing flexible capital. Smaller businesses usually struggle to prioritize talent development. Flexible capital, including blended finance, can enable talent development as a “proof point” for these businesses to realize the business potential of skills development. Financing improvements in skills can improve businesses’ productivity, promoting broader economic growth.

How Much

Dimensions of Impact: HOW MUCH

Investors deploying capital into investments aligned with this strategy should think about how significant the investment's effect might be. What is likely to be the change's breadth, depth, and duration?

Key questions in this dimension include:

How many target stakeholders can experience the outcome through investments aligned with this Strategic Goal?

Investments in line with this Strategic Goal can benefit the approximately 3.3 billion employed people around the world, as well as the roughly 200 million people who are unemployed (18). They can also benefit the millions of new entrants to the global labor force each year.

How much change can target stakeholders experience through investments aligned with this Strategic Goal?

If retraining and skills development programs build on workers’ current skills, workers can adapt and develop their skills to enhance their relevance to the new industries in which new jobs will be found. The sets of skills that workers can re-use in growing industries include not only soft skills (such as communication and problem-solving) but also semi-technical transferable skills (such as sales and marketing, scheduling, and budgeting), as well as technical transferable skills (such as engineering, repair, and plumbing). Training in such transferable skills potentially has career-long benefits—but greatly depends on the type of support offered. The adoption and dissemination of clean technologies also requires skills in technology application, adaptation and maintenance.

One-off or short-term interventions may lead to no measurable impacts; effects must be tracked to measure career progression over time, including through the use of tracer studies. Also important is to differentiate among the types of gained skills and to evaluate whether they may be transferable beyond the individual (for example, to family members).

Risk

Dimensions of Impact: RISK

Key questions in this dimension include:

What impact risks do investments aligned with this Strategic Goal run? How can investments mitigate them?

Impact risk factors for investments in line with this Strategic Goal include the following:

  • Evidence Risk: Developing skills requires time, and measuring results over long time horizons can be challenging, especially when they touch many aspects of workplace performance, from productivity to motivation. To mitigate this risk, investors and investees can:
    • identify and validate via evidence review the most critical skills to target or skills programs to undertake;
    • identify key intermediary outputs that help track implementation and measure skills development; and
    • track relevant impact data to identify changes over the long term.
  • Endurance Risk: Any skills development initiative aimed at workers could wrongly predict or respond too slowly to future trends and needs in the labor market, leading workers involved in the initiative to acquire mismatched or obsolete skills. To mitigate this risk, investors and investees can:
    • closely follow major (green) technology and market developments and work together to include lifelong learning within the company’s or organization’s strategy; and
    • encourage active interaction among companies and demand that provided training reflect industry’s needs.
  • Execution Risk: Even if a new and required set of skills is available from training programs, success depends on the quality of existing basic skills, such as literacy, among trainees in the cohorts of trained workers and those making the school-to-work transition.* Companies and service providers must also make systemic changes to (or create) their workforce skills-development programs to provide opportunities for lifelong learning, career development, and job upskilling, taking into account the needs of marginalized populations. Reluctance to implement such changes could pose additional execution risks affecting the development of workers and companies. To mitigate these risks, investors can encourage investees to assess employees’ skills and alter training to suit their needs. Investors can encourage an upskilling culture in the investee company, starting with senior management, including HR.
  • External Risk: Economic shocks, market downturns, and lack of strong social and regulatory frameworks to support skills development can lead to weak training centers (with little support or no policy cohesion) or prevent companies from finding the required training services at affordable prices. Another external risk involves cultural barriers that could prevent certain groups from accessing training or from finding and retaining a job after training. Investors can mitigate external risk by understanding how relevant policies and regulatory frameworks, as well as cultural norms in context, may affect the intended intervention, and actively implement activities to address these issues. Investors can also assess the extent to which the implemented skills development can make investees more resilient to economic shocks.
  • Participation Risk: A wide range of barriers may prevent people from accessing and remaining in skills-training programs, particularly among concentrated low-income populations. Hurdles to overcome include lack of basic literacy and math skills, transportation or access to training sites, childcare, and the cost (or length) of the skills training program. Investors can mitigate this risk by supporting investees to (or prioritizing investees that) offer or connect workers to a variety of bundled services and support, including preparatory bridges to skills training programs, childcare support, transportation vouchers, and financial support during the training program.

*For more information on this point, see the Strategic Goal “Improving the Successful Transition of Youth into the Workforce and Society” in the IRIS+ Education theme.

What are likely consequences of these impact risk factors?

In general, these risks could reduce or eliminate the impact of sound investments, abandoning workers who need new skills to thrive in a future world. Resources invested by all stakeholders in different forms could be lost, hindering their redeployment in future investments.

Illustrative Investment

MWS Technology pioneers technology solutions for vocational training, further education, and welfare-to-work in the UK. Their product, Aptem, is an online employability and vocational training platform with more than 20,000 users. For apprenticeships, for example, Aptem helps reduce the time and effort needed to complete paperwork typically by more than 60%, freeing up time for productive learning. MWS has received investment from 24Haymarket and the Triple Point Impact EIS Service.

Tamboro is an online platform that offers trainings to professional young people who want to obtain better job opportunities as a result of new technologies and globalization. The trainings contribute to the development of essential personal and professional skills. In 2018, they had 659 high school students, more than 56,000 university-enrolled users, and more than 18,000 users who were employed (19). Vox Capital, an investor in Tamboro, invests in businesses that use technology to positively transform society and the environment in Brazil.

Degreed raised USD 32 million (round led by Owl Ventures) to offer free skills training to employees. The company partners with (and charges) employers to offer online training to workers looking for new skills. It has seen a boom of activity from workers at 250 companies amid the pandemic, particularly for soft-skills training, like crisis and change management and mental health (20).

Draw on Evidence

This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.

NESTA: 4
Interventions to improve the labour market outcomes of youth: a systematic review

Kluve J, Puerto S, Robalino D, Romero J M, Rother F, Stöterau J, Weidenkaff
F, Witte M. Interventions to improve the labour market outcomes of youth: a
systematic review of training, entrepreneurship promotion, employment
services, and subsidized employment interventions
Campbell Systematic Reviews 2017:12

NESTA: 4
Vocational And Business Training To Improve Women's Labour Market Outcomes In Low- And Middle-Income Countries - A Systematic Review.

Marjorie Chinen, Thomas de Hoop, María Balarin, Lorena Alcázar, Josh Sennett and Julian Mezarina. Vocational And Business Training To Improve Women’s Labour Market Outcomes In Low- And Middle-Income Countries – A Systematic Review.

NESTA: 3
Can Basic Entrepreneurship Transform The Economic Lives Of The Poor?

Bandiera, Oriana and Burgess, Robin and Das, Narayan and Gulesci, Selim and Rasul, Imran and Sulaiman, Munshi, Can Basic Entrepreneurship Transform the Economic Lives of the Poor?. IZA Discussion Paper No. 7386, Available at SSRN: https://ssrn.com/abstract=2266813

NESTA: 2
The Wage Returns to On-the-Job Training: Evidence from Matched Employer-Employee Data

Almeida, Rita K. & de Faria, Marta Lince, 2014. “The Wage Returns to On-the-Job Training: Evidence from Matched Employer-Employee Data,” IZA Discussion Papers 8314, Institute of Labor Economics (IZA).

NESTA: 1
Automation, Skills and the Future of Work: What do Workers Think?

Mulas-Granados, Carlos and Varghese, Richard and Wallenstein, Judith and Boranova, Vizhdan and deChalendar, Alice, Automation, Skills and the Future of Work: What do Workers Think? (December 2019). IMF Working Paper No. 19/288, Available at SSRN: https://ssrn.com/abstract=3524309

NESTA: 1
Word Bank, Stepping up skills, For more jobs and higher productivity, 2010

World Bank. 2010. Stepping Up Skills for More Jobs and Higher Productivity. Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/27892 License: CC BY 3.0 IGO.”

NESTA: 1
What do we know about digitalisation, productivity and changing work?

Gail Irvine (Editor), What do we know about digitalisation, productivity and changing work? Carnegie UK Trust, RSA Future of Work Centre, RSA, 2020

Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.

Define Metrics

Core Metrics

This starter set of core metrics — chosen from the IRIS catalog with the input of impact investors who work in this area — indicate performance toward objectives within this strategy. They can help with setting targets, tracking performance, and managing toward success.

Additional Metrics

While the above core metrics provide a starter set of measurements that can show outcomes of a portfolio targeted toward this goal, the additional metrics below — or others from the IRIS catalog — can provide more nuance and depth to understanding your impact.