Hesperian Wealth Logo

Democratizing access to great financial advice.

Racial Justice Investing: Reforming Capitalism

Black History Month has us reflecting on what we can do as investors to propel progress on racial justice. Charitable giving to highly rated nonprofits focused on this issue is important. But impact investing has a role to play too, even if it’s not the biggest role. The money invested in just the US stock market, at almost $60 trillion, is many, many times larger than the $471 billion Americans collectively donated to charity in 2020.1 Given that scale, something can be done on the investment side.

Evidence-Based Racial Justice Investing

First and foremost, racial justice within the corporate world is a moral issue. But it doesn’t even make financial sense to discriminate. It opens companies up to reputational risk. And when most business leaders, board members, or employees come from the same background, it can lead to the kind of groupthink that prevents businesses from adapting and competing.

Yet progress on diversity and inclusion has been slow in certain industries. As You Sow, a leading nonprofit shareholder advocacy group, publishes a great interactive Racial Justice scorecard that can give you a sense of at least the relative leaders on this issue. It ranks publicly traded companies in the US across numerous dimensions including workforce diversity, hiring practices, transparency, external statements of support, etc. You can use the visualization tool to see how the companies you own and the brands you support stack up.

The Data Is Important, But So Is How You Use It

What differentiates Hesperian and the fund managers, subadvisors, and organizations we work with is how we use data. We wouldn’t necessarily use something like the Racial Justice Scorecard to determine what companies not to invest in. Our first instinct would be to use it to identify where the greatest opportunities for change lie. It’s the low-scoring companies that need to face the greatest pressure. And that’s impossible if you leave ownership to insiders wedded to the status quo or to an indifferent investor base.

That said, as we mention in our “Be Impactful” brochure, if transforming a company appears truly impossible, then perhaps it does make sense to screen it out of your portfolio. We call these “irredeemable” companies. But they are few and far between. They are much rarer than most sustainable investment managers and ratings agencies claim. And even when management teams are uncaring, short-sighted, or recalcitrant, daring activists and impact fund managers don’t give up; they push against the opposition or build effective coalitions to swing the probability of success in their favor.

A much better idea, in our view, is to hit non-diverse and discriminating corporations where it hurts most—by voting with your pocketbook. If you see the brands you support poorly rated on As You Sow’s scorecard, consider spending your dollars elsewhere. That forces corporations to pay an economic price for their behavior. 

The Path Toward Reforming Capitalism for All

Nonprofits like As You Sow, mentioned above, actively pursue change across the full spectrum of companies, against steep odds in some cases, and will campaign for years. You can see some of the racial justice resolutions they’ve worked on recently here.

Among asset managers, a group of impact-oriented firms including Calvert has been working to get the largest publicly traded companies to publish their EEO-1s, a report already shared with the government but on a private basis. These reports detail the diversity and inclusion of companies’ workforces. It’s essential that we obtain this information as impact investors and citizens so we know where the problems lie—in terms of racial justice or other forms of social bias and discrimination. If companies are not sharing this information publicly, we can only assume the content must be damaging to their reputations. As Calvert is pointing out to reluctant companies, they are free to provide qualifying disclosure to explain their policies and their results to stakeholders (see Calvert’s 2021 “Tools for Change”). There’s no reason not to share this information. Once these impact fund managers obtain this disclosure or receive a firm no from defiant companies, we expect them to aggressively engage with businesses that fail to respond to societal demands for fairness, equality, and justice.

These are the kind of change agents and campaigns for real action we want to help our clients support with their investment dollars.

To learn more about this results-oriented style of impact investing, click here to book a free Discovery Meeting with us.

Picture of Eric R. Figueroa, CFP®

Eric R. Figueroa, CFP®

I am a Folsom, CA, fee-only wealth manager serving the Greater Sacramento area, California Gold Country, and the nation virtually. I offer financial planning and investment management, specializing in impact investing and personalized values-based investing.

All content presented in this article is for informational purposes only. Materials presented should not be interpreted as a solicitation or offer to buy or sell a security or the rendering of personalized investment advice, which can only be provided through one-on-one communication with a financial advisor. The content reflects the opinions of Hesperian Wealth LLC (HW), except where cited, which are subject to change at any time without notice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. All information or ideas provided should be discussed in detail with a financial, tax, or legal advisor prior to implementation.

Investing involves substantial risk, including the potential loss of principal. HW makes no guarantee of financial performance nor any promise of any results that may be obtained from relying on the information presented. HW may analyze past performance, but past performance may not be indicative of future performance.

1 Sibilis Research; Giving USA.

Share:

Don't miss a post

Sign up to receive the latest from Hesperian Wealth:

Search

Don't Miss the Latest from Hesperian Wealth

Join our mailing list for free educational articles, planning news, and investment commentary:

The relationships we have with our clients are built on trust. We will never share or sell your data without your permission. See our Privacy Policy for details.