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Confronting one-dimensional equity efforts within the investor community

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In the aftermath of the George Floyd murder, hundreds of U.S. companies produced statements decrying racism and promoting equity and inclusion. But how many made concrete steps toward their goals? And for those that did, how can they show investors the commitments paid off?

Life, liberty and the pursuit of happiness are the ideals America needs to aspire toward, Marvin Owens, chief engagement officer at Impact Shares, said last week during a GreenFin 21 panel discussion. "These kinds of basic understandings have been somehow disconnected from the economic conversation; it's as if that they don't exist together, but they actually do."

Authentic equitable business practices

Companies can be quick to publicize their goals but slow to disclose how they are actually enacting them. Often, it requires external pressure, and when that pressure is applied, results can follow, noted Owens and other panelists.

Investment management company BlackRock recently pledged to conduct a third-party racial equity audit that will investigate how the company’s business practices and behavior contributes to systemic racism.

Renaye Manley is deputy director in the strategic initiatives department at Service Employees International Union, one of the two entities that requested BlackRock to complete the racial equity audit. Manley said that financial institutions’ track records on effectively addressing diversity have been scattered.

Her advice: look within before jumping the gun.

Before you are spending money and not getting the outcomes that you desire, you may want to look back and analyze the effectiveness of your programs, processes and policies.

"Before you are spending money and not getting the outcomes that you desire, you may want to look back and analyze the effectiveness of your programs, processes and policies," Manley said. She added that communicating with external stakeholders and having a company’s behavior evaluated by a third party would allow for well-informed spending decisions.

Employees, consumers and investors have shown that during times such as last summer’s racial justice protests, they grow impatient with performative corporate activism that relies heavily on symbolic gestures and empty promises as opposed to sustained action.

Investors and consumers have good reason to support racial equity audits such as the one BlackRock agreed to do. Calls for similar audits recently have barrelled down on companies such as Goldman Sachs, JP Morgan and Bank of America. The companies are asking shareholders to reject the racial equity audits.

Manley said companies that do not commit to structural change will create long-term risks for investors. "We want to diagnose it early and prevent it from being a problem," she said.

Linking economic justice and smart investments

Some investors regularly examine a firm’s practices on racial equity as part of their broader due diligence. 

Lisa Hayles, an investment manager at Trillium Asset Management, said Trillium maintains an explicit focus on matters of racial diversity and inclusion.

One way Trillium puts that focus into practice is through an advocacy team, led by Chief Advocacy Officer Jonas Kron, that evaluates companies on their social and environmental practices. 

The advocacy team recently filed a shareholder proposal asking financial institution KeyCorp to evaluate its overdraft program using a racial justice lens. The proposal was filed after Trillium learned from a Bankrate survey that Black and Hispanic people typically face higher monthly fees than white customers. 

Trillium found that KeyCorp had racial justice programs. But it could find no evidence that the financial institution was thoroughly investigating the link between overdraft policies and race. In 2019, KeyBank collected more than $148 million in insufficient funds fees and overdraft fees. 

If we don't do this, then the question of access will always end up in inequality, because when you lack access, you create inequality.

In a website news post, Trillium said it could "see the potential for some disproportionate impacts on communities of color." The shareholder proposal resulted in KeyCorp agreeing to conduct in-depth reviews of impacts on low and middle-income customers, among other things.

Hayles explained the need for investors to hold companies accountable. She said corporations may issue statements following disasters such as the killing of George Floyd, but investors need to ensure that changes are being made in terms of products, services and how the company is interacting with stakeholders.

Holding up a mirror

Owens, of Impact Shares, emphasized how the investor community’s lack of diversity is compounding the problem by creating blind spots. 

He called out a lack of self-awareness within the investor community. Owens, who worked with the NAACP prior to joining Impact Shares, said he specifically took issue with non-POC advisers tasked with evaluating the S within the ESG of companies.

"In any other situation, if you were an investor, you want to talk about a healthcare concern, you'd hire a consultant or somebody who's got healthcare training," he said. "Why not use that same strategy when you're talking about ESG and racial equity?"

The panelists emphasized that transforming corporate America to look more like America will stimulate economic growth and accessibility for minority groups. Specifically, that means opening up opportunities for these groups to buy homes and invest in capital markets. 

"If we don't do this, then the question of access will always end up in inequality, because when you lack access, you create inequality," Owens said.

Hayles is a co-founder of Racial Justice Investing, a coalition of financial service providers and investors who released a statement in the aftermath of Floyd’s murder. The statement recognized that the investor community has contributed to and benefited from racist systems and white supremacy.

"There’s no way around it ... we need to call it out," Hayles said. She noted that part of the solution is evaluating investors’ sphere of influence and using that influence to understand what action can be taken to foster equity within and outside of the investor community.

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