Sustainability issues
“The most persistent and pressing question in life is what we do for others.” — Reverend Martin Luther King Jr.
This is not a question investors often ask, but it is one worth considering as we celebrate Martin Luther King Jr. Day. Achieving racial justice in this country requires a lot of work. What has been built up over centuries cannot be taken down quickly. Change must come from many directions, even those that may not be obvious at first glance. like an investment.
Investing may not be the primary way to bring about change, but it is one of the tools that lead to change. If you are lucky enough to be an investor, applying a racial justice lens to your investment will give you the means to contribute to change. Below are some methods.
- Invest in sustainable equity funds that address systemic racism
- Invest in an exchange-traded fund that focuses on racial justice
- Invest in social bond funds that address the wealth gap
- Save with CDFI
Invest in sustainable equity funds that address systemic racism
Not all sustainable funds share exactly the same priorities, so do your homework. Look for funds that exclude investments that negatively impact black communities, such as guns, predatory loans, for-profit education, and prison and industrial complexes. As part of an overall environmental, social, and governance assessment, we assess corporate diversity, equity, and inclusion policies, board diversity, employee compensation and overall treatment, and products and Look for funds that include service impact. Finally, and importantly, use your rights as a shareholder to actively engage with companies on racial justice issues and ensure that issues related to racial justice are addressed by proxy at the company’s annual shareholder meeting. Look for funds that vote for stocks if they appear in a poll.
Sustainable investors put pressure on companies for DEI policies. Regarding the composition of the board of directors. on how they reward their employees. About labor-management relations in general. And where does corporate lobbying and political spending go? Through direct engagement and proxy voting, sustainable investors can demand change from the companies they hold in their portfolios. If dialogue doesn’t work, sustainable investors propose shareholder resolutions for voting at the company’s annual shareholder meeting. Meanwhile, shareholders have supported her ESG-related shareholder resolutions at record levels in recent years. This often spurs corporate action even when votes do not attract the support of a majority of shareholders.
Over the past two years, sustainable investors have put pressure on companies about the racial composition of their boards and senior management, the effectiveness of their DEI efforts, and their overall impact on racial equality and justice. Shareholder Proposals Seeking EEO-1 Disclosures and Other Employee Diversity Data 61 total in 2021, 28 in 2022Companies are required to submit an annual EEO-1 form to the U.S. Equal Employment Opportunity Commission, but are not required to make this information public. Doing so will help investors and other stakeholders assess a company’s diversity efforts.according to As You Sow Reportthe number of S&P 100 companies that have published EEO-1 forms has more than quadrupled between August 2020 and October 2022.
Shareholder Proposal Called for Racial Equality and Civil Rights Audits Made From 9 in 2021 to 43 in 2022These proposals typically require companies to conduct an independent assessment of their policies and practices and their products and services to determine whether they contribute to systemic racism. Audits also focus on the effectiveness of certain initiatives the company is making to combat systemic racism. Shareholder support for these proposals is strong.according to ISS Insights 2022 Racial Equality Audit Averages 44% Support, Eight Proposals Gain Majority VoteThese included voting at Apple AAPLhome depot HDJohnson & Johnson JNJwaste management WMIn many cases, companies agree to do what the shareholder proposal asks and the proposal is withdrawn. Airbnbs ABNBAmazon.com AMZNblack rock blackmeta platform meta,Starbucks SBUX After dialogue with our shareholders on this issue, we conducted a full audit.
Invest in ETFs that focus on racial justice
Adacina Social Justice All Cap Global ETF JSTC tracks the Adasina Social Justice Index, which was “screened for social justice and designed to support progressive movements for change.” In addition to broad ESG assessments, the index is screened for a number of racial justice concerns, including prison industrial complexes, for-profit universities, and corporate activities that support diversity and inclusion policies. The fund invests both domestically and internationally, thus providing exposure to large corporations around the world. JSTC’s annual returns for 2021 and 2022, respectively, have just passed their second anniversary, placing them in the top half of the Morningstar category, a global large-cap blend.
Impact Shares NAACP Minority Empowerment ETF NACP It tracks the Morningstar Minority Empowerment Index and provides exposure to US companies with strong racial and ethnic diversity policies. NACP is a non-profit he ETF and excess fees will be used to support the NAACP. It also engages in what a company needs to improve in order to be a candidate for inclusion in the index. NACP’s three-year annualized return (through December) ranks in the top third of the large blend Morningstar category. ETFs can be easily incorporated into an investor’s core US equity allocation.
Investing in impact bond funds
By focusing on how bond proceeds are used, social bond funds can influence their core thematic focus. While some are also focusing on bonds that fund projects that address climate change, many emphasize bonds that address racial wealth disparities.
TIAA-CREF core impact bond TSBIXFor example, while evaluating corporate issuers for ESG, we invest approximately 40% of our assets in bonds with direct and measurable social impact. Two prominent components of its impact focus are affordable housing bonds and community development bonds that benefit underserved or economically disadvantaged communities. The fund devotes approximately 15% of its assets ($900 million) to these areas, with the remaining Impact Sleeve invested in climate change and natural resource-related bonds.
Two long-established funds, RBC Access Capital Community Investment ACCSX of community capital CCM Community Impact Bond crakes, focuses on affordable housing, small businesses, and progress for minorities in low- to middle-income communities.Community capital is also sub-advice Impact Shares Affordable Housing MBS ETF ownlaunching in mid-2021.
All of these funds achieve social impact while providing exposure to high-quality intermediate-term bonds similar to what investors get with traditional bond funds.
These are taxable funds, but when we invest in tax-exempt municipal bonds, we invest in areas such as affordable housing, education, economic and community development, and health care for marginalized and underserved communities. There are 19 focused municipal bond funds.as an example AB Impact Municipal Income ABIMX, Calvert Responsible Local Government Revenue CTTIXWhen Colombia US Social Bond Konax.
For cash, consider CDFI or Impact Notes
And then there’s cash. Consider banking with one of the many community development financial institutions. These include banks, thriftists, and credit unions across the country that dedicate at least 60% of their business to benefiting low-income communities underserved by traditional banks. To find a CDFI near you, check this list of such institutions accredited by the U.S. Treasury Department. Many CDFIs offer certificates of deposit in addition to checking and money market accounts.
If you are wealthy enough to become an Accredited Investor, you have ample opportunity to make additional impact investments at market or below market rates. But any investor, big or small, can buy. community investment notes from Calvert Impact Capitala non-profit organization (not affiliated with Calvert Research and Management), has invested in communities excluded from traditional capital markets for 25 years.
moment to act
We are now in a moment of action in America. Don’t overlook your financial resources when taking action. With sustainable equity funds, impact bond funds and community banking, you can revitalize your entire investment portfolio and bank account. That way, you can use your money in an efficient way as you save, grow, and donate.
An earlier version of this article was morningstar.com.
Follow us on Twitter @Jon_F_Hale
