Editor’s Note: A version of this article ran on Oct. 18, 2023.
This important question isn’t typically posed to investors, but it holds significant value, especially during Black History Month.
Achieving racial justice in the U.S. requires extensive effort. Systems that have been in place for centuries cannot be dismantled overnight. Change needs to be initiated from various angles, including unconventional avenues like investments.
While investing may not be the primary solution, it is a tool that can contribute to change. As an investor, you have the power to influence change by aligning your investments with a focus on racial justice. Here are some approaches you can take:
- Support sustainable equity funds targeting systemic racism
- Invest in ETFs dedicated to promoting racial justice
- Allocate funds to social bond investments addressing wealth disparities
- Save with Community Development Financial Institutions (CDFIs)
Support Sustainable Equity Funds Focused on Systemic Racism
Not all sustainable funds prioritize the same initiatives, so research is crucial. Look for funds that:
- Avoid investments that negatively impact Black communities, such as firearms, exploitative lending, for-profit education, and the prison-industrial complex.
- Incorporate diversity, equity, and inclusion policies, board composition, employee wages and treatment, and the community impacts of products and services into their overall environmental, social, and governance assessment.
- Exercise their shareholder rights to engage with companies on racial justice issues and vote in favor of racial justice-related matters on company ballots during annual general meetings.
Sustainable investors advocate for companies to enhance their DEI policies, board diversity, workforce compensation, labor relations, and allocation of corporate resources for lobbying and political activities. Through direct engagement and voting, sustainable investors can drive change within the companies in their portfolios. In cases where dialogue falls short, sustainable investors propose resolutions for shareholder voting at annual meetings. In recent years, shareholders have increasingly supported resolutions related to ESG factors, often prompting corporate action even without majority support.
Sustainable investors have been urging companies to evaluate the racial diversity of their leadership teams, the effectiveness of their DEI initiatives, and their overall impact on racial equity and justice. Shareholder proposals requesting EEO-1 disclosure, board diversity, and workforce diversity data numbered 43 in 2023. While companies must submit an annual EEO-1 form to the U.S. Equal Employment Opportunity Commission, this information is not always made public. Disclosing this data facilitates assessments of corporate diversity efforts by investors and other stakeholders.
According to an As You Sow report, between August 2020 and November 2023, the percentage of S&P 100 companies publicly disclosing their EEO-1 forms increased significantly. Initially, only 20% of S&P 100 companies shared their EEO-1 forms, but now 95% do so.
Shareholder proposals focusing on racial equity, diversity, equity, and inclusion totaled 40 in 2023. These proposals typically call for independent evaluations of companies’ policies, practices, and products to assess their contributions to systemic racism.
Proposals urging civil rights audits examine the efficacy of a company’s anti-racism efforts. Shareholder backing for these proposals has been robust: Based on ISS Insights, support for racial equity audits averaged 44% in 2022, with eight proposals receiving majority approval, though support dipped in 2023. Noteworthy companies that had votes on these issues include Apple AAPL, Home Depot HD, Johnson & Johnson JNJ, and Waste Management WM.
In many cases, companies agree to implement measures proposed in shareholder resolutions, leading to the withdrawal of the resolution. Airbnb ABNB, Amazon.com AMZN, BlackRock BLK, Meta Platforms META, and Starbucks SBUX are among the companies that conducted audits following engagements with shareholders on this matter.
Invest in ETFs with a Focus on Racial Justice
Adasina Social Justice All Cap Global ETF JSTC tracksInvest in Impact for Social Justice
The Adasina Social Justice Index is crafted to back progressive movements for change and includes a global array of public companies whose actions align with social justice principles.
Besides broad ESG assessments, the index screens for various racial-justice issues like backing the prison-industrial complex, for-profit colleges, and corporate diversity and inclusion policies. The fund invests both domestically and internationally, providing exposure to globally recognized large-cap companies. After just over three years, JSTC’s three-year returns have positioned it in line with the global large-stock blend Morningstar Category.
The Impact Shares NAACP Minority Empowerment ETF NACP tracks the Morningstar Minority Empowerment Index, offering exposure to U.S. companies with strong racial- and ethnic-diversity policies. NACP is a nonprofit ETF, with excess fees supporting the NAACP. It also collaborates with companies on improving to be considered for index inclusion. NACP’s three-year annualized return places it in the top quartile of the large-blend Morningstar Category. The ETF can easily fit into an investor’s core U.S. equity allocation.
Invest in Impact Bond Funds
Social bond funds focus on the use of bond proceeds, making impact their primary theme. While some concentrate on bonds financing projects addressing climate change, many emphasize bonds tackling the racial wealth gap.
For instance, TIAA-CREF Core Impact Bond TSBIX evaluates corporate issuers on ESG while dedicating roughly 40% of assets to bonds with a direct and measurable social impact. Notably, the fund emphasizes affordable housing bonds and community development bonds that benefit underserved or economically disadvantaged communities, with about 15% of assets committed to these areas. The remaining impact sleeve is invested in climate change- and natural-resources-related bonds.
Established funds like RBC’s Access Capital Community Investment ACCSX and Community Capital’s CCM Community Impact Bond CRAIX focus on affordable housing, small business, and minority advancement in low-to-moderate-income communities. Community Capital is also the advisor for Impact Shares Affordable Housing MBS ETF OWNS, launched in mid-2021.
These funds achieve social impact while offering exposure to high-quality, intermediate-term bonds similar to traditional bond funds.
For Cash, Consider CDFIs or Impact Notes
Think about banking with one of the numerous Community Development Financial Institutions (CDFIs), encompassing banks, thrifts, and credit unions nationwide that allocate at least 60% of their operations to benefitting underserved low-income communities. You can find a CDFI near you by checking the list of certified institutions provided by the U.S. Treasury Department. Many CDFIs provide certificates of deposit alongside checking and money market accounts.
If you’re an accredited investor, there are plentiful opportunities to make additional impact investments, whether market rate or below market rate. However, any investor, regardless of size, can invest in a Community Investment Note from Calvert Impact Capital, a nonprofit that has been investing in underserved communities for 25 years.
In the current action-oriented environment in the U.S., remember to leverage your financial resources. By utilizing sustainable equity funds, impact bond funds, and community banking, you can activate your investment portfolio and bank account. This approach empowers you to use your money in impactful ways as you save, grow, and donate it.
