A responsible investment approach should be informed by the real world beyond balance sheets and earnings statements. At Zevin Asset Management, we examine key environmental, social and governance (ESG) factors to shape our view of the future and find companies that respect people and planet.
That is why, as impact investors, we must confront racial injustice. Inequality and injustice based on race, after all, were founding economic realities of American life. Two centuries later, inequality, abuse, and discrimination are still present in every sector — in education, housing, healthcare, and policing.
Not surprisingly, those conditions shape businesses’ risks and opportunities. For example, consumer-facing companies and retailers that ignore communities of color miss out on key customers and market opportunities. And, in an economy where black people, Latinos, and Native Americans are still underrepresented in management and professional roles, firms that recruit and retain diverse candidates can gain a competitive edge.
We are inspired by and in solidarity with the work of gender lens investors deploying capital to support gender justice. Now, investors need to get to work as allies for racial justice.
This paper is a call to action and an update on how Zevin is working to build an awareness of racial justice into investment — both as an analytical lens and an economic reality. Doing so helps us protect the value of our portfolios and channel our clients’ voices to help create positive change.
Read to the end for tips on how individual investors, families, and foundations can get involved in this work.
Research and screening
Zevin examines racial justice in our portfolios by conducting primary research, partnering with experts (like the NAACP, the American Friends Service Committee, OpenMIC, and the National Employment Law Project), and listening to folks in affected communities. As in all of our ESG work, Zevin’s research on racial injustice helps shape our investment decisions.
That starts with our commitment to avoid investment in companies that have a history of exploiting minority and economically disadvantaged communities. Because we seek an end to mass incarceration and acknowledge the deep racial problems in our criminal justice system, we do not purchase shares of companies that profit from incarceration.
Active ownership: engaging with companies about racial justice
Screening out unacceptable companies is only one part of socially responsible investing. We also address racial injustice through shareholder advocacy — pressing companies in our portfolios to make changes that improve risk management and create a positive social impact.
As an active shareowner, Zevin votes our clients’ shares at company meetings, and we support shareholder proposals that ask firms to improve workforce diversity. We also go further by voting against all board directors at companies that lack racial and ethnic diversity.
Voting against a board slate sends a strong message to companies, and it can also propel a dialogue about diversity and inclusion. That message is critical in the tech sector, where black people, Latinos, and Native Americans are underrepresented by nearly 20 percent compared with their presence in the overall labor force.
The diversity crisis in tech demands our attention as citizens and also as investors. Firms that accelerate recruitment, retention, and promotion of underrepresented minorities have a positive social impact and lay a foundation for stronger financial performance. A recent report by Intel and the research firm Dalberg found that the tech sector “could generate an additional $300-$370Bn each year if the racial/ethnic diversity of tech companies’ workforces reflected that of the talent pool.” McKinsey & Company reported that companies that lead on racial diversity are more likely to have above-average financial returns.
Last year, we pressed Intel to appoint more underrepresented minority directors to its board, and we challenged Apple to make a serious plan to integrate its senior ranks. (Only five out of Apple’s top 107 executives are black, African American, Latino, or Hispanic.) Across the board, we press companies to set time-bound public goals around inclusion and put their money where their mouth is: firms should tie executive payouts to the integration of their workforce.
For more, listen to our NPR conversation (below) about how inclusion could help Apple and other firms jump-start innovation and win new customers in diverse communities:
These dialogues are challenging — executives are slow to redistribute power and address racial injustice in their own ranks. That is why we use all of our tools as investors, including innovative shareholder proposals which increase pressure on companies and bring issues straight to the board.
The Pay Gap: Aiming for an intersectional approach
Much like workforce inclusion, America’s stubborn pay gap is an intersectional issue that presents complicated risks and opportunities for companies. An intersectional effort to address these problems must recognize that racial injustice feeds on and exacerbates gender inequality in every sector — and vice-versa. Overall, women make 79 cents for every dollar men earn. But black women earn even less, garnering only 66 percent of the pay of comparable white male workers. Women of color in particular face twice the marginalization as men of color and their white woman counterparts. For companies trying to retain a talented and diverse workforce, what may work to hire and support white women may not necessarily work with women of color.
Unfairness in pay is particularly stark in the retail sector where wages are low and women and people of color are under-represented in management. So we’re taking the issue directly to the annual meeting of TJX Companies this spring with a shareholder proposal challenging the discount fashion retailer to report gender-, race-, and ethnicity-based pay gaps in its workforce.
Our approach carries forward important work already underway to address the gender pay gap in the tech and financial sectors and adds an intersectional perspective. In March, we successfully withdrew a similar proposal at Colgate-Palmolive after the consumer brand giant took several good steps, including creating an annual race and gender pay equity risk review and improving reporting on global workforce diversity.
Companies and incarceration
Mass incarceration is racial injustice, and the private sector has a role in both.
One in every 31 Americans lives under some form of “correctional control” (prison, jail, probation, or parole). But those numbers are strongly concentrated in communities of color because of systemic racism in the criminal justice system. Companies often deepen that injustice. For instance, many firms that bid on prison and probation contracts also lobby for more inmate beds and feed the swirl of prison profit.
As noted above, Zevin does not invest in for-profit prison owners and operators like GEO Group and CoreCivic. But we are working for impact with companies we do hold in client portfolios about risks related to America’s racially unjust prison problem:
- In a country where one third of citizens have a criminal record, companies need hiring policies that don’t discriminate against returning citizens. We urge firms to review their use of criminal background checks in hiring, guard against racial discrimination in those checks, and help create opportunity by hiring in communities affected by incarceration. Last year, we pressed several big employers, including Starbucks and Target Corporation, to disclose or develop so-called Fair Chance Hiring policies, and we’re collaborating with the Interfaith Center on Corporate Responsibility (ICCR) to urge more companies to go public with their efforts. This spring, investors will vote on a fair hiring proposal that we co-sponsored at Amazon.com — the first ever shareholder measure demanding that an employer report on how it uses criminal background checks without discriminating against qualified job applicants. Amazon, which already faces a range of challenges related to contractors and labor standards, is being sued for discrimination by delivery drivers who were fired after a hasty background check.
- Experts, including formerly incarcerated people, tell us that prison work programs can be positive if they are safe, pay a fair wage, avoid discrimination, and contain dignity and training. In practice, those standards are rarely met and companies have faced outrage when their use of prison labor comes to light. Last September, Zevin met with PepsiCo and Target and pushed for details on their use of prison labor in the supply chain. And we recently convinced Intel to inspect its U.S. vendors for prison labor. Now, we are working constructively with executives there to examine ethical risks and push the chip maker to develop and enforce new safeguards.
For too long, investors have willfully ignored the critical role of race in their portfolios. Ironically, that includes many foundations that are dedicated to dismantling structural inequities based on race and class.
We urge our investors, colleagues, and competitors to rise to the challenge of racial injustice in America.
For impact investment managers, that means working to identify and address the role of race in portfolios. For foundations and individuals, that means asking your manager about how they analyze and act against racial injustice.
We must all — as a first step — listen to, engage with, and amplify the experiences of communities of color. (Some next steps are listed to the left.) This process should fundamentally change the way we view our investments.
Companies in our portfolios are vulnerable to great risks. They are often part of the problem. Our job is to channel investor capital and voices toward solutions.
On behalf of our clients, we’re using a racial justice lens to flag risks and find companies that are seeking solutions and opportunities with communities of color. And, through investor advocacy, we can change firms for positive social impact.
- Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen or experience.
- Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal.
- This communication may include opinions and forward-looking statements. All statements other than statements of historical fact are opinions and/or forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the beliefs and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such beliefs and expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.
- Historical performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss of income and/or principal to the investor.
- Investment process, strategies, philosophies, allocations and other parameters are current as of the date indicated and are subject to change without prior notice.
- Nothing in this communication is intended to be or should be construed as individualized investment advice. All content is of a general nature and solely for educational, informational and illustrative purposes.
- Any references to outside content are listed for informational purposes only and have not been verified for accuracy by the Adviser. Adviser does not endorse the statements, services or performance of any third-party author or vendor cited.
- Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.