In the past few weeks, racial equity and justice have been the central rallying cry, across the world. This has prompted many individuals and institutions to speak out against racial injustice, not least in the investing industry. On June 10, Confluence Philanthropy, a membership network of foundations and impact investors, launched a pledge for racial equity. The pledge is a commitment to “discussing racial equity at our next investment committee meeting.” As of June 13, 67 institutions have signed up, representing $533.96 billion in assets under management.
The change has been long time coming, after decades of influencing and activism, but is it enough? “I was part of the conference and really urged Confluence to have the pledge be about adding racial equity to the Investment Policy Statement (IPS). Instead they decided the ask would be to have a conversation. I am happy to see them doing something and yet it didn’t feel like enough during these times,” says Kristin Hull, PhD of Nia Impact Capital, an impact investing firm actively advocating for racial and gender lens investing.
There is a sense of investors not going far enough. Citigroup is one of the largest financial institutions with close to $2 trillion of assets. Their Chief Financial Officer, Mark Mason, published a statement titled, “I can’t breathe,” shortly after the killing of George Floyd. He announced donations to “three organizations fighting injustice and inequality,” and while he highlights issues of racism in the wider American society, he stopped short of discussing them in the context of the investment industry.
Gillian Marcelle, PhD, an impact investing professional and racial justice advocate says: “We need to see an acknowledgement of the characteristics of inequity and inertia that are built into the system and a willingness to undertake serious change. This will involve giving up power, as well as transparency about who is making decisions at the end of the day.”
The importance of the investment industry in redressing racial inequalities cannot be understated. According to Brookings Institution, the net worth of a typical white family is nearly ten times greater than that of a Black family ($17,150) in 2016. The racial wealth disparity has most likely sharpened during Covid-19 pandemic. The investment industry, responsible for wealth creation and accumulation in societies, needs to be an integral part of the solution.
But to be an integral part of the solution, the investment industry may need to ask some very hard and existential questions. “There is unease among white investors to talk about racial justice, and yet more than that, there is lack of awareness that the investment industry is a huge part of the problem,” says Hull, who grew up white in Oakland, California. She spent a large part of her career as an elementary school teacher specifically working to address racial equity issues, and wrote her PhD dissertation on race and language and issues of equity. “I bring all of that experience into how I look at capital markets. Shortly after I became an impact investor, I realised that it was essential to incorporate a racial and gender lens.”
For Marcelle, she believes that in order for racial equity investing to take root in the investment industry, it needs to recognize and reconcile with its roots in white supremacy. “Investors individually do not have to understand women or Black people or the majority world because they are doing extremely well in late stage capitalism without doing that work. There is little perceived incentive for change, as investors have accumulated lots of wealth at the expense of others and the planet. Then at particular points there are ruptures in that system and even if they pause—there is a mistaken belief that those in power know everything. That’s how white supremacy works, in essence it’s a belief in white superiority, and this is not pierced,” she says.
The fact that the investment industry has sustained racial injustices is not new. Looking back at the financial crisis of 2008, there have been multiple studies showing how black homeowners were disproportionately affected by the foreclosure crisis. However, that did not prompt a widespread discussion around racial justice in the investment industry, though there is more attention now.
The Black Lives Matter movement has sparked systemic criminal justice reforms, and it has exerted increasing pressure on the investment industry to change too, though we are still far from the tipping point.