Black Lives Matter and COVID have both made more Americans aware of the main racial disparities in our society. In fact, since the onset of COVID, investors have grown considerably more interested in making impact investments that will benefit people of color. But this begs the question: can the sustainable / impact investing movement have any impact on societal discrimination?
Surprisingly, the answer is yes. Through community impact investing, untold millions of dollars have been poured into low-income communities that have been excluded from traditional funding. And thanks to shareholder initiatives, many publicly traded companies have taken steps to hire, retain and promote more African Americans.
Stimulate workforce diversity through shareholder engagement
The lack of African Americans in business management is most clearly visible at the top level. Today, only four of the Fortune CEOs of 500 companies are African American, and African Americans are woefully underrepresented on corporate boards.
Shareholder engagement can promote workforce inclusion by convincing companies to publish data on job diversity, and in particular race and ethnicity. An even greater impact can come from tying CEO compensation to the achievement of specific diversity goals. According to a leading executive compensation company, only 78 of America’s 3,000 largest publicly traded companies currently tie executive compensation to a growing diversity of the workforce. The number of companies that publish data on the hiring, retention and promotion of under-represented groups is also insufficient.
In 2020 and 2021, institutional shareholder engagement on the diversity of CEOs, workforce and board has increased significantly. These large shareholders meet with senior management to discuss measures to increase diversity. If management is unwilling to move forward, these institutional shareholders can vote against the members of the management board and / or force a proxy vote on the publication of data on the diversity of the workforce. the company. A number of efforts to publish data on race and ethnicity have been successful.
As an added bonus, shareholder engagement on diversity may even be beneficial to business bottom lines: There is strong evidence that a more diverse workforce can lead to higher business profitability.
What can you do as an individual investor to help?
What role do sustainable individual investors play in empowering companies in their recruiting practices? When you own shares of a mutual fund company, the company has the right to vote for your shares in proxy votes. And it is the sustainable mutual fund companies that will most effectively lobby management on diversity issues and, if necessary, launch a shareholder campaign and proxy vote for greater diversity. (Note that investors in individual stocks can vote for their stocks when these diversity issues are the subject of a proxy vote.)
With the dramatic increase in interest in ESG investments, many fund companies are jumping on the sustainability train without engaging with shareholders or without truly committing to sustainability. It is therefore particularly important to consider an allocation in one of the sustainable mutual funds with a strong history of shareholder engagement or to work with a financial advisor knowledgeable about these matters.
Community impact investing makes the difference
Impact investors provide greater opportunities for low-income people across the United States, whether in the Appalachians or in our downtown areas. Undoubtedly, community impact investing has a particularly significant impact on helping African American communities. Community impact investing is how individual investors can have the greatest societal impact possible.
Community Impact Investing focuses on affordable housing, community development, and funding for small community businesses. Beyond the positive impact of these projects themselves, thousands of jobs are created in these communities.
There are impact investing firms that allow individual investors to get involved in community impact investing. Through their funds, for example, money is loaned to community nonprofit organizations and social enterprises that have generally not had access to traditional funding. A good example is a local community group that focuses on providing loans to small entrepreneurs of color, perhaps someone who has been a cleaner or childcare provider for years.
The person may want to open their own childcare or cleaning business, but lack the capital. They may also need technical assistance to get the loan and start the business. Who could argue with the idea of offering budding entrepreneurs the opportunity to “get up on their own,” as the old expression goes.
What can you do to participate?
Individual investors can purchase these Social Impact Investment Bonds through their financial advisor, in most brokerage accounts, or in some cases online for as little as $ 20. Like investing in a certificate of deposit (CD), you should plan to hold the bond until maturity; you can choose terms from one to ten years. These bonds would diversify well almost any fixed income portfolio.
The bank you choose can also make the difference
You can also turn your cash flow into an impact asset. For example, you can choose a bank that routes many of its loans to low-income communities. One option is the Self-Help Credit Union, and since it is a credit union, most of their products are FDIC insured. Often the prices are quite attractive.
Another approach is to find a community development bank in your state. For example, you can use the National Community Investment Fund‘s search function to find one, http://ncif.org/.
Whether it’s investing to make an impact in the community, choosing a bank, or purchasing a sustainable fund, retail investors can help create a fairer and more diverse society. Indeed, the more sustainable and impactful investors there are, the greater the positive impact will be.
Vice-President, Sandbox Financial Partners
William Bruno has supported his clients in financial planning and asset management for over 15 years. He is now vice president at Sandbox Financial Partners, a specialty financial advisory firm based in Bethesda, Maryland. During his work as a financial advisor, he has published articles on sustainable and impact investing and served on the Sustainable Investment Committee of the Episcopal Diocese of Washington, DC. Mr. Bruno’s previous career was in public policy and government.
Sandbox Financial Partners, LLC, is a registered investment advisor. This article is provided for informational purposes only and is not intended to be investment advice or a recommendation to take action regarding your portfolio. If you have any questions, please contact the firm at [email protected] or 301-214-4190.