As many companies across the US take today – the anniversary of when the final group of former slaves were told they were free – as a public holiday for the first time, Corporate Secretary sister publication IR Magazine continues to explore the extent to which racial justice could emerge as a more prominent investing or stewardship theme.
The Racial Justice Investing Coalition – a group of 112 asset managers, owners and corporations – released a statement yesterday, which laid out five actions the endorsers will take in the future. These are:
- Commit to actively engage with, amplify and include black voices in investor spaces and company engagements
- Commit to embed a racial equity and justice lens into our own organization
- Commit to integrating racial justice into investment decision-making and engagement strategies
- Reinvest in communities
- Use the investor voice to advance anti-racist public policy.
Last week, IR Magazine reported that ethical investors were broadly focusing on three areas: corporate diversity & inclusion efforts, the prison industrial complex and supplying police forces with materials. Many IR professionals will think they have limited exposure to these issues, but a range of investors have told IR Magazine this week that they’re committed to expanding their research to identify areas where racial inequality can have an effect on a company’s performance.
LARGE ASSET MANAGERS
IR Magazine contacted representatives at BlackRock, Vanguard, State Street Global Advisors (SSGA), T-Rowe Price and Fidelity to understand whether they were internally discussing changes to their investing and stewardship processes in light of the continuing protests about racial inequality in the US.
A spokesperson for Vanguard pointed to its investment stewardship teams’ engagement with companies about board-level diversity, including the disclosure of racial diversity. Vanguard does not typically ask its portfolio companies to disclose diversity statistics about its workforce, but it has supported shareholder proposals that call for disclosures of this nature if there’s evidence a lack of racial diversity represents a material risk.
The spokesperson says ‘current events have reinforced the critical importance of progress on racial and ethnic diversity, and we expect that our engagement with companies, and our expectations of them, will increase accordingly’.
A spokesperson for SSGA says: ‘While we have taken many steps to address inequality and racism in our organization, in our communities and through our asset stewardship program, we have more work to do. We are committed to being part of the solution and are exploring further actions we can take.’
SSGA’s stewardship team is evaluating the long-term risks that inequities – including racial inequities – can pose to portfolio companies and plans to provide further information about how it expects companies to manage these risks, the spokesperson adds.
Representatives from T-Rowe Price, SSGA and Vanguard all described the difficulties in getting hold of useful data about racial inequality and demographics within public companies. BlackRock and Fidelity did not respond to requests for comment.
RACIAL EQUALITY ETFS
Access to data about racial equality hasn’t stopped others, though. In 2018, Impact Shares – a non-profit backed by the Rockefeller Foundation’s Innovative Finance group – partnered with the National Association for the Advancement of Colored People (NAACP) to launch the Minority Empowerment ETF.
The fund identifies companies in the S&P 500 that are committed to diversity and inclusion. It uses the NAACP’s corporate scorecard – which considers a range of issues including board diversity, discrimination policies and supply-chain monitoring for racial and ethnic diversity – to set the inclusion rules. The ETF is administered by Morningstar and the data is gathered by Sustainalytics.
Ethan Powell, CEO of Impact Shares, says the information from Sustainalytics is supplemented with information from other research organizations. In the future, he adds, Impact Shares plan to use natural language processing to scrape information from social media and add it to the dataset the ETF considers.
For Marvin Owens, senior director of NAACP’s economic department, the ETF has provided an opportunity to engage with public companies about their performance on diversity and inclusion. He says this is particularly important now, given the number of companies that have issued public statements about racial justice and Black Lives Matter.
Owens says there has been more interest from investors in the Minority Empowerment ETF recently: ‘The George Floyd killing and subsequent events are bringing a great deal of attention to this effort and organizations are thinking about how they can put their capital to work.’ He adds that he’s been talking to some large public pension funds in recent weeks that were prohibited from buying into the ETF earlier because of rules about how long an ETF has to exist before it is deemed to be a safe investment.
Elsewhere in the world of index investing, a spokesperson for S&P Dow Jones says it does not currently offer indices that are focused solely on diversity or racial equality but ‘it is something we’re looking into’. The spokesperson adds that diversity and inclusion questions are included as part of S&P Dow Jones’ ESG scoring system.
FTSE Russell, MSCI and Bloomberg declined or did not respond to a request for comment.
QUALITY OF DATA
The lack of good-quality data on racial equality in public companies and on public companies’ business interests that may support racial inequality is often touted as a reason why there isn’t a greater focus from investors.
Last year, while the SEC was soliciting feedback ahead of Regulation SK reforms, Trillium Asset Management submitted a letter asking the commission to require public companies to disclose the information they privately submit to the US Equal Employment Opportunity Commission.
‘Standardized data found in the EEO-1 report presents a common language, which can inform company-wide strategies to build effective diversity and inclusion programs,’ wrote Susan Baker, vice president at Trillium Asset Management. ‘Because this data exists, acts as a meaningful platform for discussing strategy and progress on diversity and inclusion, and can be disclosed to investors inexpensively, Trillium and several members of the Interfaith Center on Corporate Responsibility have spent the last 20 years asking companies to disclose their EEO-1 reports.’
When asked whether this is a move the SEC is considering, a spokesperson responds: ‘The commission has received a number of comments on proposed amendments to the disclosure framework, which, among other things, would require disclosures about human capital resources, including any human capital measures or objectives that management focuses on in managing the business, to the extent such disclosures would be material to an understanding of the registrant’s business.’
DATA ABOUT THE PRISON INDUSTRIAL COMPLEX
When it comes to the prison industrial complex, more tangible data exists. Bianca Tylek, executive director of Worth Rises, tells IR Magazine that her organization identifies the companies involved with the prison industrial complex in a variety of ways – from providing healthcare to prisoners, hardware to prisons and phone calls for inmates to providing private security for prisons.
Worth Rises’ 2020 research report identifies more than 4,000 companies that are involved in the prison industrial complex, of which 385 are publicly traded companies. Tylek says she has worked with ethical investors and institutional investors – including include Zevin Asset Management, North Star Asset Management (which has filed shareholder proposals at Microsoft, Costco, TJX Corporation and others after identifying prison labor in their supply chains), Boston Common and others – to provide, and add insight to, the data that Worth Rises captures.
The 385 public companies identified in Worth Rises’ report are divided into two groups: those that knowingly provide products or services that support the prison industrial complex (204) and those that are presumed to be unintentionally or unknowingly involved in supporting the prison industrial complex (181).
For the public companies that may not know their business supports the prison industrial complex in some manner, it can be a rude awakening. In the cases of Costco and TJX Corporation, which emerged several years ago, neither company was aware it was selling products made by prisoners. Representatives from both companies responded to requests for comment by pointing to their codes of conduct, which prohibit the use of forced labor (Costco and TJX Corporation) and prison labor (TJX Corporation).
IMPLEMENTATION OF PUBLIC STATEMENT ON RACIAL EQUALITY
One additional data point that could emerge is the authenticity of public companies’ statements on racial equality. As reported last week, As You Sow is maintaining a list of public company statements and plans to closely monitor how companies implement the messages they’ve shared publicly.
The NAACP is also closely monitoring the statements that have been made by public companies, many of which are financial supporters of the NAACP. ‘We appreciate the statements but we’d like to engage further about what’s happening within corporate culture, your company and your sector so that we can be a partner to dismantle some of these issues,’ Owens says. ‘Many of the companies coming forward with donations and statements have also privately said they acknowledge they have a problem and they need help. Their statements aren’t saying that, but many are admitting privately that they know there’s a lot of work to be done.’