Impact Investing in the era of Black Lives Matter: how can investors make a difference?


Both the Black Lives Matter Movement and the COVID pandemic have made more people aware of the major racial disparities in our society.    So can the sustainable investing movement put any dent in widespread societal racism?

The answer is yes.  Shareholders can pressure publicly traded American companies to hire, retain, and promote, more people of color and African Americans in particular.  

The lack of African Americans in upper corporate management is seen most clearly at the CEO level.  Today only 5 of the Fortune 500 company’s CEOs are African American.  As an added bonus shareholder engagement on diversity may even benefit companies’ bottom lines as well:  there is evidence that a more diverse workforce can lead to higher corporate profitability. (Note that these same shareholder advocates are also pushing for the end to many of the subtle gender biases which have kept many women out of senior management). 

Shareholder engagement can foster workforce inclusion by convincing companies to release publicly data on employment diversity and by tying CEO compensation to the achievement of specific diversity goals.  According to a leading executive compensation firm, only about 78 of the 3000 largest publicly traded US companies currently tie executive pay to increasing workforce diversity.  The number of companies who publicly release data on hiring, retention, and promotion of underrepresented ethnic and racial groups is likely even less. 

Institutional shareholder engagement on workforce diversity has intensified in the last three years.  Shareholders meet with senior management to discuss these issues and if management is not willing to work with them, often shareholders will then force a proxy vote on these issues. 

A good example is Proctor and Gamble which is trying to position itself as a corporate leader on diversity issues, including using a multi-million dollar racial justice themed marketing campaign.  Though P&G releases some employee diversity data, the company is refusing to be fully transparent. As You Sow, perhaps the leading corporate watchdog, launched a proxy campaign to convince the company to release the data.  The campaign received strong support from shareholders during the company’s annual meeting so hopes are high that the ongoing campaign will be successful.

How do individual sustainable investors like yourselves help hold companies more accountable for their hiring practices?  When you own shares in a sustainable mutual fund (for example those of Green Century and Calvert) they will vote your shares in a progressive manner, for example, in support of the resolution to convince P&G management to be more transparent. 

If you own shares in a traditional mutual fund or index fund your shares are generally being voted with management.  Such a vote would stymie efforts by sustainable shareholders to secure more progressive corporate practices.

So the more sustainable investors there are, the more successful shareholder engagement campaigns will be on a range of issues like inclusion and climate change.  Thank you for considering sustainable and responsible investing.