In the span of only a few months, systemic issues once considered exogenous to markets have become the financial world’s main focus. From public health to structural inequality and the long-term battle against climate change, solving broader problems has never been more central to moving the economy forward.
While investors have been pushing companies to disclose and address climate risk, most companies have been caught flat-footed around both the pandemic and recent racial justice issues. And executives have just started to see the links between all three, like the negative health outcomes for minority communities near coal-fired power plants, for example.
“Corporations must recognize that their current efforts to promote their core values, and diversity and inclusion programs, fall far short of what is needed today,” said John Streur, chief executive of Calvert Research and Management, Eaton Vance’s $21.3 billion responsible-investment unit.
Companies are making the same mistake when it comes to people and the planet, said Rachel Robasciotti, founder of investment firm Robasciotti & Philipson in San Francisco. They are extracting “the maximum possible for an individual or company’s gain, rather than for sustainability.”
Divestment
For investors, the first stage of thinking about climate is often reducing exposure to fossil fuels. More than $11 trillion in assets have now been committed to divesting from that sector, according to 350.org. There has yet to be the same commitment to removing institutions that propagate racial inequality, said Robasciotti, who published a list of companies this week she contends contribute to racial injustice, from for-profit education companies to firms that work with, or own, for-profit prisons. “With divestment you are directly impacting executive compensation and their cost of capital,” she said, “but we haven’t had solidarity on racial justice divestment as an industry since apartheid,” she said.
Corporate Boards
Achieving diversity on corporate boards also has a long way to go. While every company in the S&P 500 now has a woman on the board, that hasn’t been fully replicated in terms of racial diversity. Only about 10% of the Russell 3000 index has ethnically diverse board members.
