Racial equity commitments to encourage long-term change

Four actions that investors and managers can take to build stronger practices around racial diversity.

It has been several months since the murder of George Floyd and the historic national and international protests against police violence and for racial equity. I believe now is the time to assess ways we can translate the calls for racial equity into action. Making progress on racial equity will require long-term commitments by many individuals and organizations.

There are a myriad of ways that people from all walks of life can help our country achieve positive changes, but one of the most impactful approaches is to engage large, powerful businesses to do the right thing.

Investors and consumers can support companies that are already making a difference. For instance, The North Face, Lululemon Athletica and Verizon have joined the Stop Hate for Profit campaign led by the NAACP, the Anti-Defamation League and other organizations. This campaign’s mission is to pull advertising dollars from digital platforms in response to policies that have allowed hate speech to flourish. Other companies have helped create the New York Jobs CEO Council, which has pledged to hire 100,000 people from disadvantaged backgrounds over the next decade.

[More: 8 steps to creating racial justice portfolios]

But supporting companies that are addressing racial bias is only part of the story. Pressing companies to do better is equally, if not more, important. Here are some initiatives investors and asset managers can pursue to encourage businesses to strengthen their racial diversity practices.

  • Starting at the top, investors and their asset managers can urge public companies to appoint at least one person of color to their board of directors. By including more diverse perspectives, boards can improve their own decision making and broaden management’s awareness of their customers’ needs. All boards of S&P 500 companies now include at least one woman. That goal was achieved by persistent investors who engaged companies and voted in favor of shareholder resolutions that called for at least one woman on corporate boards. The same approach can be used to help boost the numbers of people of color serving on boards, including those of the largest companies in the world.
  • Pressing companies to increase the representation of people of color across job categories, including management, is another important avenue for investors to pursue. As a first step, companies could be asked to disclose their EEO-1 data, which is reported to the U.S. Equal Employment Opportunity Commission, but not disclosed by the EEOC. This information can serve as a public benchmark from which businesses can establish goals and measure improvement.
  • Consumers and investors can encourage companies to incorporate diversity and human rights concerns into their products and services. This effort may encompass product design, safety, supply chain management and lending practices. In order to assess the relevant issues for each business, the board of directors could conduct a civil rights audit to identify policies that may be negatively impacting people of color. Examples include using facial recognition technology that is known to be biased against Black people and financing private prisons.
  • Investment managers with large stakes in companies have unique leverage they can use to engage the businesses they invest in to make a difference. Shareholders can urge their asset managers to invest in community development financial institutions that are Black-owned, Black-led or that predominantly serve Black communities. CDFIs help people from many disadvantaged groups improve their economic outcomes. In my view, prioritizing the specific needs of Black Americans in the U.S. is critical at this time. Shareholders can also speak with their asset managers and advisors about choosing other investments for their portfolios that help advance progress on racial issues.

Achieving racial equity is a monumental task and none of us can do it alone. One way anyone can get started is by investigating some of the many resources available on racial equity and other diversity topics. For example, Proctor & Gamble’s Take on Race campaign aims to unite people to take action for racial equity, and the 30% Coalition spearheads efforts to increase diversity in corporate management teams and on their boards. Investors can also participate in membership organizations such as USSIF, which promotes social and environmental issues in the financial services industry.

Iyassu Essayas is director of ESG research for Parnassus Investments.