Reflections: Our Personal & Professional Efforts Toward Racial Equity is a monthly blog. Each month, a member of our staff will reflect on what they are doing either personally or professionally to improve diversity, equity and inclusion in our work. View more
Community foundations across the nation are continuously looking for ways to promote equity through their programs and investments. As part of this growing trend, many are using socially responsible investing as a strategic tool to advance diversity, equity, and inclusion (DEI) within the management of their funds. Investing in companies whose business practices advance values such as DEI helps us to foster a thriving community accessible to all.
Since early 2019, I have had the privilege of exploring opportunities for the Community Foundation to offer an investment option that further aligns social good with financial return, expands our donor network and makes a social impact all at the same time. Given the validated industry research and best practices we have seen among our peers, our board agreed that it was important to offer an alternative investment pool that emphasizes social and environmental benefits. We are now offering a Sustainable Responsible Impact (SRI) investment pool for our current and future donors and fundholders who want to generate a competitive market return while also aligning with their values.
Our SRI pool seeks to support, promote and advance the following values and impact areas: Quality Education, Ending Poverty, Anti-racism, Arts & Culture, Well-Being of Children, Economic Justice, Environment, Human Rights, Literacy, and Public Policy & Advocacy. These areas were chosen by our board of directors under the guidance of 17 Sustainable Development Goals outlined by the United Nations that have become standard global metrics used in the investment sector for Environmental, Social and Governance (ESG) factors.
Our DEI screen will emphasize investing in companies that have women and minority leaders, a diverse workforce and board, and business practices that address DEI issues such as the gender pay gap, recruitment and hiring of people of color, and pay equity.
DEI metrics are important components of the social and governance pillars of ESG and are becoming increasingly mainstream. The total assets under management with ESG integration have grown from $12 trillion to $17.1 trillion between 2018 and 2020, an increase of 42%, according to the Forum for Sustainable and Responsible Investment’s 2020 Trend Report. Many studies have also found that funds incorporating social investment strategies are on par or exceeding their benchmarks while also offering lower market risk.
Investors, business partners and consumers are focused on the transparency of organizations’ diversity programs, metrics and key performance indicators. The Trend Report also reported that the recent health and economic crisis of COVID-19 and renewed focus on addressing racial justice after the murder of George Floyd have further highlighted the need to confront social, economic and racial inequality. This heightened awareness of social and impact investment has resulted in investors assessing how to incorporate not only environmental and governance factors, but also diving heavily into the social factors of ESG by incorporating DEI in their own firms and throughout their business practices. DEI is no longer just checking off a box; it is one of the key reported metrics for companies. There is an increased pressure for companies to report their gender and racial composition as well as their progress around DEI and social justice. Transparency leads to accountability and opportunity for everyone to advance.
SRI portfolios integrated with ESG factors have significantly grown (17% per year). This growth could be attributed to changing societal norms, political polarization, and increasingly diverse demographics. Women and millennials could also be driving some of this growth as they consider ESG factors important in their investments. Women have decision-making power over 40% of the nation’s assets according to research conducted by U.S. Trust and Morgan Stanley. Millennials are expected to inherit the largest transfer of wealth in history from their baby boomer parents. From an investment perspective, research consistently shows strong financial benefits to companies that emphasize DEI in their business practices. A diverse workforce can drive employee morale and better outcomes resulting in enhanced business growth and brand reputation. It’s a win-win situation.
There is a strong connection between ESG investment principles and our mission and values. It makes perfect sense to offer the SRI investment pool as an option for our community-minded donors and fundholders to maximize their charitable investments with us. By incorporating socially responsible investing, we are working to drive social change and advance equitable outcomes within, and beyond, our community.