The Investment Industry Can and Should Do Better

Many foundations are committed to social justice – yet they continue to rely on a “business-as-usual” approach in their investment practices.  Maintaining the status quo is often counterproductive as it produces some of the same barriers that mission-focused organizations are attempting to tackle through grantmaking.

Confluence Philanthropy addresses this challenge in a recent report:  “It’s About Time: A Call to Advance Racial Equity in the Investment Industry.” Confluence is committed not only to challenging philanthropists to adopt a racial equity lens, but also to ensuring that lens is embedded across impact investing practices and the finance industry as a whole. Impact investing is still beset by the same problems of representation, insider networks, and barriers to entry as the conventional investment industry.  We can and should do better.

At Boston Common Asset Management, we know first-hand that it is possible—and beneficial—to advance racial equity in the workplace, as a diverse, women-led, and sustainable investment firm. We have also focused on fostering positive impact in portfolio companies through Active, Engaged Ownership for more than 15 years.   Racial Equity is about more than just doing the “right thing” but can also be about mission alignment, better governance, diverse experiences and opinions, which lead to better decision making and outcomes.

Geeta Aiyer, President & Founder of Boston Common and moderator of the recent webinar based on the Confluence report, remarked:

“Confluence has published this report that shows, surprisingly, that this most “woke” group of intentional impact investors is vulnerable to a contradiction in not choosing investment managers that reflect the racial inclusion we seek. The moral imperative is clear.  It highlights our unacceptable complicity and our unused capacity for change. But we are also looking to fix a market failure that prevents the full range of best and brightest from being seen and rightly utilized.  This is not easy. We are tackling deeply entrenched structural issues and unconscious bias.  It took us a long while to get here, but we share an urgency to correct it.”

Here are four key takeaways for Foundations from the report and webinar:

1. No excuses

If your organization is committed to promoting social justice in your programmatic work, you must also turn that lens inward to your own operations, your staff, and your investments.  The firms you employ to manage your assets and how they go about it are equally important.  How can you get started? Confluence has many resources to support Foundations–but the first, crucial step requires leadership (both Board- and staff-level) buy-in and a willingness to advocate for an internal learning cycle on racial inequity.  The urgency of racial injustice in the US today makes this an issue that Foundations can’t afford to overlook.

2. Take Stock

Where do you stand right now?  It can be powerful to simply start collecting data on your current investments.  Of your current fund managers, how many do you employ that are led by majority-women, People-of-Color, veterans or disabled individuals?  If you don’t know, start collecting the data and asking your advisers to include diverse firms in every new mandate or search you issue.  Diversity and inclusion should be part of the service that they provide for you.  And, by the way –what does the diversity of your advisory or consulting firm look like?  Do they collect data on gender, employees of color, ethnic backgrounds, or sexual orientation?  It can be uncomfortable to approach these questions, but it’s important to ask them anyway.  Progress can only be made when we are willing to address the systemic under-representation of certain groups by asking the difficult questions of our advisors and ourselves.

3.   Make a plan

Now that you have set a baseline, you can develop a plan to move toward your goals.  The Nathan Cummings Foundation and the W.K. Kellogg Foundation have both shared their journeys towards adopting a racial equity approach in their investments.  Draw on the knowledge of your peers. Use their experiences to inform your vision of what a commitment to racial equity means for you and your advisors.  Your plan will depend on the focus, resources, and urgency your Foundation can bring to this effort.

As Cynthia Muller, Director of Mission Investment at the W.K. Kellogg Foundation thoughtfully remarked on the webinar:

“We’re all in different learning journeys. What we want to do is impart those learnings to the broader field at hand—shifting our mindset from a deficit mindset to an opportunity mindset.”

On the W.K. Kellogg Foundation’s progress, she noted:

“We’ve gone through an iteration where we did check the box. The process we’re taking now is less prescriptive. On the racial equity piece, we’re giving them the space to explore. When you mandate, you get a bunch of unintended consequences—the government contracting approach of tokenizing, [for example.] At the end of the day, we want to see money go out to organizations that are thinking about [racial equity] in a really thoughtful way.”

Bob Bancroft, Vice President of Finance at the Nathan Cummings Foundation commented:

“We asked our outsourced CIO, ‘How are we doing on manager diversity?’” They had not historically collected the data, so we asked them to perform a review. These conversations have resulted in a deeper partnership and have yielded results that both NCF and our OCIO are really encouraged by: we have 8x as many diverse-owned funds in our pipeline as we had a year ago, and 20% of the funds in our portfolio are owned by women and people of color. On the one hand, we take heart that it is better than the 1.3% average laid out in the Confluence report. Yet we are both committed to doing more.”


4. Share your findings

We recognize this is a journey, not a destination. Share what you have learned with your peers who are just beginning to ask the difficult questions. We are heartened by the work that Confluence and many of its members have given to this initiative over the past year.  We welcome this work and promise to continue to do our part. By promoting and sharing tools with our clients as they navigate embedding racial equity into their investments, we can help disrupt the status quo.  We invite you to join us!

Bob Bancroft of the Nathan Cummings Foundation shared:

“We’ve been talking today not just about the moral imperative, but the economic imperative, and the fiduciary imperative. The question that I’d like to leave the group with today is: what are we going to do with our money? Are we going to continue to perpetuate a flawed system that leaves opportunity on the table? Or do we want to write a better playbook?”

Originally published on Confluence Philanthropy

Published On: September 26, 2019Categories: Thought Leadership