It's time for long-term institutional investors to play their part in making the U.S. a worthy long-term investment: one that truly practices equality.
Protests around the country over the past several weeks in the aftermath of the killing of George Floyd in Minneapolis have made it clear that change is needed. The finance and institutional investing industries are no exception. But there's no reason that change cannot be accomplished. It requires a commitment on everyone's part.
Many institutional investors are using rigorous thought processes to understand and combat climate change, and thus find investment opportunities, and those same principles and effort can be used to help eliminate the racial divide. Asset owners should require their money managers to follow a standard practice of disclosing diversity and inclusion metrics — including pay gaps — at various levels of their firms on an annual basis. That should be understood and accepted as the most basic starting point.
Asset owners also can take steps to update investment policies to reflect a wider array of criteria for selecting investment managers, including adopting rules to ensure diverse candidates in searches, both for internal staff positions, and external managers and consultants.
Money managers should take the next step, using a similar lens to the one that is employed for ESG investing to identify what companies have racial gaps in pay and representation on employee, executive and board levels. It is incumbent upon managers to engage with companies when data reveal problems, use the power of proxy votes to elicit change or to divest when progress is not foreseeable. And along the way, show your clients exactly what steps you are taking. It's also incumbent on managers to invest time and resources to identify new investment opportunities with companies run by people of color — whether on the public markets, equity or debt, private markets and venture capital — that for too long have been ignored or neglected on every rung of the finance ladder.
But that's only part of it. It is no secret black people are woefully underrepresented in the investment industry, despite increasing evidence showing real advantages and benefits of tapping an array of diverse perspectives in the investment process.
Major banks and money managers have come out with statements in support of protests against police brutality and racial inequality. Now it's time for them to take action and proverbially put their money where their mouth is.
Create a pipeline for opportunity. Put policies and programs in place to encourage diverse hiring and promotion practices. Invest in a new generation of future leaders, one that is representative of the country we live in.