Black History Month: How Racial Justice plays out in portfolios
Friday, February 26, 2021
February 2021
A more in depth exploration of key sustainability topics
Black History Month: How Racial Justice plays out in portfolios

February is Black History Month, an annual celebration of Black Americans throughout history. While we collectively honor these trailblazers that have fought tirelessly for racial equality and justice, we might also look to the future and consider how best to ensure a more equitable future for all. 

It’s clear that racial justice remains a timely topic, with 63 percent of Americans asserting that the legacy of slavery continues to impact Black Americans’ position in society today. With that in mind, clients may look to advisors to provide guidance as to how they might express their desire for racial justice through their portfolio—are you equipped to tackle this subject confidently and authoritatively? 

This Black History Month, we’re highlighting five key sustainability issues, some of which are often overlooked when it comes to their profound impact on communities of color. 

Private Prisons

Critics of what’s been termed the Prison Industrial Complex—the privatization of American prisons in order to turn a profit—have consistently pointed out that the industry’s profit motive encourages overly punitive measures and provides little incentive for meaningful rehabilitation. It is, then, perhaps unsurprising that the U.S. holds the dubious distinction of having the highest prison population rate in the world, as measured by the number of individuals incarcerated per 100,000 of the national population. 

It is predominantly people of color that are caught up in this system: despite representing just 28 percent of the U.S. population, Black and Hispanic Americans comprise 56 percent of the nation’s prisoners. This is not the same as saying people of color perpetrate more crimes: despite similar rates of drug usage among black and white Americans, Black Americans are imprisoned for drug charges at a rate almost six times that of their white counterparts. Meanwhile, one study found that Black people are seven times more likely than their white counterparts to be wrongfully convicted of murder. Where Black people were exonerated, their cases were 22 percent more likely to involve police misconduct than those involving white people. Increasingly, the evidence points toward a criminal justice system that is stacked against Black Americans and that limits social mobility

As scrutiny of the sector expands, and as shareholder pressure increases, a significant number of endowments, pension funds, and asset managers have committed to divesting from private prisons. However, some clients are alarmed to find that they are unwittingly exposed to private prisons elsewhere in the supply chain—whether it’s corporations using inmate labor or partnering with others that do, or companies supplying goods and services (food, telecommunications, transportation) to the prisons themselves.

Predatory Lending

Irresponsible lending affects the entire economy. The U.S. Financial Crisis Inquiry Commission determined that "collapsing mortgage-lending standards," including "predatory and fraudulent practices," exacerbated the global financial crisis of 2007-2008. 

But many of the people harmed most by predatory lending practices are people of color. In the run-up to the crisis, Black Americans were 3.9 times more likely than white Americans to receive subprime loans, even controlling for credit risk. And some evidence suggests that Black and Latino borrowers were explicitly targeted by loan originators, who enlisted local community and religious leaders to gain the trust of the potential customers.

The wealth gap in the United States remains a major obstacle to racial justice: the median Black family has about 1/10th the wealth of the median white one, according to 2017 figures from the U.S. Federal Reserve. Predatory lending practices that widen this gap are, therefore, a natural target for pressure from the sustainable investing community. 

Diversity Policies & Practices

In recent years, companies of all sizes have become increasingly attuned to the merits of workplace diversity—more than three in five workers surveyed by Glassdoor asserted that their employers are investing more in diversity and inclusion than in years past. Some might still consider diversity a mere public relations checkbox, but research suggests a correlation between racially diverse workforces and elevated financial performance. The reasons for this link are intuitive: companies welcoming heterogeneous perspectives are better equipped to innovate and cater to an increasingly diverse marketplace.

However, despite companies’ ostensible efforts to promote diversity and inclusion, many Black Americans report being on the receiving end of racial discrimination when applying for jobs, when it comes to being paid equally, or being considered for promotions. It’s clear there is still much for companies to do in creating non-discriminatory workplaces. 

Although many corporate diversity initiatives have focused largely on fostering gender equity at the highest levels of corporate America, there is a significant opportunity for expanded reporting on ethnic and racial diversity at the executive and board levels. We’re hoping to see company reporting standards take a broader view of diversity, and for more national governments to require diversity-related reporting for all public companies. In the meantime, interested stakeholders might also want to consider whether companies have official policies in place that explicitly address diversity and non-discrimination, as well as the degree to which companies have adopted formalized targets as part of these policies. 

Employee Human Rights

Everyone wants to feel safe in the workplace, but did you know that people of color are widely considered at greater risk of workplace injuries and disabilities? 

The racial and ethnic disparities in occupational injury and illness rates are often explained away by noting that workers of color are, for various reasons, more likely to be employed in more hazardous jobs roles. Certainly, this is a problem on its own. However, even when introducing measures to calculate expected workplace injury rates based on occupation, black workers experience a higher number of incidences than white workers completing similar hours. What gives?

Although the evidence is somewhat inconclusive, the authors of the aforementioned study suggest that these disparities may result from workplace discrimination—either deliberate or implicit. As the aforementioned study suggests, this bias might manifest through practices such as deliberately assigning workers of color to more dangerous tasks, or preventing them from climbing the occupational ladder to secure more desirable, and safer, jobs. Regardless of the intent, the injuries sustained by workers of color stand to hinder productivity and exacerbate income inequality. 

Even if racial justice isn’t a key priority in your clients’ portfolios, employee health and safety is still considered a financially material issue across most industries. Companies with a poor track record on worker safety will struggle to retain and attract talent, and the reputational risk could be off-putting to customers—both of which can hurt the bottom line. Beyond reporting on the prevalence of accidents, look for metrics regarding safety training hours. These can provide clues regarding a company’s commitment to protecting its human capital and creating a culture of safety leadership. 


Pollution in the form of carbon emissions has certainly become a major part of the conversation around combating climate change, but some don’t realize that it is largely people of color that suffer pollution’s effects the most. Nationally, low-income nonwhite children are disproportionately exposed to nitrogen dioxide, which has been linked to a range of negative health and education effects. Meanwhile, a recent report from the Washington University School of Law detailed how Black communities in St. Louis were overexposed to air pollution emanating from power plants, vehicles, and building demolitions.

The real kicker? It’s been found that while white Americans are responsible for producing the vast majority of air pollution, it’s Black and Hispanic Americans that pay the price by being disproportionately exposed to it. 

In line with the findings outlined above, a growing body of research has also identified significant racial and socioeconomic disparities when it comes to the location of polluting industrial facilities —often those operating in industries such as manufacturing, metal mining, fossil fuel-based power generation, chemical manufacturing and hazardous waste treatment. In fact, Black Americans are significantly more likely than white Americans to live within a mile of such a site. 

Although the “chicken and egg” debate continues as to whether this disparate distribution is a function of socioeconomic differences that force African-Americans to live in less desirable locations or of systemic racism that informs decisions regarding land use, both suggest a role for public companies in making a positive difference. A 2015 longitudinal study suggested that pushback “in more affluent, white communities...resulted in industry taking the ‘path of least resistance,’ and targeting communities with fewer resources and political clout as the sites for new hazardous waste facilities.” 


As we’ve discussed before, ESG issues rarely exist in a vacuum. Sustainability represents a complex web of interconnected choices, and the same is true of racial justice. As an advisor, clients may look to you to help them understand the myriad (and often surprising) ways in which different industries and priorities intersect—and moreover, how their beliefs can manifest in their portfolios. 

The degree to which a client screens for their ethical convictions, of course, is at their discretion, but they will likely appreciate your efforts to help them align their investment allocation with their distinct values. Every portfolio tells a story—help your clients begin to tell theirs.

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Sources and footnotes

Johny Mair was raised in Australia, and driven by love of technology, collaborating, and bringing ideas to life. He has been building technology products across three different continents and led product teams at Deutsche Bank, JPMorgan, BlackRock, Fidelity, Guy Carpenter, Goldman Sachs and a number of high-growth startups before co-founding Ethic. He studied Mechanical Engineering at Queensland University of Technology.