A Conversation on Racial Equity & Socially Responsible Investing
On Wednesday, August 26, BASIC (Building a Sustainable Investment Community) hosted a fireside chat with Ivy Jack, Head of Equity Research at NorthStar Asset Management, and Omar Blayton, CFO at Sunwealth. Ivy and Omar provided their perspective on the current environment and explained how they are working to address issues related to systemic racism and inequality through their work. To start the discussion, Ivy and Omar discussed how their family experiences have informed their point of view and offered an action item that could spur change.
The questions that follow came from members of BASIC; please note that participants were asked to read the Harvard Business School Case “African American Inequality in the United States” by Janice Hammond and the New York Times article “What is Owed” by Nikole Hannah-Jones in advance of the discussion.
The following is a summary of Ivy and Omar’s verbal comments. Download a PDF of the summary here.
Omar: The HBS case study was a good primer for people new to the subject who want to understand critical points in history that helped bring the country to its current state. However, while the study mentions several instances where opportunity and access are denied, there is no mention of the blatant wealth destruction that occurred during the same period, one of the most infamous instances of this being the Tulsa race massacre.
When I think about this case study (what it covers and what it doesn’t) in relation to my own family, I think about my grandfather. He was born on a farm in Oklahoma, was a teenager during the Tulsa massacre, and eventually grew up to become a doctor in the Jim Crow South. He suffered the segregation and impediments to voting mentioned in the case study, but was also subject to the targeted taking of his land well after the Civil Rights Act was passed. In one instance, the Black hospital he established was taken over by the city for redevelopment since it was in the center of town.
As with all forms of systemic racism, there are numerous collateral effects that compound the injustice. In the instance of Tulsa, as I mentioned, my grandfather was a teenager at the time. It is hard to say what effect the massacre had on him, but it had to have some. Did it temper his ambition, or change his career path? Maybe choosing a career in business or becoming “too big” stopped being an option after what happened in Tulsa’s Greenwood District.
In the instance of the hospital, the fight to save it required my father to come down from Connecticut after law school, diverting his original career path. Again, it is hard to measure the effect this may have had, but it is a cost that was paid.
As far as an action item, you do not lack options. Unfortunately, there is so much injustice that there is plenty of opportunity to do something. Just continue to do something. Empathizing is not good enough; you should take action and encourage others to do the same. A critical mass of people just doing something is how you can achieve scalable impact.
Ivy: I agree with you, Omar, on the case being a primer and failing to touch upon some major events and issues that are foundational in understanding the Black experience. My great-grandparents were sharecroppers, and I know that one of my great-great-grandmothers was the child of Judge George Gayden and an African woman he purchased off a boat in Bolivar, Mississippi. Our history is not an abstraction or academic concept. It is real and lived. I continue to be utterly surprised (and dismayed) by the degree to which white people have been misinformed regarding the lived experiences of Black people and how uneducated the public is regarding Black History. The case has been useful as a tool for providing a basic understanding and a foundation for people to engage in some type of meaningful dialogue.
In thinking about my family experience, I am often disturbed and frustrated by the narrative that Black people are lazy, which has been used to deny Black people access to critical social services like healthcare and quality education. It is outrageous, considering that free Black labor laid the foundation for this country’s wealth with no compensation whatsoever. To this day, we as Black people are paid less for providing the same services as white people. We are in the midst of the worst healthcare crisis in our generation, and, due in large part to discrimination, Black people hold a disproportionate number of jobs deemed “essential.” As a result, they are on the front lines, making sure our economy continues to run for the benefit of people who don’t look like us while suffering and dying disproportionately from COVID 19.
Growing up, I lived in close proximity to both sets of grandparents, uncles, aunts, and first cousins. The adults in my family worked a lot and often had multiple jobs. We relied heavily on other members for childcare and shuttling children to different events. As a child, I was taught that you have to work twice as hard as a white person. As an adult, I have had firsthand experience of this phenomenon, and now I am personally acknowledging and experiencing the toll that all of this extra (uncompensated) work takes on Black people’s emotional and physical health.
My hope as it relates to bringing about racial justice is that we as a country acknowledge the truth by educating ourselves about our history and coming to terms with the fact that racism is baked into every aspect of society. Every one of us can all make change by being intentional in how we live our lives. We can choose to be educated, or we can be willfully and woefully ignorant. We can choose a diverse circle of peers, friends, and colleagues. We can choose to be intentional in hiring, supporting, and learning from a diverse group of people.
Tell us about Sunwealth and how it addresses racial inequities?
Omar: When thinking about racial inequality, I use the analogy of two cars traveling along parallel roads. One road is a freshly paved modern interstate and the other is a dirt road. If you know anything about dirt roads, you know that they can get muddy and impassible when wet, are full of potholes when dry, and usually have rocks and tree roots in the middle of them. Now imagine these two cars traveling along these roads for 4 decades, or 40 decades. While the car on the interstate suffers some wear and tear, the car on the country road is likely to have much more damage: broken struts, damaged wheels, a bent frame, etc. If at the end of this time the car on the country road is allowed to travel along the paved road, is that enough? Of course it is much better than remaining on the country road, but the car itself has suffered so much damage, it is hard for it to perform to its potential. To truly fix the problem, you have to repair the car on the country road and return it to its original state in order for it to take full advantage of being on the interstate.
In looking at where Sunwealth fits into the necessary solution, we are definitely on the side of providing access to the interstate. There still need to be solutions to help repair the vehicle. At Sunwealth, we democratize the benefits of solar energy by providing access to previously overlooked communities. We combat what we describe as solar redlining. While not the result of an intentionally racist policy, as with real estate, solar redlining is no less exclusionary. The exclusion is primarily due to an intentional policy, by most large financial institutions to focus on FICO scores in order to determine if a potential customer is worthy. This leads to many communities that could benefit from solar being prohibited from participating. By conducting a more fundamental analysis of potential customers, Sunwealth is able to be much more inclusive, providing assets and income savings to under-resourced communities, while also providing strong, risk-adjusted returns for our investors.
Aside from the primary mission just mentioned, we also looked internally to see if there is more we can do within the organization. To his credit, our CEO challenged us to see if we were doing enough and what more we could do. This led us to take on several initiatives to help diversify the mostly white, mostly male renewable space. These initiatives include: interviewing and hiring more diverse candidates and working with minority vendors or teams with significant minority representation within existing vendors, such as law firms and accounting firms. One of our more aggressive initiatives is to help seed a minority EPC firm to work as a partner with Sunwealth, building our projects. We hope that success with these initiatives will encourage others to take similar steps.
What is NorthStar? What are they doing to become an inclusive organization?
Ivy: NorthStar is a progressive wealth management firm founded by Julie Goodridge, who was the lead plaintiff in the groundbreaking case Goodridge v. Massachusetts Dept. of Public Health. This is the landmark case that won equal marriage rights for same-sex couples in Massachusetts and inspired action throughout the US. Julie’s activism is an integral part of NorthStar, where we believe you have to be the change you want to see. We have been intentional in creating an all-female firm (plus Robert) that includes women of different races, ethnicities, and sexual orientations. I should also mention that we are growing and always looking for talent. If you are interested or know someone who is interested, please contact us at jobs@northstarasset.com.
However, it isn’t enough to be a firm comprised of diverse people. Being inclusive means having a culture that allows people to bring their authentic and best selves to work without pressure to assimilate or conform to white norms. Rather, inclusivity is better described as intentional difference that informs and strengthens the company’s work.
Most recently, our CEO challenged all of us to think more deeply about what it means to be an equitable company. This is a dialogue that we are now having.
We view our work and evaluate our investments with a focus on the following areas: Economic Inequality, Human Rights, Race and Gender, Environmental Safety and Justice, and Governance. Like most socially responsible investors, we do not invest in industries that are directly extractive (fossil fuels and mining, for example). We don’t invest in conventional financial institutions, whose customers tend to be large global corporations; instead, we invest in fintech stocks and publicly-traded community banks that allow small businesses to participate fully in the financial system. We also use outside investments to provide capital to marginalized populations through community loan funds, CDFI loan funds, and other private vehicles.
What is the long-term impact of racial inequality on the economy?
Ivy: Aside from the moral imperative to address racial inequality, there are economic arguments as well. Research from McKinsey posits that closing the racial wealth gap could amount to an increase in GDP growth of 3 to 4 percent. Interestingly, I haven’t heard any economists or investment professionals commenting on this statistic, which is curious, as most all market prognosticators are worried that structural pressures like slower population growth and automation pose a serious threat to economic growth.
The level of racial (and the highly correlated economic) inequality in this country is not healthy, and the economic consequences of the current pandemic are far-reaching. People are concerned about how they will pay for shelter and whether or not they will be able to feed their families. Add to this the fact that we are witnessing total disregard for human life, and life becomes utterly unbearable for many Americans.
How do you push back against companies who say there’s a pipeline problem when it comes to hiring more diverse talent?
Ivy: Companies and organizations use the pipeline problem as an excuse to get out of doing the hard work of diversifying their organizations. When our CEO wanted to diversify NorthStar, she began by contacting Spelman College, where there are plenty of women of color in the “pipeline.”
NorthStar is intentional about asking the companies in our clients’ portfolios about (usually the lack of) diversity at all levels of the organization, especially at the senior management and board level.
I once asked an Australian CEO whether there were any women in roles with direct P&L [profit/loss] responsibility, as I didn’t see any senior women listed in the annual report. I also asked him about the racial makeup of his team. He replied that, yes, there were senior women with P&L responsibilities, but, with respect to race, they (meaning Australians, as opposed to Americans) didn’t have those types of issues in their country. This wasn’t the response I had hoped for, as we all know that issues of race and caste exist throughout the world. His response indicated that he wasn’t culturally competent and at a minimum provided an opportunity for further engagement. We have spoken with boards that have said they couldn’t find any qualified women and/or people of color, and even when we provided lists of Black, Latina, and Asian women with the requisite skill set, they have selected a white male.
What is your view of gender lens investing as it relates to racial justice?
Ivy: In my experience, gender lens investing centers on the perspective of white women. In the same way that men can be uninformed about how women navigate the world, I have found that white people are uninformed about what it means to navigate the world as a Black person, particularly a Black woman. For example, gender lens investing advocates for reproductive rights, while someone championing racial equity would advocate for reproductive justice. So, as socially responsible investors we may think that our actions and positions are inclusive, when they really aren’t. I believe the majority of socially responsible investors (or folks who say they care about ESG) have a huge blind spot as it relates to race.
Can you talk about how the criminal legal system can be thought of as a risk that ESG investors should be aware of?
Omar: Not speaking for Sunwealth, but in my personal opinion, the criminal legal system has done as much as anything to exacerbate the income and wealth disparities that we now see. The unequal application of prosecution and punishment has effectively transferred opportunities for wealth creation further away from one group, particularly black men, to less marginalized groups. It is hard to compete when you have been taken off the field. And after incarceration is complete, the stigma associated with serving time continues to limit opportunities to reenter society and make a life.
Just look at the California wildfires as an example. There is a lack of firefighters to tackle the blaze, so many of the frontline workers are current inmates, risking their lives doing the same work, but earning a small fraction of the pay the firefighters that they work beside make.
On top of that, once these inmates are released, they are prohibited from applying for the exact same job they were doing while in jail, which is insane to me.
Ivy: Omar, I agree with you on how the criminal legal system has harmed the Black community. The prison industrial complex is an evolution of slavery, and I believe if more folks understood our history and how corrupt the system is they would be appalled.
In general, socially responsible investors could do better as it relates to this issue. It is easy to say that we should simply divest from the two publicly traded prison companies; however, these two entities account for less than 10 percent of the prison population. There is also the issue of companies using prison labor in their supply chains, among others. The inability or lack of desire to force companies to be more transparent about whether or not prison labor is in their supply chain speaks to the indifference of the socially responsible investment community. While public pressure has resulted in forcing companies to monitor international supply chains for child labor, we haven’t seen that same kind of willingness with respect to prison labor in the US.
At NorthStar, we know that prison labor in supply chains presents reputational risk for companies by revealing the use of the modern equivalent of slave labor, and we have written about this and filed shareholder resolutions on this issue.
What is your perspective on policies that are particularly helpful for early stage companies to be diverse, equitable, and inclusive as they grow?
Omar: I would say put metrics in place that you can continuously track and analyze. Periodically review the metrics to see if they are achieving your goals and update them if they do not. An example for us is with regard to hiring. By tracking who was making it into the funnel and how far they made it, we could see areas where we could improve our process in order to become more inclusive.
What kinds of direct impact investments is Northstar looking at for your clients? Have you looked at affordable housing for instance?
Ivy: Our clients are invested in about thirty or so different types of investments that we call outside investments, meaning they are outside the public traded markets as well as conventional “impact” investments. We focus on economic justice by providing capital to immigrant farmers and farmers of color, women and minority business owners, rural communities, cooperatives, and entities like Sunwealth. I know folks like to think of affordable housing as investing with a racial equity lens, but I think this is disingenuous, as the only people who build equity are the investors. Providing affordable housing in urban centers allows lower and middle-income workers to live close to their jobs, and this is simply good for business; so the fact that investors want a pat on the back for providing a service that enables their business to profit is sad. We do recommend investments in nonprofits that finance affordable housing projects if they meet our justice criteria.
Can you touch upon how exactly Sunwealth goes about selecting diversified projects to get involved in? Is it on a case-by-case basis, or are there metrics or statistics that you follow?
Omar: Our model is to partner with local developers who bring us projects. We then screen the projects to make sure they meet the metrics we focus on. We want to make sure that in aggregate we are: 1) providing savings to previously overlooked communities; 2) creating local jobs and providing fair wages for our development partners and 3) meeting our investor return requirements. We help ensure that we get sufficient projects that meet these thresholds by seeking out partners who are aligned with our values and clearly stating the projects that we would like to fund.