Last year, when I heard Rachel Robasciotti in a podcast, she grabbed my attention with a shocking statement: Most people know that the U.S. was built on slave labour. What they don’t know is that literally, the very underpinnings of Wall Street are rooted in the slave trade.
I was intrigued. Digging deeper, I came upon the writings of Princeton sociologist Matthew Desmond who explained how a mortgage found its roots in the slave trade.
Enslaved people were used as collateral for mortgages. When land was not worth much and banks didn’t exist, most lending was based on human property. In the early 1700s, slaves were the dominant collateral in South Carolina. He quotes historian Joshua Rothman saying that “the extension of mortgages to slave property helped fuel the development of American capitalism.” Collateralized debt obligations (CDOs) were the grandchildren of mortgage-backed securities based on the inflated value of enslaved people sold in the 1820s and 1830s.
That’s RR for you. Without the righteous fire of a revolutionary, she speaks her mind candidly and fearlessly, and forces you to rethink the “normal”. In the financial services industry dominated by white males, RR is the harbinger of change.
Female. Woman of colour. Queer. Rural upbringing. Childhood steeped in extreme poverty and violence. Scarred by racism. As she watched the video of George Floyd calling out for his mother as Minneapolis police killed him, she wondered if her cousin did the same before he died in police custody in 1990s. She knows for a fact that another cousin did before police shot him to death two years ago. Her mentally ill father was hospitalized and died after police tased him in 2010. Despite all the odds being stacked heavily against her, RR went on to graduate from the University of California, Berkeley, and set up her own wealth-management firm.
Now, when RR speaks of her social justice strategy (earlier called RISE – return on investment and social equity), investors across the world take notice.
When Rachel Robasciotti and her business partner Maya Philipson coined the term social justice, it was not intended to be cloying marketing-speak. Nor was it indicative of the criminal justice system which is essentially punitive. Social justice issues encompass climate justice, racial justice, gender justice, and economic justice. It points to restoration and has a forward-looking perspective as it attempts to repair harms of the past. To do this would require addressing the root cause of the problem, which is reflective in the issues screened for.
Here are 4 insights I have gained from their social justice strategy.
If equality is what you are after, adjust your process to centre that outcome.
Investing and divesting must be simultaneously tackled. Invest in companies that operate for the well-being of society and the planet. Divest from companies that prop up the systemic oppression.
Instead of imposing typical social screens, such as board composition or management diversity, she relies on feedback from community organizations to determine social impacts and how they should be measured. They are constantly informing our strategy. We are taking their message into the investment world and organizing investors to focus on what they say matters. All the filters aim to find companies for the well-being of the people and the planet.
The effort whittles down a universe of thousands of companies to about 800, with the final cull done by a portfolio-optimization algorithm and reduction of any overweightings. That throws up an impact list of about 400 names from which an index is constructed. The portfolios for clients are built from the index.
She recommends investors divest themselves of companies that are negatively involved with certain issues. For-profit prison companies, for-profit colleges, and companies involved in surveillance (that includes Amazon and Accenture). Around 59 companies are eliminated because her research indicates that their work negatively impacts Palestinians in the occupied territory of the West Bank - General Electric, Motorola Solutions, Northrop Grumman, and Raytheon Technologies are some examples.
The list last year also included investment companies such as BlackRock, State Street, Charles Schwab, Invesco, and Northern Trust because they owned more than 1 million shares of for-profit prison companies (as of their reported portfolio holdings as of that date).
Social justice investing is not about smoothening the rough edges of capitalism. It is about rethinking your strategy so that your investments do not exacerbate existing inequities.
Social justice fully informs RR’s investing process. Her screens fall under two broad categories: people and planet. Systemic sexism, racial justice, fair labour, and LGBTQ+ equality screens will fall under the first umbrella. Screens in the planet category include environmental sustainability, clean air and water, and animal welfare.
In June, her firm published a list of more than 100 publicly traded companies that don’t meet its racial justice screens. This New York Times’ writer was pretty bang on when he referred to her criteria as one of the most rigorous he has ever seen in the impact investing space.
She once explained how history sets certain things in motion like a conveyor belt. And if you keep sitting, things will move in the same direction. When you invest in publicly traded companies that exacerbate social inequities, the repercussions extend throughout the financial system. So sometimes, you have to stand up and walk in the opposite direction to make a change.
Capitalism and Empathy may make strange bedfellows, but together are powerful forces in capital allocation.
In a recent discussion with Lara Crigger of ETF Action, RR gave the example of prison stocks. Last year, the stock market witnessed a steep decline in March, but most publicly listed stocks recovered by the end of the year. But the stocks of private prisons did not follow that trajectory and were down by 50% of their value. That was commensurate with the racial justice uprisings. The decline is now exacerbated by President Biden’s stance that federal private prison contracts be terminated.
She also alluded to the 1980s when gas companies were almost 20% of the S&P 500 but now less than 5%. They were the biggest losers of 2019 and of the decade. That went hand-in-hand with movements of climate justice and reducing carbon emissions which come from fossil fuels.
Such long-term trends find a place in our portfolios not only because of our values but because it makes perfect financial sense.
Socially justice investing recognises that and appeals to investors who want to align their money with their values. By investing with a goal to bring about change, people realize that their money can have a broader impact.
Her underlying message is clear: None of us need to be neutral actors. We can vote for change by deciding where our money must go.
