As we have been wading deeper into our learning about racial equity and trying to advance opportunity through all aspects of our work, it became apparent we needed some kind of equity tool – a consistent mechanism to guide our thinking about the effects of our actions, from the grants we make to the ways we describe our work. To set about creating this tool, we drew expertise from some of the leading thinkers in this field, including Association of Black Foundation Executives, Philanthropic Initiative for Racial Equity, Race Forward and OpenSource Leadership Strategies. While there are many contextual nuances and sub-questions, the overarching questions we’re asking ourselves are:
- How do race and racism shape the system or situation we’re addressing?
- How are people of color affected, and how are they engaged in making decisions?
- How could our decision or intervention improve outcomes, conditions or systems for people of color?
As with any tool, wielding it effectively requires practice, even as we continue to calibrate it. One of the first opportunities we identified to take this tool from theory into praxis was a recent board investment committee meeting.
More and more people working at the intersections of finance and economic justice are learning how big banks and investment vehicles can exacerbate racial wealth inequality, despite their emphasis on sterile concepts like numbers and dollars and returns on investments. When you peel back the spreadsheets, you see who’s crunching the numbers, who’s directing the dollars, who’s benefiting from the investments and the returns. And those lever pullers are overwhelmingly white and male. This is one reason the Foundation places a strong focus on program-related investments, supporting place-based institutions that provide areas suffering from underinvestment with financial services and return decision-making power to communities.
Our grants and PRIs, however, are the tip of the iceberg. As with most foundations, about 95 percent of our assets are in our corpus. How much more impact could we have if we deploy that money thoughtfully to boost economic opportunity for people who’ve been excluded from financial markets? As of 2017, the Babcock Foundation’s endowment is 100 percent invested according to environmental, social and governance criteria. But those screens don’t have a specific emphasis on racial equity. As MRBF Executive Director Justin Maxson wrote recently in Stanford Social Innovation Review, “We continue to ask equity-related questions: Are we seeking to invest in companies led by people of color? Are our managers hiring people of color and avoiding companies with negative practices in their supply chains?”
The investment committee applied the racial equity tool to these questions and more. The dialogue raised new questions and challenges, as well as ideas and opportunities. Below are excerpts from that conversation.
How do race and racism shape the system or situation we’re addressing?
The committee pointed to the “club” nature of the finance industry, noting family connections and defined social circles frequently offer access to people within those networks while excluding emerging voices: “Money management in general is biased toward experience and scale, and whose name is on the company. That’s been exclusionary to people of color for a long time. That extends even more when you talk about management of inherited wealth. In addition to there being a ‘club’ in many professions that are exclusionary to black folks and women, there’s a power dynamic that comes with money. It’s a very powerful group. How can organizations like us support people to move in those areas? A lot of sectors are still trying to figure that out. The philanthropy space is working on it hard right now.”
How are people of color affected, and how are they engaged in making decisions?
The conversation centered around the tendency of the financial world to prioritize large, established firms with long rosters and name recognition, and members discussed ways to take chances on newer ones: “We’ve been trained to want firms with a long track record, so we have to get over the bias against firms without the track record. Often the gatekeepers are pushing back: ‘Well there are no firms that are large enough, experienced enough.’ So many systems in place work against us. We need to take risks. Are we explicitly seeking out firms with less of a track record? It’s good to have new firms in the field. It’s good to have new thinking. Emerging managers provide returns because they’re more agile, more nimble. We should be taking a portfolio approach.”
How could our decisions improve outcomes?
Senior Finance Officer Jennifer Barksdale pointed out the committee recommended strengthening the Foundation’s investment policy language regarding the inclusion of people of color and women as investment consultants and managers to state:
“Given the organization’s mission and commitment to racial equity, the Investment Consultant should include minority and women managed/owned investment managers when recommending the mix of managers or inform the committee of why such firms are not included. When recommending a mix of managers, the Investment Consultant should include a description of each manager’s policies around hiring, development, and promotion of people of color, women and other under-represented groups.”
The committee also recommended adding a private prison screen to our ESG policy, which included a human rights screen but did not name for-profit detention centers explicitly. (The full board approved these recommendations the following week.)
Committee members talked about asking targeted questions to help increase the pipeline of black and Latinx-led investment firms: “We could ask our consultants, what might it look like to see a slate of new managers? How would the consultants go about getting that information? How might it integrate into our portfolio? Where can we pull in diverse managers across asset class? We need that to know what an appropriate percentage is to set targets. Conversations like this are starting to happen, and folks like us can start carrying it.”
The committee brainstormed ways to assess returns, and even how we define them: “It can be challenging to measure mission returns quantifiably and present them in ways that make sense to folks. We put a lot of effort into evaluation on the mission and program side, but this is an area – evaluating investment impact – that could use more intention. Just having an intentionality behind breaking it out – an internal review mechanism so we’re all aware and talking about it – will be helpful.”
Members wondered if there are lessons to be learned from the Divest-Invest movement, which urges investors to move funds from environmentally harmful industries to climate solutions. Today, the movement includes more than 60,000 individuals and organizations with combined assets of nearly $9 trillion: “There was an analysis that said, ‘we’re using our money in ways that are environmentally damaging.’ Is there an analogous argument to be made about investing in financial services and predatory lending that further deepen racial inequality? Are assets used in a way that don’t deepen the inequalities we’re hoping to address? With environmental work, what’s bad and good is quantifiable. In terms of racial equity or gender equity, it’s not as precise. We can take an existing portfolio and disaggregate it for companies performing well or poorly using the same metric. There needs to be some seeding of evaluation – of measurement of the racial equity issues we care about.”
Admittedly, the tool felt a little awkward at first, but committee members determined it was useful in thinking about next steps and identifying gaps, regardless of whether we’re the ones to fill them, given the scale of the challenges. For example, members wondered if racial equity alone is a sufficient screen; what if we are presented with an opportunity to invest in a fund of black and Latinx-owned businesses that violates another ESG tenet? One person said, “I hope we start from the standpoint of saying we can include all our screens, not just racial equity, because the problems are so interrelated. When we pull them out we do a disservice.”
The committee also surfaced the idea of setting targets or minimums of black, Latinx and women-owned funds and managers – or even just measuring it. Members brought up the Kresge Foundation’s 25 by 25 pledge. (In April, Kresge announced that by 2025, a quarter of its assets would be invested in firms owned by women and people of color.) Some raised the difficulty in disaggregating and quantifying the data.
At the full board meeting the following week, directors heard about the investment committee’s application of the racial equity tool, then split up to explore ways each committee could apply it to the Foundation’s work. Directors identified the tensions the tool raised and recognized the answers aren’t always clear. And that’s okay; the goal is to become fluent in the questions, which are often a means and an end, in hopes they’ll help us evolve our thinking and deliver a more equitable ROI for everyone.