Racial Inequality is a Business Risk

The events of 2020 drew heightened attention in corporate America to the issue of economic inequality. Following the protests across the United States sparked by the murder of George Floyd at the hands of Minneapolis police officers, nearly half of the companies in the S&P 500 issued public statements denouncing discrimination or pledging a review of policies and practices related to diversity and inclusion, according to an S&P Global Ratings report. Simply recognizing the problems of racism and inequality, however, is not enough. The private sector can play a leading role in addressing social issues, and investors can help lead the charge. Investors should integrate the risk posed by economic inequality into their investment decision-making and hold portfolio companies accountable for addressing this critical issue. Inaction on these fronts can have financially material effects that undermine corporate value and threaten fund performance.