Cashing In On Racial Justice Through Index Funds
By Taylor Durham
OpenInvest has started to divest from organizations plagued by diversity controversies
By 2045, people of color will become the majority in the U.S
OpenInvest, a fintech startup in the Bay Area is betting on impact investing, creating one of the first “racial justice” index tools, giving investors the opportunity to customize their portfolios based on metrics like diversity and social impact. Millennials are the first generation to effectively voice their concerns with their wallets, and are more likely than previous generations to take businesses to task over practices that harm the climate, deceptively target minorities, or worse.
Why This Matters: The creation of a racial justice index may finally force companies to take stock in how to become more involved in the conversation or, at the least, address their lack of action. While large pension funds factor environmental, social and corporate governance, there’s still a desire for investing aligned with social issues. “There’s no mathematical justification for 20 million people to pile into the same cookie-cutter mutual fund anymore,” according to OpenInvest co-founder Josh Levin. “We’re optimizing the financial markets, in real time, for your goals and your values.”
Fueled by academic research, OpenInvest has started to divest from organizations plagued by diversity controversies. Companies like Google (GOOG +0.82%) and PepsiCo (PEP +0.99%) ranked in its top 10 where McDonalds and Walmart ranked in the bottom 10. Still, the data is far from perfect as companies don’t always report their progress or hit their projected goals.
Situational Awareness: The fund has the ability to completely change the way people invest, putting pressure on companies practicing bad-faith policy. In a digital era where controversial news spreads like wildfire, companies should be conscious of creating best practices for giving minorities a seat at the table, or risk alienating potential investors and losing revenue in the long run.
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