Systemic Racism and Income Inequality: Investors Can Help Drive Change

Black History Month was initially created to honor the contributions of Black people throughout U.S. history. While it’s absolutely a time to celebrate, it’s also a time to reflect on the persistent institutional racism that still besets Black communities.

Addressing these challenges is a herculean task—the reforms required are myriad. Yet we owe change to our communities, our fellow citizens, and to ourselves.

Closing the income gap can help address structural racism, and the financial markets have a role to play in this. For Black History Month, Morningstar has assembled research and commentary that can describe the problem and show some promising fixes. You can find them below.

To see the scope of the problem, read this rich assemblage of charts and analysis, by Keith Reid-Cleveland and Nura Husseini, which sets out the dimensions of racial inequality in the U.S., as seen through the lens of economic inequality, including income, savings, student loan debt, and homeownership.

Many institutional investors have helped companies bolster their policies around diversity and equity. Support for proposals aiming to tackle racial inequality is seen as an important way for sustainability-conscious investors to vote their own values. Asset managers also view such measures as reducing material risks to companies.

That’s partly why the numbers and success of race-related resolutions proposed in recent proxy-voting seasons have been growing. Expect more such proposals in the years to come, as Lindsey Stewart, director of investment stewardship research on Morningstar’s global manager research team, reports in his analysis here.

How can you, as an individual investor, address systemic racism and the wealth gap? Morningstar’s Jon Hale spells out how to do it with an array of funds and ETFs.

One fund that aims to close that racial and income gap is Impact Shares Affordable Housing MBS ETF OWNS, which invests in mortgages from some of America’s poorest communities with the intent to build homeownership and create equity. It aims to make closing the white-nonwhite wealth gap more feasible and creates wealth for borrowers. And over the past 12 months, this ETF has bested its peers. You can read our interview with its managers here.

For financial advisors, it can be a challenge to build trust with clients who have run into systemic racism and bad experiences with financial institutions, but who still need solid portfolios to meet their financial challenges. Zaneilia Harris, a certified financial planner in Upper Marlboro, Maryland, works with Black women clients. Learn how she builds trust with her clients.

As always, Morningstar is ready to educate, tell investors how issues matter to us, and suggest portfolio solutions. Happy Black History Month.