It also means looking at the data in different ways than traditional ESG investors do—going beyond, say, counting the number of females on corporate boards.
“What we do is fairly different. We actually work with the social justice movements that are by and for those that are most impacted by the particular issues and ask them what they would have investors do. Sometimes that means working with brand new data sources. For example, on gender equity, one of the things that we use is whether a company has forced arbitration for sexual harassment claims, which we know disproportionately impact women.” Robasciotti & Philipson helped create a database of offenders along with consumer activism group Grab Your Wallet Alliance and the workplace equity data group LedBetter. The effort was called Force the Issue.
The criteria for the new index include racial, gender, economic and climate justice lenses. Such screens weed out obvious targets like fossil fuel companies, industrialized agricultural concerns and businesses that engage in predatory lending. But the racial justice exclusion list (which Robasciotti & Philipson released June 5) goes beyond that, also targeting companies involved in surveillance, facial recognition technology, private prisons, for-profit colleges and companies working in occupied Palestinian territories. That leaves out a hefty chunk of companies often appearing in other indexes: Amazon, Boeing, State Street, Raytheon, BlackRock, Charles Schwab, Prudential and Northern Trust.
“These are the systems that need to change in order for us to experience justice. These are the companies with activities that are supporting those systems. Let’s name who those are and exclude them from a portfolio that we would call focused on social justice.” (The Adasina index constituents themselves won’t be live until the end of September. Robasciotti says the firm is still in the process of building it.)
Robasciotti says that when socially responsible investing started to get big some years ago, she started to notice after the Great Recession that many of these strategies were not only charging more, but at the end of the day they held most of the same securities as the traditional indexes. That made her grow wary of them.
Part of that is due to the way activist and proxy investors try to engage. One major incident in 2010 spotlighted the flaws in classic SRI-ESG investing strategies. Many of these activist investors were embarrassed in the wake of the Deepwater Horizon rig explosion that many SRI portfolios held British Petroleum, mostly because of its green efforts.
Robasciotti says that the problem with current screens is that the wrong people are being asked what should be in them.
Her goal is still to have a broad-based exposure to asset classes in a global, all-cap strategy. This requires care for optimization, because she says many impact portfolios that use hard and fast screens just end up overweight in technology and growth stocks.
The argument is the same for this impact investment as all others: If you invest in the wrong companies, you don’t have sustainable investments. Oil companies, it has long been said, will be dealing with externalities like the costs of carbon, for example. For the same reason, Robasciotti says long-term investors want sustainable long-term returns in a world that bends toward justice.
“In civil society, many of the things that are unethical or exploitative often end up becoming illegal anyway. If you’re ahead of that, or if you’re ahead of, for example, not investing in fossil fuels … and how much climate change is being associated with them, that can only be a benefit to the long-term sustainability of your portfolio.”