After the US Supreme Court decision curtailing affirmative action in college admissions, 21 Democratic attorneys general powerfully came together to take a stand: Diversity, equity and inclusion initiatives in the workplace are legal, valued, and support our economy. 

The letter they sent to Fortune 100 CEOs was in response to a warning from 13 Republican attorneys general to major corporations telling them to stop using race as a factor in hiring and promoting talent, given the Supreme Court decision. This is the first of what may be many legal actions to come on diversity, equity, and inclusion initiatives across all corners of society: from our workplaces, to our military, our schools, and even investment firms. 

The US is becoming more diverse and companies are appropriately responding to shifting workforce demographics by investing in building inclusive and fair workplaces for all workers. 

The Supreme Court’s decision on affirmative action does not change the fact that racial and economic inequality is a serious risk for our society and economy. Racial disparities have cost our economy around $16 trillion in just the last few decades, and these losses will only continue to grow as our country’s diversity grows. 

Investors should view this lost growth opportunity as the economic imperative that it is and double down on investing equitably to support all participants in our economy. It’s not just the right thing to do, but it also strengthens long-term value creation. 

And that is not all investors should be doing. With the increase in concerted attacks against expanding fair opportunities to all people in our society, it’s more important than ever to collectively raise our voices in the public arena to make clear that there is no light between the fundamentals of investing and promoting equality and fairness in our economy. 

Racial inequity risk 

Racial inequity is a “systemic risk” that threatens all aspects of our economy. The risk is far-reaching and systemic because investors cannot hide from it. No matter where they put their money, the racist structures of our economy will limit their returns. Major disparities in income, wealth, opportunity, and power – like those between people of color and White people in the U.S. – lead to social discontent, tension, and unrest. Such social instability increases market volatility and uncertainty and creates a general sense of economic instability, limiting investment opportunities across all asset classes.

However, there are actions investors can take to mitigate this risk and increase the resiliency of our economy. PolicyLink’s Investor Blueprint for Racial Equity outlines steps investors can take to reduce the risk of inequality in our economy and help all people thrive. These include things like: 

• Investing in fund managers of color. Currently, less than 2% of assets under management are controlled by women and people of color. This means that almost all of the decisions about who receives funding and who does not are made by white men. Because people tend to invest in people who look like them, this limits the amount of investment that goes to people of color and to women. The preferences granted to white male fund managers and white-led investment firms to the exclusion of other investment firms and fund managers limits the overall health and dynamism of our economy.
  
• Embed racial and economic equity throughout the investment lifecycle. Racial equity is not only about encouraging the investment of dollars in companies owned by people of color, although that is important. In addition, investors should think about racial equity throughout all aspects of their work: what companies are in their investment pipeline, how they are structuring deals, and even who they are hiring or putting on their investment committees. Greater diversity within investment firms will lead to greater investment in communities of color.
  
• Be an active owner. Larger, institutional investors, such as pension funds, may be uncomfortable engaging on racial equity issues because of the sheer number of their stakeholders. However, these institutional investors have massive amounts of power to engage actively with the companies in which they invest, supporting equitable shareholder policies to help companies operate aligned with an increasingly diverse society. 

Investing equitably is not about racial quotas or preferences for certain groups. It is about ensuring processes and policies are fair and inclusive, not discriminatory and exclusive. Fair and equitable investing will level the playing field by intentionally advancing fairness and inclusion in a sector that has historically excluded people of color.

And it will require investors to go above and beyond corporate governance and everyday portfolio management to include collaborating with peers, building shared knowledge bases, setting new industry standards, and wielding political influence. Doing so, will create the pre-conditions for the “solidarity dividends” per Heather McGhee’s The Sum of Us.

Post-affirmative action economy

The Supreme Court decision on affirmative action cannot be easily reversed in our current political climate, but that does not mean businesses and investors should ignore the value of diversity and equity within their operations and through their investments.

In her dissenting opinion, Justice Sonia Sotomayor noted the following:

“American businesses emphasize that a diverse workforce improves business performance, better serves a diverse consumer marketplace, and strengthens the overall American economy.”

We agree with Justice Sotomayor, and, unless American companies want to continue to limit their profits and investors want to minimize their returns, they should too.

Stand in solidarity with the Fearless Fund. No one wins with growing inequality, and no one should stand alone against unabashedly baseless efforts to prevent equality and fairness for all.