Monday, April 15, 2024

When it comes to climate investment funds, diverse management is imperative


The engine behind green business is the same as any business: capital. And while social, human and natural capital are all critical, financial capital is the one form that systemically fails the companies and leaders working on the most impactful solutions for the Sustainable Development Goals.

Venture capitalists decide who gets to be a billionaire and what solutions reach billions in market penetration. Real asset investors choose what critical infrastructure is built, where it’s built and who benefits from it. Fixed-income investors are able to drive how much of the bond market is green, or better yet, which bonds adhere to the 17 Principles of Environmental Justice. Public equity asset managers drive what kinds of companies are valuable and thus have the capital to grow, to what industries retirement savings flow by default and what companies can achieve a scale that affords them outsized political and policy influence.

Needless to say, investment managers and financial advisers are powerful. And as is the case with many axes of power, financial professionals across asset classes are disproportionately male and white.

In a 2019 study, the U.S. National Academy of Sciences found evidence of racial bias in the investment decisions of asset allocators, including rating white-led funds more favorably than Black-led funds at similar strong performance levels.

Granular, industry-wide data is hard to come by — even after the national awakening brought by the Me Too and Black Lives Matter movements. In 2020, when the Diverse Asset Managers Initiative (DAMI) surveyed the 30 largest U.S. investment consulting firms to gain insights into gender and racial representation, only 16 responded. Here’s what we do know: in the United States, partners in venture capital firms are only 4.1 percent female, with those women being 67 percent white, 16 percent East Asian, 7.7 percent South Asian, 4.8 percent Black and 3.5 percent Latinx. Mutual fund, hedge fund, private equity and real estate fund managers are collectively 98.7 percent white male-led.

ESG funds, including those focused on climate change mitigation, do not fare better. According to a 2019 survey, white staff represents 79 percent of the employees of U.S. SRI/ESG mutual funds. Read more…

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