The recent nationwide protests for racial justice are one powerful way to shine a light on systemic racism. But over on Wall Street, bridging capital to the cause is the aim of the market’s only racial equity product: the Impact Shares NAACP Minority Empowerment ETF, or NACP, which recently celebrated its second anniversary. Backed by the NAACP, the country’s leading civil rights organization, the fund is giving investors a lens for evaluating companies with strong racial and ethnic diversity policies.
NACP was launched in 2018 through a collaboration between the NAACP, the Rockefeller Foundation and Impact Shares. It began trading in July 2018, and it remains the only racial equity product in the marketplace. NACP tracks the Morningstar Minority Empowerment Index, designed to provide exposure to companies meeting NAACP criteria. It has also given the NAACP an effective new tool for its economic advocacy in the fight to eliminate racial discrimination.
“Too little attention has been paid to historically marginalized communities,” Ethan Powell, CEO of Impact Shares, told TriplePundit. “Gender funds have become popular in recent years. However, the way in which the private sector can engage communities of color differ from gender-oriented initiatives including digital divide programs and community engagement programs.”
The fund launched at a time when the private sector is facing increasing pressure from investors and other stakeholders to create and implement policies and practices that support racial diversity. Since then, NACP has proven that a socially focused financial instrument can perform well with an annualized two-year return of 11.9 percent. This places it in the top fourth percentile in its Morningstar Category over that period.
“The goal is for investors to achieve an equity market rate of return while leveraging capital and the NAACP's corporate engagement to make meaningful changes in the private sector,” Powell said. “Annually, we reevaluate the screens used to identify companies that are considered leaders in empowering communities of color and we rescore the universe. The goal is to have the solution evolve as data availability, goals of the NAACP and the issues impacting communities of color evolve.”
The NACP’s screens are divided into 10 categories. They include board diversity, discrimination policies and freedom of association, the scope of supplier social programs, and a minority focus in supplier monitoring. Screens also look for initiatives to address the digital divide, a diversity program, a community development program, and a minority-focused health and safety system. Each company is evaluated relative to their direct competitors. The goal is to identify 200 corporate leaders across all sectors.
The NACP’s current holdings list includes a range of Fortune 500 companies, such as tech giants Alphabet Inc, the holding company for Google, along with Apple and Intel. The list also includes leaders within the finance sector like Bank of America and JPMorgan Chase. In addition, the pharmaceutical, automotive, food and retail sectors have representation with companies such as Abbott, Ford, Kellogg, Merck, McDonald's and Starbucks. “Inclusion represents a company's leadership position in their sector,” Powell explains. “Position sizing has more to do with minimizing tracking error to the broader equity market.”
Since the Black Lives Matter movement has gathered steam across the nation, Powell said he has seen a resurgence in interest in the NACP. In fact, as 3p has reported, investing through an environmental, social and governance (ESG) lens has been on the upswing, appearing to be pandemic-proof. “Investors, the public sector and general population are reevaluating their role in racial empowerment and recognizing the efficacy of the NACP solution — not least, because, among some 600 ESG funds, it is the only one solely focused on issues impacting communities of color.”
For the NAACP, the fund has been an important part of its strategy for corporate engagement, Marvin Owen, senior director of the NAACP's economic department, told 3p. “NACP has provided the NAACP with important advocacy, as social change is being driven by capital markets, and specifically investor sentiment," he said. "Examples of impact include the numbers of firms that have sought out engagement with the NAACP with the expectation of identifying best practices in recruiting African-Americans for C-suite and board opportunities, as well as best practices in establishing impactful supplier diversity programs.”
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Based in southwest Florida, Amy has written about sustainability and the Triple Bottom Line for over 20 years, specializing in sustainability reporting, policy papers and research reports for multinational clients in pharmaceuticals, consumer goods, ICT, tourism and other sectors. She also writes for Ethical Corporation and is a contributor to Creating a Culture of Integrity: Business Ethics for the 21st Century. Connect with Amy on LinkedIn.