A year after launching a ‘Racial Justice’ investing tool, OpenInvest adds 13 companies to its list—and cuts seven underperformers
Last year, asset management platform OpenInvest launched a new “Racial Justice Cause” indexing tool—one of 16 such ’causes’ featured by the impact investing startup that focus on an array of environmental, social, and governance (ESG) values.
The indexing tool allows investors and asset managers to customize their portfolios to prioritize companies with a positive track record on issues like workforce diversity.
Now, more than a year on from the Racial Justice tool’s launch—in the wake of a massive public reckoning with that very cause after the killing of George Floyd in May—OpenInvest is providing a progress report of sorts for some of America’s largest public corporations.
The platform has announced 13 S&P 500 companies that are newly included in its Racial Justice Cause, while naming seven others that have been removed for failing to meet its criteria. Companies that clear this bar are “overweighted” in portfolios that use OpenInvest’s indexing tool. While hundreds of companies are included in OpenInvest’s Racial Justice Cause, only 70 of the S&P 500 currently make the grade.
Those that have freshly made the cut are (in alphabetical order): Accenture, Alaska Air, Best Buy, Carnival, Citigroup, Comcast, Hewlett Packard, Marriott, MGM Resorts, Nvidia, PepsiCo, Under Armour, and Yum! Brands.
OpenInvest’s methodology also looks to exclude from its customers’ portfolios firms that it judges to have a history of race-related lawsuits and controversies involving their treatment, as well as those that heavily pollute in areas more populated by people of color. A total of 61 companies in the S&P 500 currently fall in this category. Those that OpenInvest has newly removed from the indexing tool include: American Airlines, Delta Airlines, Ecolab, General Motors, Waste Management, U.S. Bancorp, and ViacomCBS.
In response to a question from Fortune about being downgraded, a spokesperson for American Airlines referred to a letter released by the company’s senior leadership in June, in which it highlighted various measures and initiatives taken to “increase [American Airlines’] focus on diversity, equity and inclusion.” The spokesperson also points to a note written by CEO Doug Parker to the airline’s employees earlier this summer, in which he detailed a conversation with a Black flight attendant about systemic racism.
A spokesperson for Ecolab tells Fortune that the company is “committed to diversity, equity, and inclusion, and are transparent about our values, commitments and action.”
“We would appreciate more transparency from OpenInvest because we cannot think of any reason why our standing would change,” the Ecolab spokesperson adds, noting that the company has been positively recognized by the likes of Diversity Best Practices, DiversityInc, Forbes, and Bloomberg for its diversity practices.
Representatives for the other companies recently removed from the indexing tool did not provide comment on the matter. (Fortune will add comment as companies respond.)
“We didn’t [launch the Racial Justice Cause] because of the current tumult; we did it because it’s the most pernicious social issue in this country, and it’s kind of amazing that the ESG industry hasn’t addressed it [adequately],” OpenInvest co-founder and chief strategy officer Josh Levin tells Fortune.
Levin says part of the reason why racial justice has been under-accounted for within the ESG investing community is a lack of “transparency and data in the marketplace” from companies—something that’s changing as more businesses are being held accountable for their practices. Indeed, one of OpenInvest’s criteria for inclusion in its Racial Justice Cause is transparency, with companies that regularly publish diversity reports on their employee base—and set targets for a more diverse workforce—duly rewarded.
As more companies have held themselves accountable to such standards, new investing products—like the NAACP-sponsored Minority Empowerment ETF, as well as the Racial Justice Cause indexing tool—have cropped up to serve investors who want their portfolios to align with their values. So far, the indexing tool has proven popular with OpenInvest’s clients, with 57% of its financial advisor clients selecting the cause to craft client portfolios.
But with more corporate interests than ever flocking to show their commitment to the cause of racial justice in the wake of the George Floyd protests, Levin notes that the bar is rising for companies hoping to be included under criteria like OpenInvest’s.
“We’re grading companies along a bell curve, and as the standard increases around companies getting more transparent and setting diversity targets, you’ll naturally get a shift based on the cutoff on that bell curve,” Levin says. “We often say that to be a leader in a benchmark, you need to be in the top 20% of the bell curve—and as more folks are added to your data set, it naturally raises the bar as far as who makes the cutoff.”
But Levin adds that when it comes to racial diversity at the highest levels of corporate America, “Unfortunately, the bar is still relatively low.” With the resignation of Tapestry CEO Jide Zeitlin last month, there are now only four Black CEOs on the Fortune 500.
Update, August 20, 2020: This story has been updated to include comment from American Airlines and Ecolab.
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