It’s a reasonable question. Racial equity and social justice are increasingly important to many investors, but are they investable ideas? We believe the answer is yes, but that successfully incorporating these values into a portfolio requires a very different approach from that taken by traditional Environmental, Social, and Governance (ESG) funds.
ESG is poorly defined
ESG strategies have now entered the mainstream. Globally, as much as $35 trillion is invested in self-described ESG funds. But in spite of the surge in interest, the concept remains poorly defined, the idea of ESG continues to mean different things to different people and typical ESG criteria rarely include racial equity.
We do not want to own companies that profit from systemic racism
At Adasina, we’re very clear: we do not want to own companies that profit from systemic racism. Deciding what that looks like in an investable portfolio, we utilize a ground up approach, working with community-level groups who are engaged with issues of racial equity every day. We believe that people and groups most directly affected by a problem are often best positioned to identify solutions. Adasina’s Public Equities Portfolio Management Team regularly engage our social justice partners to help inform our Racial Justice Data Set; partners include American Friends Service Committee, Color of Change, Project on Predatory Student Lending & Race Forward.
This is how we create a “movement-aligned” portfolio
These insights are incorporated in the highly rigorous screening process that we apply in our actively managed ETF, the Adasina Social Justice All Cap Global ETF (JSTC). Our screening criteria empowers stakeholders to call attention to systems that reinforce, perpetuate, and exacerbate racial inequities. Based on these metrics, the JSTC portfolio seeks to exclude companies that we determine participate in, or benefit from, those unjust systems. This includes those that own, operate, manage, or service prisons and immigrant detention centers; provide or facilitate money bail services; participate in citizen and immigrant surveillance; operate for-profit colleges; are involved in state violence and human rights violations as a result of military occupations; fail to support indigenous peoples’ rights; or do not implement diversity policies or programs to increase workforce diversity.
The result is a portfolio that is “movement aligned” – consistent with the goals associated with progress towards racial, gender, economic and climate justice.
We live and breathe these principles and aim to bring value to investors
Early in its development, ESG was often dismissed as largely irrelevant to shareholders – a feel good strategy that would do little to effect change while delivering sub-par investment returns. But as the concept has evolved, it’s become increasingly clear that harmful practices flagged by ESG can put companies at serious reputational and financial risk.
The energy industry, and climate change, are a case in point. The idea that productive energy assets might lose value over time as the world migrated to solar, wind and other energy sources was initially ridiculed. But as renewable technologies have advanced – and the impact of climate change has become more fully understood – attitudes have shifted, and this is increasingly reflected on the balance sheets and in the financial performance of the energy sector.
By one report, about half of all global fossil fuel assets will be worthless by 2036 as the world moves to net zero emissions. Estimates of the value of those “stranded assets” range as high as $11-$14 trillion. That’s a lot of money.1
We identify companies truly committed to racial and social justice
Many of Adasina’s criteria have been early indicators of material risk to investors. When it comes to racial and social justice, JSTC aims to give investors a long-term risk advantage by aligning with companies that are on the forefront of these movements and divesting from those that threaten value through harmful practices. Because the fund is actively managed, we are able to adjust the portfolio as needed in response to changes on the ground, and to maintain alignment with the fund’s core values.
So to return to the initial question, we believe that it is possible to distinguish between those companies that are truly committed to racial and social justice and those that are not, and that understanding these differences can have investment value. For those who want to explore these ideas further, JSTC is a good place to start.
JSTC provides broad-based equity exposure
As with all ETFs, JSTC tracks an index, in this case the Adasina Social Justice Index. Built from a global universe of public equities across all major asset classes, it incorporates both traditional ESG metrics and Adasina’s proprietary screens. In addition to racial justice, these include gender, climate, and economic justice criteria (all to be the subject of future blogs). The result is an ETF that can act as a bridge between the financial markets and social justice, and that is accountable to the well-being of the people and the planet they impact.
At Adasina Social Capital, we’re committed to making large-scale, systemic change through investments in financial markets. Our diverse team of people from non-traditional backgrounds works closely with the communities we intend to impact – aligning investors with social justice movements. Beyond creating our own investment criteria and portfolios, Adasina mobilizes investors to drive long-term impact through industry campaigns and education. Join us in becoming unstoppable agents of meaningful change for people and our planet!
Before investing you should carefully consider the Fund's investment objectives, risks, charges and expenses. This and other information is in the prospectus. A prospectus may be obtained by clicking here. Please read the prospectus carefully before you invest.
Investing involves risk, including the potential loss of principal. There is no guarantee that the Funds investment strategy will be successful. Shares may trade at a premium or discount to their NAV in the secondary market, and the fund's holdings and returns may deviate from those of its index. These variations may be greater when markets are volatile or subject to unusual conditions. The Fund is new and has a limited operating history. The Fund has a limited number of financial institutions that are authorized to purchase and redeem shares directly from the Fund; and there may be a limited number of market makers or other liquidity providers in the marketplace.
Foreign and emerging market investing involves currency, political and economic risk. Applying climate, economic, gender, racial, and movement aligned justice domain criteria to the Fund's investment selection process may exclude securities of certain issuers for non-financial reasons and therefore, the Fund may underperform the broader equity market or other funds that do not utilize similar criteria when selecting investments. Adasina is a newly registered investment advisor and has no long-term track record that an investor may judge. Investments made in small and mid-capitalization companies may be more volatile and less liquid due to limited resources or product lines and more sensitive to economic factors. The securities of large-capitalization companies may be relatively mature compared to smaller companies and therefore subject to slower growth during times of economic expansion.
It is not possible to invest directly in an index.
Shares of the Fund are distributed by Foreside Fund Services, LLC.