Firms must mitigate racial discrimination as reported incidents rise

Sustainalytics analysis finds financial and consumer discretionary sectors account for most incidents in 2020


ESG Clarity

Investment firms and the companies they invest in need to be better at mitigating racial discrimination as the number of reported workplace incidents rises.

A Sustainalytics report, Race, ethnicity and public equity: a global snapshot, has looked at corporate controversies related to race and ethnicity, both inside and outside the workplace, as well as diversity initiatives companies have in place.

It looked at 4,301 firms listed on the Morningstar Global Markets Large-Mid index, covering 58 markets and 11 sectors.

In a sample of 605 incidents, the report found 206 firms involved between 2015 and Q1 2021. Most of these (483) are incidents such as discriminatory marketing practices or operational activities that have negative impacts on underrepresented communities. The remaining 122 are internal issues such as biased recruitment.

Global equity investors can use the framework developed in the report to assess their portfolio exposure to risks related to race and ethnicity,” said Martin Vezer, Sustainalytics’ manager of thematic research.

Sustainalytics saw a large uptick in incidents in 2020, in part due to the increased awareness and reporting on race and ethnicity issues over the year. Controversies in 2020 represented a 175% increase in internal incidents and a 510% increase in social incidents compared with 2019.

The financials sector accounts for 181 (63%) of all incidents sampled in 2020 alone.

It said: “Most of these incidents (163) stem from banks and financial institutions being named in NGO reports for their financing of firms that have allegedly negatively impacted Indigenous communities. Prominent instances were triggered by NGO reports that scrutinise banks’ financing of companies that allegedly used forced labour, contaminated water sources or contributed to increased land disputes within indigenous communities, including communities located in Brazil.”

The increase in internal incidents in 2020 was largely driven by the consumer discretionary sector, the report said, with four out of the sector’s 10 incidents just at Amazon alone. These include a reported experience of racial discrimination and harassment by co-workers, a reported denied opportunities for promotion in favour of white employees, and an ex-manager who said they were asked to partake in discriminatory hiring practices.

More initiatives needed

Although more investment companies and corporates are keen to share improved diversity policies, the Sustainalytics report found few firms are willing to do more than what is legally required on them in this area.

“While investors can assess companies’ preparedness to manage diversity and anti-discrimination initiatives, our findings suggest firms need to be more proactive in managing the initiatives they have in place to mitigate controversies related to race and ethnicity,” it said

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