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The COVID-19 pandemic has marked the past year, and while this pandemic has truly changed our everyday lives, the pandemic that is racism has long lingered in this country unresolved. Racism is an enduring crisis that is inflamed in the presence of other crises. Last summer, this became increasingly evident as the murders of George Floyd and Breonna Taylor brought global attention and outrage to one of the greatest issues plaguing our country.
Since then, we have seen companies increase their awareness of social justice issues and make strategic changes to consider and combat systemic racism in the private sector. Like the COVID-19 pandemic and international protests against racial injustice, global events have also boosted investors’ consideration for how their portfolios affect sustainability issues such as climate change, worker treatment, health and wellness, democracy, and racial justice.
Founded in 2015, Ethic empowers advisors to personalize a given benchmark to correspond with a client’s investment, values, and tax management preferences while seeking to minimize tracking error to the underlying benchmark. Advisors can also differentiate themselves and forge deeper relationships with their clients using Ethic’s technology platform to deliver transparent impact reporting and leveraging its breadth of educational tools surrounding various sustainability issues.
Earlier this week, Ethic announced that it had closed $29 million in Series B funding to expand its efforts to do just that. The round was led by Oak HC/FT, with participation from existing investors, including Fidelity Investments, Nyca Partners, Sound Ventures, ThirdStream Partners, Urban Innovation Fund, and Kapor Capital.
This new capital will support Ethic’s continued rapid expansion, in addition to further investment in the company’s technology platform. The funding follows a strong period of growth for Ethic, which saw the company increase the number of assets on its platform by over 10x since its prior round of funding in 2019.
“It’s increasingly clear that the future of asset management is personalized, and Ethic is leading the charge,” said Oak HC/FT partner and former global head of investment management technology at Goldman Sachs, Dan Petrozzo. “Ethic’s unique direct indexing approach ensures the company is primed to meet a burgeoning demand from wealth advisors, as well as the broader investor community. We’re delighted to be partnered with this mission-driven team that is helping drive a major revolution in asset and wealth management.”
“We’re grateful to have backers who share our belief that we all have a role to play in fostering a more sustainable and equitable future and that the capital markets can be leveraged as a force for good,” said Doug Scott, co-founder and CEO of Ethic. “This is particularly true when considering the developments of the last year, which only reaffirm our mission of helping accelerate the transition to sustainable investing.”
Ethic enables advisors to build portfolios that take account of 19 separate but closely interlinked sustainability issues. These include LGBTQ+ justice, women’s rights, and racial justice. As it pertains to racial justice, Ethic evaluates companies on about 35 different factors, looking specifically at their impact on workers, customers, and the public at large. This means channeling capital toward companies with strong non-discrimination and diversity practices and those that have committed to reducing their emissions and waste volumes (since pollution tends to harm minority communities at a higher rate than white communities). Additionally, when constructing a portfolio with racial justice in mind, Ethic may screen for companies whose business practices have historically had disproportionately negative impacts on minority populations, like tobacco and predatory lending.
Ethic takes a unique approach to racial justice issues in investing examining the systemic nature of the issue in the U.S. and abroad. Their approach examines impacts to racial minorities within companies, implications to customers, and systemic effects. Ethic believes that it’s essential to have a multi-pronged approach to address the embedded and systemic nature of racism.
For example, Ethic has worked diligently to understand and divest from companies that profit from private prisons. These companies play a role in the Prison Industrial Complex that disproportionately perpetuates a cycle of incarceration, recidivism, and disenfranchisement in communities of color. Ethic, using data from leading ESG providers supplemented with issue-specific data like American Friends Service Committee, looks beyond corporate discrimination and diversity policies but into the corporate activities that deepen existing racial inequities to direct truly impactful investments.
Since the beginning, Ethic’s goal has been to power sustainable investing at scale by enabling investors to personalize their portfolios. So, what’s next? Ethic will continue to expand their reach and improve their technology to ensure that their investors are empowered to have portfolios that reflect their individual values and interests, whether racial justice, climate change, or gender equality.
