Race in the spotlight. In the wake of Black Lives Matter protests about racial injustice and inequality in the US and around the world in 2020, many companies have publicly condemned discrimination and created policies to increase diversity. Repercussions from the COVID-19 pandemic, including massive health and economic challenges, have underscored racial disparities in the US. Research has shown that Black and Hispanic/Latinx groups are four times more likely to be hospitalized with COVID-19, and earn about half the average income vs white population groups.

Against this backdrop, many companies, influenced by stakeholders and the public at large, have responded with promises and commitments to address racial disparities in their workplace. Similar to policy changes we are seeing as firms respond to shareholder concerns about the environment, we believe that consumer pressure around social justice issues can play a role in corporate strategies.

Race and ethnicity join gender as a key diversity requirement. Gender diversity has dominated the “S” category as the key social factor for ESG-conscious investors (The Social Factor, 23 February 2018). Given recent events, we believe race and ethnicity will now join gender as a key diversity requirement. Racial inequality is now firmly in investor sights, and we think this trend will continue in 2021 and beyond (ESG in 2021: The journey continues, 6 January 2021). However, while racial diversity is an emerging focus for investors, little company data are available. We expect this to change, as corporations feel pressure from investors, including institutional investors like Black Rock and State Street, to report on race and ethnicity metrics in 2021. We believe investors will hold corporates to clearer standards as they seek to take racial inequality issues into account.

The Biden-Harris administration promotes closing racial gaps. President Joe Biden’s public support of social justice campaigns, his choice of Kamala Harris as the first woman and person of color to hold the vice president’s office, his in-depth plan to tackle racial injustice, and his executive orders signed to address inequality (see US Biden administration’s first steps turn the tide, 22 January 2021), suggest that racial disparities will be taken seriously under the new administration. We take a look at President Biden’s plan to close racial gaps, which could have direct impacts on the financials and corporate strategies of companies. Through proposed federal legislation,stakeholders could hold companies to specific standards and, thus, be better equipped to answer questions around racial inequality.