Installment 2: Do our investment defaults fund systemic racism?

By: Rachel J. Robasciotti, Robasciotti & Philipson and Sonya Dreizler, Consultant

 This article is part two of a series about race and racism in financial services. The full series can be read here.



The last two months of protests and political action as a result of George Floyd’s murder are a referendum on the criminal (in)justice system that punitively impacts Black Americans.

You might be thinking, “OK, but what does race have to do with financial services?”

Well, everything.

Wall Street, now synonymous with investing, was the site of New York’s first slave market1 and enslaved people built the wall from which Wall Street takes its name.

The enormous wealth made possible by slave labor during the country’s formative years did not simply go away. Our profession is made possible by the legacy of slavery, so we have a particular responsibility to speak out against racism and take action for justice. Correcting these inequities requires broad, systemic change, which we will continue to address in subsequent installments of this #RaceInFinance series.

We can also take pragmatic steps right now. Harnessing our responsibility to drive change will require us to reexamine many deeply held beliefs. Below are two financial industry beliefs that directly affect our investment decisions.


Belief #1 – “Don’t get political.”

Our industry uses this common refrain to stay silent on issues that we think don’t directly impact us. You never know what someone’s political beliefs are, and most of us want to steer clear of inadvertently offending co-workers or clients by sharing our political or social stances. But, staying silent is a choice – and that choice has an impact. Affirming that, indeed, Black Lives Matter, both with your words and your actions, validates the lived experiences of your Black employees, clients, and business partners. Black Lives Matter is not a political statement, but a statement affirming basic human rights.2

Our investment choices matter too. Though slavery is no longer legal, its legacy of oppression remains in many forms3, including the private prisons, money bail, and surveillance that disproportionately target Black Americans. Investing in these companies and remaining silent condones these systems. For more information on why those practices are disproportionately punitive to Black people, check the footnotes of this list.


Belief #2: “Take the emotion out of investing.”

This phrase is so common in our field that it’s often regarded as a universal truth. While it makes sense to hear it in the context of staying invested during a major market correction, removing our emotions from all aspects of investing allows us to invest and make money from imprisoning people in an unjust system of mass incarceration.

Take a look at the holdings of any mainstream, large index fund, and you’ll likely find that it owns at least one for-profit prison company. While profiting from imprisoning people is legal, investing in for-profit prisons condones the idea that an investor should be able to profit from all types of legal businesses, even unjust ones. In the United States, we incarcerate Black people at disproportionately higher rates for the same crimes,4 and by investing in these companies, we provide capital to an unjust system that deprives Americans of their freedom.

Owning an index fund to avoid stock picking and “take the emotion out of investing,” is not a neutral stance. Index funds track benchmarks, and too many of our industry benchmarks include companies that profit from an unjust system of mass incarceration. In addition, a recent London Business School study5 shows that companies get a subsidy simply by being included in a benchmark. While owning a broad index may be the easy choice, it may not be a just or even neutral one.

Remaining “neutral” allows our current financial system to perpetuate historical racial inequities. We must work towards justice with all the tools we have, including our investments. To create a more just portfolio of public equities, consider using this Racial Justice Investor Dataset to identify for-profit prisons and other companies that exacerbate racial inequities.

In addition to divesting, other ways your portfolio can support racial justice include:

  • Support Black communities by investing in CDFIs (Community Development Financial Institutions) through investment tools like Calvert Impact Capital and CNote
  • Consider investing in bonds from municipalities with large Black populations to provide much-needed capital to Black communities
  • Hire and work with Black sub-advisors, portfolio managers, and investment advisors

We’ll cover these solutions and more in upcoming installments of our series. Follow along on our blog, and join the #RaceInFinance conversation on social media.



  1.  Abby Phillip, “A Permanent Reminder of Wall Street’s Hidden Slave-trading Past is Coming Soon,” The New York Times, (April 15, 2015).
  2. Human Rights Watch, “George Floyd’s Killing and the Black Lives Lost,” Human Rights Watch, (June 1, 2020).
  3. NAACP, “Criminal Justice Fact Sheet,” NAACP, (2020).
  4.  Robasciotti & Philipson, “Stop Funding Systemic Racism. This List Can Help,” Robasciotti & Philipson, (June 5, 2020).
  5. Anil K Kashyap, Natalia Kovrijnykh, Jian Li, and Anna Pavlova, “The Benchmark Inclusion Subsidy,” National Bureau of Economic Research, (April 2019).