When financial firms talk impact investing, some very big names end up named and shamed.
Ellevest, the robo-advisory firm aimed at women and founded in 2014 by former Bank of America head of global wealth management Sallie Krawcheck, launched a series of “Intentional Impact Portfolios” last fall, designed to let customers “choose to invest your money in companies that meet our criteria for doing the right things by women—and redirect your money away from companies with products, policies, and practices that may harm them.”
The impact portfolios have 13 focus areas, including workplace diversity, human rights, exploitative products, greenhouse gas emissions, excessive pay, and ethics and fraud. (The portfolios are only for Ellevest’s private wealth division, which requires a minimum investment of $250,000 and is separate from its core digital business, which has no minimum.)
Last week, Ellevest announced changes to its impact portfolios. Amid the racial justice protests sweeping the country, “It became clear that many of the issues that harm women also harm Black, Latinx, and Indigenous people, as well as other people of color,” writes chief investment officer Sylvia Kwan.
As a result, Ellevest’s impact portfolios now avoid: companies that are unfriendly to the environment (because air pollution disproportionately affects Black and Latinx communities); companies without equal racial compensation ratios and policies; and companies with exposure to private prisons (Black and Latinx people make up 56% of America’s prisons), including those that provide “goods and services like transport, logistics, telecoms, or catering” to private prisons.
“Although we already had a gender lens to our investment philosophy, we felt like it was imperative we added a racial justice lens,” says Kate Krieger, a financial advisor on Ellevest’s private wealth management team. “The response has been extremely positive, and I think more and more investors want to have a better understanding of the types of companies they own in their portfolios and the impact these companies are having on the world.”
Based on the new criteria, Wells Fargo misses the cut because of reported predatory lending practices. “The data and research shows that predatory lending disproportionately affects minority communities and people of color,” says Krieger.
Aramark, the large publicly traded caterer, was flagged for its connections to private prisons. The company has been criticized recently for its prison food services and its use of prison labor.
ExxonMobil and Chevron were flagged for the obvious: carbon emissions and their impact on climate change. (In March, Exxon CEO Darren Woods said the company isn’t interested in “a beauty match, a beauty competition” with its peers on carbon emission targets.) Ellevest notes that climate change will disproportionately hurt communities of color across the world.
Phillip Morris was kept out of Ellevest’s impact portfolios because Black Americans are more likely to die from smoking-related illnesses than white Americans.
Some have criticized “impact investing” as a buzzword aimed more at optics. But Krieger sees the approach as crucial in order to close the gender wealth gap and racial wealth gap in America, and sums it up simply: “We want to make sure that we’re divesting from companies whose policies, practices, and procedures potentially harm women and adversely impact people of color.”
Ellevest does not share its revenue, but says it has more than 90,000 customers and more than $635 million in assets under management. Its private wealth division has over $300 million in assets under management.
Daniel Roberts is an editor-at-large at Yahoo Finance. Follow him on Twitter at @readDanwrite.