On The Basis of Race - A Framework for Measuring Racial Equity and Implications for Investment Analysis

We propose that racial equity is an integral component of sustainable societies. While the concept is well defined, investors lack a set of quantifiable metrics that can be used to create a comprehensive measure of racial equity. These metrics could be applied to the investment selection process in order to direct capital to support outcomes that will reduce racial inequity. To demonstrate how this data gap can be filled, we developed a multi-dimensional framework to measure racial equity in the United States based on the concepts of equal justice and equal opportunity. We then combine these measures to create a racial equity score for every county in the United States to provide a granular view of racial equity across America. We believe this framework can also be used to support decisions in any area where racial equity is a consideration and location is a factor. Our concept of equal opportunity uses metrics on education, housing, healthcare, employment, income and financing while for equal justice we use metrics on police actions, incarceration, and voter disenfranchisement. We use data from publicly available sources, including government sites, non-governmental organizations and academic research. For municipal bond investors looking at environmental, social and governance exposures in their portfolios, our racial equity score can serve as a tool to measure the “Social” component of their positions and enable a deeper analysis of the exposures. For impact investors, our framework gives insights to both geo-locate and quantify racial equity, helping to inform the allocation of capital to investments that can generate greater positive impact. For decades, racial inequality has been heavily researched by academics, activist organizations and others, which has generated a wealth of data that we believe can be applied to the investment selection process for both primary and secondary markets. We hope that our framework demonstrates how the global investing community can leverage existing data sets to expand on the concepts and methods presented herein as a means to use the capital markets as tool to eliminate racial inequity