Executive Summary

In this report we identify investment opportunities that offer competitive financial returns while helping to address concerns about increasing levels of inequality and income stagnation.

The rise of populist and anti-globalization political movements in the developed world is in part a reaction to middle-class wage stagnation and inequities based on age, race, gender and geography. The increasingly popular belief that the global economic system does not serve the interests of all is a source of social tension and political upheaval, creating long-term risks for investors.

Middle-income workers in developed countries face rising economic pressures:

  • Globalization and automation have benefited economic elites and workers in some developing countries while contributing to wage stagnation for many developed country workers.
  • Decreasing returns on investment in education are reducing opportunities for economic mobility in the US.
  • The prices of certain necessary goods, like college, medical care and shelter, have increased relative to wages.
  • Inequality is becoming more pronounced among younger people, potentially hampering their long-term economic mobility. The percentage of US households earning a middle-class income has decreased.

Age, geography, gender and race further limit upward mobility for many groups of people. For instance, the likelihood of a low-income child in the southeast US achieving a high income in adulthood is notably less than for rest of the country.

Populist and nationalist movements are pledging to reverse these trends for some groups or all, sometimes gaining support by exploiting social tensions associated with these inequities. Such a response to globalization might exacerbate social tension and do more harm than good to the economic and political foundations for prosperity in the developed world.

Investors can address concerns about inequality responsibly by selecting managers who employ a number of sustainable investing strategies. Inequality cannot be addressed without supportive public policy. Yet, investors can still make a substantial impact through certain strategies such as:

  • Proxy voting and corporate engagement. Investors have a voice in company policy through their equity ownership stake, on issues such as equitable compensation policies, improved diversity and fair labor policies.
  • Investing in fixed income instruments to support investments in communities. A small group of fixed income funds offers market rate returns supporting affordable housing and social and environmental infrastructure. These funds can be targeted geographically and thematically.
  • Affordable housing or other real estate funds. Affordable housing funds offer an avenue for investment that provides subsidized housing and links residents to social services while still earning market returns for investors.
  • Private debt strategies. These funds finance small businesses and other organizations in underserved communities. Some low-risk/low-return vehicles lend directly to small businesses and non-profits in low-income areas to provide services in underserved communities.

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