Why and How Might Investors Respond to Economic Inequality?

By Erin Shackelford

Why and How Might Investors Respond to Economic Inequality?Worrisome levels of economic inequality have received growing attention in recent years from a variety of sources and perspectives.  Prominently, the United Nations Development Programme has included “Reduced Inequalities” as one of seventeen Sustainable Development Goals (aka the SDGs), raising the profile of inequality as a pressing global issue.  The very real impacts of inequality on people and society, and, in turn, on growth and political stability, are increasingly hard to ignore.  And, while government action is certainly a key part of reducing economic inequality, private sector investment is implicated, as well. 

Calls to action like the UN’s SDGs provide an important opportunity for investors to examine how risks related to high levels of economic inequality may be embedded in their portfolio, and what they might do about it.

Drawing on recent research, a new discussion paper by IRI Director David Wood, written for the UN Principles for Responsible Investment, aims to aid investors as they seek to understand and address economic inequality.  With a summary of current thinking and questions to spark discussion, “Why and How Might Investors Respond to Economic Inequality” is a tool specifically written to prompt investors to think about their possible responses to this emergent risk, and the role their own investments may play in promoting, or mitigating, economic inequality.  Written for a series of international PRI roundtables to be held over the fall and winter, the paper walks investors through a number of questions, including:

  • How does economic inequality impact the long-term performance of investment portfolios?
  • What are some mechanisms by which inequality might negatively affect growth?
  • What are some potential avenues that investors might consider in responding to inequality?  Four potential types of response are considered:
    • Inequality as a lens for investment analysis
    • Efforts to mitigate inequality
    • Financialization and inequality
    • Investor roles in policy discussions

For responsible investors, economic inequality is emerging as a potentially paradigmatic theme encompassing the S in ESG, and effective investor response is still developing. We look forward to hearing about discussion this paper sparks, and to helping shape future thinking in this important area.