Why and How Investors Can Respond to Income Inequality

The widening income inequality gap is one of the most pressing challenges the world faces today, with ending poverty a key theme throughout the Sustainable Development Goals (SDGs) and an issue we all have a role in addressing. The World Economic Forum believes that widening inequality has “contributed to political polarization and erosion of social cohesion in many advanced and emerging economies,” and looking at the current state of play that is certainly the case.

Although millions of people the world over have been lifted out of poverty over the past 50 years, income inequality within countries is now growing at an alarming rate, in both developed and developing countries.

Institutional investors have increasingly begun to realise that inequality has the potential to negatively impact institutional investors’ portfolios, increase financial and social system level instability; lower output and slow economic growth; and contribute to the rise of nationalistic populism and tendencies toward isolationism and protectionism. While the financial risks have become more crystallised, what is less clear is how investors can address these issues.

The PRI has been making economic inequality more of a focus with our Blueprint for responsible investment, recognising the need for investors to contribute to a more prosperous world for all. We have been tackling issues from an investor perspective on overly aggressive tax practices which can fuel inequality, along with issues such as human rights, labour rights, executive pay and fair wages and conditions for all workers.

We are excited to publish this new report, working alongside TIIP, to help investors understand the material risks around income inequality, and how they can better address this issue. Doing so is a challenging task, but investors can seize the opportunity to play a vital role in ensuring a stable and sustainable society for all.

Click on the graphic below to read the report.

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