A recent study from Cornerstone Capital provides an analysis of income inequality and considerations for socially conscious investors.
A flagship report released by Cornerstone Capital's Margarita Pirovska offers insight into the growth of income inequality in developed economies since the 1970’s. Pirovska also seeks to highlighted several non-financial factors for investors to consider and ensure that their dollars are positively contributing to society and a sustainable economy. The report opens with a detailed explanation of the origins of income inequality, both in concept and measurement. The graph below adequately displays the disproportionate rate of growth in income for the highest earners and the relative stagnation among the lower income brackets.
Pirovska goes on to an economic analysis covering some of the causes and consequences of growing income inequality. Some of the more captivating points are related to CEO compensation, rent-seeking behaviors and investment outcomes. This section also includes a powerful takeaway from an Ecological Economics study:
…The results of this study show that the uneven distribution of this [wealth] surplus, and strong economic stratification, can lead to societal collapse as much as the over-exploitation of natural resources. Therefore, unequal societies are less stable, and are more at risk of collapse.
The end result of Pirovska’s research are two checklists to serve as tools for investors concerned about income inequality. The first, focuses on indicators and questions about the company's human capital strategies:
The second focusing on the socio-economic impacts of their business activities:
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