Field Notes: Are Private Prisons Responsible Investments?

Impact investor Sonia Kowal takes a look at the problematic aspects of a privatized prison system and the ways that investors can help make a difference.

Sonia Kowal, president of Zevin Asset Management, has published a three-part online memo that highlights, “At Zevin, we feel strongly that corrections are a public function and should not exist for profit.” Listing several reasons why seeking profits from prison is detrimental to an effective justice system, including inmate lockup quotas and immigration detention policies, Kowal makes a case that systemic changes must be made in order to remediate the injustices wrought by corporations seeking profit by putting (and keeping) citizens behind bars. Yet these corporate entities are not the only ones who must shoulder the responsibility for the broken system we observe today. Investors and asset managers that continue to support these companies (perhaps unknowingly) are playing a role in keeping our privatized prison system alive and thriving.

Calling for divestment from these funds, Kowal stresses that the practice of prison profiteering is not only morally reprehensible, but also doesn’t make for responsible investment choices:

If you want to look at these companies from an environmental, social, and governance (ESG) perspective, they are also unappealing investments:

  • Environmental impacts – The small rural towns where private prisons usually choose to locate do not have the infrastructure to cope with the demands of a large new institution. For example, there have been many instances where local water sources were polluted as the sewage treatment plants hadn’t been able to handle the increased effluent.
  • Social Risks – Numerous reports have exposed a pattern of human rights issues in private prisons, including the physical and sexual abuse of inmates, wrongful deaths and increased violence among inmates because the facilities aren’t properly staffed. They do not remotely adhere to the United Nations Guiding Principles on Business and Human Rights. The lower cost structure of private prisons is achieved by cutting staffing and programs, the two most expensive aspects of incarceration, and result in many privately operated prisons having systemic problems in maintaining secure facilities.
  • Governance– The business model of private prisons raises large governance concerns over political spending and lobbying. Private prisons’ dependence on ensuring a large inmate population in our view provides inappropriate incentives to lobby government officials for policies that will place more people behind bars.

Kowal writes that while major legislative action, including decreasing the role of expensive lobbying tactics in legislative decisions, would have to coincide with divestment to effectively overhaul the existing system of exploitative incarceration, there are steps that institutions like Zevin and its peers can take to help make a difference:

  • Understanding and challenging institutional racism in company practices.
  • Asking companies to thoughtfully review their criminal background check policies.
  • Urging companies to pay a living wage.
  • Considering social impact bonds that target recidivism.
  • Supporting worker-owned coops and other social enterprises that employ ex-offenders.

And perhaps most importantly, let’s start by changing white suburban society’s attitude towards prisons, incarceration, and ex-offenders.

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