Over the past few decades, income inequality in many developed countries, including the United States and in Europe, has grown. At the same time, inequality in many developing countries remains high; for countries that have seen economic growth, the benefits often are not evenly distributed, leading to significant disparities in income, opportunities, and access to services. According to the World Inequality Report of 2022, “the share of the bottom 50% of the world in total global wealth is 2% by their estimates, while the share of the top 10% is 76%.”  Widening socio-economic inequality, itself a systemic risk, is intimately linked to other systemic risks such as polarization and the rise of authoritarianism, climate change, biodiversity loss, antimicrobial resistance, and pandemics, which in turn affects global financial stability.

Investors are increasingly recognizing that extreme socio-economic inequality poses a systemic risk, harming both the economy and markets essential for financial performance. Addressing it is especially crucial for large institutional asset owners – or universal owners – who manage highly diversified portfolios across the economy and cannot escape systemic risks. With their long-term perspectives, systemic risks like inequality present a much greater threat to their portfolios than the performance of individual firms. 

Rights CoLab’s work on the systemic risk of inequality seeks to advance systems-level investing by helping universal owners measure and manage this risk. The initiative also provides a new avenue for promoting the private sector respect for human rights, which in the medium- and -long term are inextricably linked to extreme inequality—a critical concern for investors. The Taskforce on Inequality and Social-related Financial Disclosures (TISFD) of which Rights CoLab is a founding member, is Rights CoLab’s flagship project addressing the systemic risks of inequality. This work was made possible through the generous support of the Generation Foundation, Humanity United, and Tipping Point Fund on Impact Investing.