For the past decade, large institutions and even cities have been eliminating their investments in private prisons. As impactful as the movement has been, people like Tanay Tatum-Edwards view divesting from mass incarceration as about more than just avoiding private prison operators.
During her formative years, she saw the prison-industrial complex in action firsthand. “I grew up in a small town in Florida where some of the smartest people I know were pipelined to prison instead of college, including my little brother,” Tatum-Edwards says.
Upon her brother’s return home, they discussed all the different ways various companies impacted his experience, from using low-paid incarcerated workers to adding hurdles to the process of finding a post-prison job.
“Once I saw this link between companies exploiting our communities while taking on reputational risk, I couldn’t unsee it,” Tatum-Edwards says. That’s why on April 24, her ESG data company, FreeCap Financial, unveiled the FreeCap BITA Decarceration Index, aka FreeIn.
The publicly available index, like the S&P 500, tracks the performance of public companies like Alphabet, Microsoft, and Coca-Cola. Unlike any other index, however, FreeIn—created in collaboration with investment index technology company BITA—measures companies’ impact on mass incarceration.
How Does FreeIn Work?
FreeIn uses a scorecard to assess companies’ commitment to hiring formerly imprisoned applicants, and their involvement in various prison operations. Based on the past two years, the decarceration index has outperformed the S&P 500.
To develop the rankings, FreeCap assessed the top 50 S&P 500 companies based on market cap. The companies were then evaluated—on seven metrics related to fair-chance hiring and activities like vending relationships with prisons—and given a score.
BITA, the company calculating the index, multiplies a company’s available shares by FreeCap’s rating to get a statistic that it uses to weight companies in the index. This process results in different returns for FreeIn than the S&P 500, and BITA rebalances the index quarterly to keep rankings fresh.
Company rankings, rearranged
Investors will see different companies at the top of FreeIn’s portfolio than the S&P 500.
“You see the usual suspects . . . Alphabet and Apple [at the top], just because they are very large, profitable companies,” said Rod Jones, BITA’s global head of buy-side sales, at the FreeIn launch event. “What is different is that in the top 10, you’ll see [companies like] Walmart, Coca-Cola, J.P. Morgan—and if you just looked at the S&P 500 those would not be in the top 10.”
FreeIn factors in commitment to fair hiring practices as a means of separating top companies from others. J.P. Morgan, for example, has an annual goal of reaching 10% of new hires with prior convictions. Tatum-Edwards says that approach sets the finance giant apart “in an industry that has historically been incredibly exclusive and discriminatory.”
Hiring practices that exclude formerly incarcerated people cut themselves off from a big pool of prospective employees, Tatum-Edwards says. According to the U.S. Bureau of Justice Statistics, 600,000 Americans reenter society from federal and state prison each year. It’s a number that could meaningfully reduce the country’s estimated 3 million-worker shortfall, but FreeCap data shows that only a third of the top 100 U.S. companies are willing to hire formerly incarcerated individuals.
“Classic economics says that one of the most important inputs into productivity is labor,” Tatum-Edwards says. “There’s a huge economic argument for why companies need to figure out how to address the shortage of labor.”
Pushing back against DEI backlash
Part of what the FreeIn index highlights, Tatum-Edwards says, is that hiring formerly incarcerated workers doesn’t adversely affect profitability. It’s a message that’s particularly timely amid ongoing backlash to corporate diversity, equity, and inclusion (DEI) efforts. “I think there is often this assumption that if you are doing good then you have to sacrifice returns in some way,” Tatum-Edwards says. “But it is not an either-or—you can do both.”
For now, investment professionals can license the index only for research purposes or creating estimate strategies for clients. A retail product and even an exchange-traded fund based on FreeIn may also be in the cards.
“The CEO of BlackRock, Larry Fink, said [in his annual CEO letter] ‘Climate risk is material risk,’ and so every investment decision needs to incorporate climate impact into how money is allocated,” Tatum-Edwards says. “That’s what I want for decarceration—for it to be a universal financial metric.”