Bank executives call on shareholders for third-party racial fairness audit

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  • Shareholders with $ 1.2 trillion in assets want big banks to conduct a racial equity audit.
  • The audit would be performed by a third-party law firm and the results would be public.
  • Bank executives from Citi, BofA and others are urging shareholders to vote against the proposal.

In the wake of George Floyd’s death, a number of major banks and financial institutions announced billions in massive investments and donations to tackle racial inequalities as well as internal plans to promote diversity.

Today, a group of investors with more than $ 1.2 trillion in assets, the Service Employees International Union (SEIU) capital stewardship program and CtW Investment Group, are asking some of these banks to have some of these banks audited their plans, proposals and policies by a third party, preferably a civil rights law firm. The investor group says the company would judge whether companies are going far enough to promote racial justice. They did not propose a specific methodology on how the third party would audit companies.

Executives from Wells Fargo, Citi, Bank of America and Goldman Sachs have asked shareholders to vote against the audit, which would be made public if approved.

Investors are also asking JP Morgan, BlackRock and Morgan Stanley to conduct an audit of its business practices and diversity and inclusion strategies. JPMorgan has yet to issue a proxy statement responding to the request.

Morgan Stanley has reached an agreement with investors in which, according to CtW, the company will conduct “an internal review related to the diversity of its employees and senior executives.” BlackRock has also addressed the issue with investors and has agreed to an independent audit to be conducted in 2022, Bloomberg reported.

The push by SEIU and CtW shines the spotlight on the financial sector. Amid increased calls from employees, customers and investors for more diversity, the debate begs the question of what degree of oversight is needed to ensure that banks that have historically engaged in racist policies embrace racial justice and the diversity.

“There has to be more accountability,” Dieter Waizenegger, executive director of CtW Investment Group, told Insider. “We need independent evaluations.”

Bank executives react

The audit would examine banks’ financial products to ensure that they treat blacks, browns and Asians fairly, such as ensuring they have equal access to mortgages and small business loans. companies. It would also inspect the impact of bank donations to law enforcement organizations and examine a bank’s promotion and retention of black, brown and Asian employees, which is a problem in the financial industry.

In their proxy statements, financial executives said they shared CtW’s concern to advance racial equity, but argued that the audit would be redundant to work already underway. Bank of America, for example, cited its billion-dollar pledge to advance racial equity, a third-party to evaluate its equal pay process and internal programs focused on “improving representation. and the professional development of our various teammates “.

CtW said none of the banks it sent the proposal to have the level of third-party oversight of a civil rights organization or law firm they are looking for.

“We believe our progress on the issue of racial equality and our regular reporting on that progress negates the audit requested by the proposal,” a Bank of America spokesperson told Insider.

Citi did not mention a third-party reviewer of its racial justice practices in its proxy statement. “While we do not agree with the overall approach of this proposal,” the statement said, “we are fully aligned with its stated goal of tackling racial inequalities in the financial sector.”

Goldman also did not mention a third-party auditor of its racial justice practices in its proxy statement; however, its CEO “called on all of our diversity committees and affiliate networks to help the firm” increase internal diversity.

A Goldman spokesperson declined to comment further on the proxy report, but mentioned that the company would release additional data on its workforce diversity this year.

Wells Fargo hired a third party to conduct a “human rights impact assessment” with “a particular focus on racial equity,” according to its proxy statement. A summary of the findings will be published publicly. Wells Fargo did not say whether the firm responsible for the report is a civil rights law firm, which CtW claims.

Morgan Stanley did not respond to a request for comment.

A complicated past

The financial institutions in question have recently made diversity, inclusion and racial equity a major concern, as demonstrated by multi-billion dollar philanthropic and strategic investments.

But they have also historically contributed to the racial wealth gap through racist processes such as redlining, a practice in which bankers identify neighborhoods, usually predominantly black, where they would not lend money for mortgages. and loans.

And while the Fair Housing Act banned discriminatory loans half a century ago, black Americans are denied mortgages at a much higher rate than white lenders. Last year, that was an 80% difference, according to data collected under the Home Mortgage Disclosure Act. Black Americans also pay higher interest rates, according to a report by the National Bureau of Economic Research.

Shareholders will vote on the proposal at their annual meetings, most of which will take place at the end of April.

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