- Shareholders representing $1.2 trillion in assets want big banks to conduct a racial equity audit.
- The audit would be completed by a third-party law firm and the results would be public.
- Bank leaders at Citi, BofA, and others are urging shareholders to vote against the proposal.
- See more stories on Insider's business page.
In the wake of George Floyd's death, a number of major banks and financial institutions announced billions in sweeping investments and donations to combat racial inequity along with internal plans to promote diversity.
Now, a group of investors representing over $1.2 trillion in assets, the Service Employees International Union (SEIU)'s Capital Stewardship Program and CtW Investment Group, is asking some of those banks to have their plans, proposals, and policies audited by a third party, preferably a civil rights law firm. The group of investors say the firm would judge if companies go far enough to promote racial justice. They did not offer a specific methodology for how the third party would audit the companies.
The 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 not yet released a proxy statement responding to the request.
Morgan Stanley reached an agreement with the investors in which, according to CtW, the company will conduct "an internal review related to the diversity of its employees and senior leadership ranks." BlackRock also settled with investors and agreed to an independent audit that will be conducted in 2022, Bloomberg reported.
The push by SEIU and CtW is shining a spotlight on the financial industry. Amid increased calls from employees, customers, and investors for more diversity, the debate raises the question of how much oversight is needed to ensure that the banks that have historically engaged in racist policies embrace racial justice and diversity.
"There's got to be more accountability," Dieter Waizenegger, CtW Investment Group's executive director, told Insider. "We need independent assessments."
Bank executives respond
The audit would examine the banks' financial products to make sure they treat Black, brown, and Asian people equitably, such as making sure they are given the same access to mortgages and small business loans. It would also inspect the impact of bank donations to police organizations and examine a bank's promotion and retention of Black, brown, and Asian employees, which is a problem in the financial sector.
In their proxy statements, the financial leaders said they shared CtW's concern to advance racial equity, but argued the audit would be redundant to the work already being done. Bank of America, for example, cited its $1 billion commitment to advancing racial equity, a third party to evaluate its process on equal pay, and internal programs focused on "enhancing representation of, and professional development for, our diverse teammates."
CtW said that none of the banks it sent the proposal to have the level of third-party oversight from a civil rights organization or law firm that they're looking for.
"We believe our progress on the issue of racial equality, and our regular reporting of that progress, make the proposal's requested audit unnecessary," 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 disagree with the overall approach in this proposal," the statement reads, "we are completely aligned with its stated goal of addressing racial inequity 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 affiliation networks to assist the firm" in increasing diversity internally.
A Goldman spokesperson declined to comment further on the proxy report but mentioned that the firm will be releasing additional diversity data on its workforce this year.
Wells Fargo has hired a third party to conduct a "human rights impact assessment" with a "specific focus on racial equity," per its proxy statement. A summary of the findings will be published publicly. Wells Fargo did not specify if the firm conducting the report is a civil rights law firm, which CtW is pushing for.
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 significant concern as shown through billion-dollar philanthropic and strategic investments.
But they've also historically contributed to the racial wealth gap through racist processes like redlining, a practice in which bankers identify neighborhoods, usually majority Black, where they would not lend money for mortgages and loans.
And while the Fair Housing Act banned discriminatory lending half a century ago, Black Americans are denied mortgage loans at a much higher rate than white lenders. Last year, it was an 80% difference, according to data collected under the Home Mortgage Disclosure Act. Black Americans are also charged higher interest rates, according to a report from the National Bureau of Economic Research.
Shareholders will vote on the proposal at their annual meetings, most of which will occur at the end of April.