Put Your Money Where Your Mouth Is

Companies are finding ways to make sure that discussion of diversity, equity, and inclusion initiatives are more than lip service. Companies have tried multiple approaches to incorporate greater accountability in their efforts to realize meaningful change. Recent trends include sustainability-linked finance and racial equity audits. 

Linking Finance and Sustainability

One new trend to motivate companies to make serious efforts to improve their environmental, social, and governance (ESG) performance includes financing arrangements that tie the cost of credit to the borrower’s ability to meet sustainability goals. For example, BlackRock struck a deal with several of its own lenders to tie costs for a $4.4 billion credit facility to the company’s ability to meet targets for increasing both the number of women in senior leadership and the share of Black and Latino employees in its workforce. This move follows BlackRock’s recent announcement of several measures it is taking to ensure the companies in which it invests are serious about diversity, equity, and inclusion. Financing arrangements such as the one BlackRock entered into with lenders allow borrowers to demonstrate their commitment to ESG tenets by putting their funding on the line.

Auditing Racial Equity

Financial institutions are no stranger to audits, but audits of racial equity are a relatively new phenomenon. As investors become increasingly focused on the “S” in ESG, they are asking firms to perform such assessments to determine the true impact of those companies’ diversity, equity, and inclusion initiatives. In November, the Service Employees International Union Capital Stewardship Program and CtW Investment Group jointly asked for racial equity audits from the six largest US financial institutions. Although some financial institutions appear to be willing to take this step to identify areas for improvement, other firms are resisting such requests. 

This Scrutiny Is Significant

The impact that these measures will have and whether they will prove to be effective mitigants of diversity greenwashing remains to be seen. However, the fact that companies are subject to this kind of scrutiny is in itself significant. We can expect companies to continue to face increased pressure to combat the effects of systemic racism in the workplace as awareness of this issue becomes more widespread.