endstream endobj 336 0 obj <>stream S7-25-97, available at https://www.sec.gov/rules/final/34-40018.htm (citing Reebok Intl Ltd. (Mar. Financial institutions and asset management firms have become the focus of Racial Equity Audit shareholder proposals. [32] For example, following the voluntary Racial Equity Audit conducted by Starbucks after the 2018 incident discussed above, the company began requiring implicit bias training for employees, setting public corporate diversity goals and implementing a number of other social initiatives. According to this study, closing racial gaps would have generated an additional $16 trillion in economic output since [the year] 2000, and by closing the various gaps between Blacks and Whites, the U.S. could stand to gain an additional $5 trillion in economic activity over the next five years. [42] Racial Equity Audits could therefore prove to be a critical tool for companies looking to capture some of these unrealized gains. (go back), 94CoreCivic, Inc., Form 8-K, filed with the SEC on May 18, 2021, available at https://www.sec.gov/ix?doc=/Archives/edgar/data/1070985/000119312521165313/d184269d8k.htm. (go back), 125Rule 14a-8 No Action Letter, CtW Investment Group, November 12, 2020, available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/ctwjpmorgan032621-14a8.pdf. (go back), 85See Amazon No-Action Letter, supra note 83. (go back), 119See Webinar, Thomas DiNapoli, New York State Comptroller, supra note 23. But that was never going to be enough for racial justice advocates. (go back), 17Supra note 5; see also What Is ESG? Exxon has faced pressure from shareholders to shift practices to reduce greenhouse gas emissions. (go back), 34Starbucks Steps Up Its Racial Justice Outreach With $100 Million Pledge, Forbes, Kori Hale, January 20, 2021, available at https://www.forbes.com/sites/korihale/2021/01/20/starbucks-steps-up-its-racial-justice-outreach-with-100-million-pledge/?sh=53b94b63389c. (go back), 4ESG investing: Discover funds that reflect what matters most to you, The Vanguard Group, Inc., available at https://investor.vanguard.com/investing/esg/. [137] The proposed Diversity and Inclusion Data Accountability and Transparency Act would require such audits by independent third parties of the subject companies policies and practices pertaining to civil rights, equity, diversity and inclusion. [138] The initial debates on the draft legislation also considered adding to the draft bill penalties for non-compliance, including fines of up to $20,000 a day for failure to engage in such audits. Beyond fund managers typical fiduciary duties to minimize risk and achieve positive returns, these fiduciaries are explicitly mandated with making investments into companies that aim to have a sustainable and societal impact in the world [46] based on ESG criteria or that meet stringent environmental, social and governance standards. [47] As the usefulness of Racial Equity Audits as a tool for ESG-conscious shareholders to measure a companys adherence to ESG prerogatives becomes more mainstream, it would be no surprise to see support for these audits grow. It received the backing of 38.6 percent of votes cast during the company's AGM in April. The correlation between gender-balanced teams and improved decision-making, innovation and performance aligns with our core value Commit to Diversity and Inclusion. Importantly, the proposals encourage an internal and external review, looking at human capital management but also the products and services companies offer, along with their philanthropic and political contributions. Today, we're demonstrating . (go back), 29Webinar, Susan Baker, Director of Shareholder Advocacy, Trillium Asset Management, supra note 23. The Staff has stated that substantial implementation under the rule does not require the company to have implemented the proposal in full or exactly as proposed by the shareholder. At Morgan Stanley, we focus the expertise of the entire firmour advice, data, strategies and insightson creating solutions for our clients, large and small. 16, 1992)). Prior to the ESSA, IDRA developed the Six Goals of Educational Equity (2006). These funds have explicit mandates to make ESG-focused investments, from mutual funds whose portfolio companies must score a high grade on ESG metrics to investment firms dedicated to ESG impact investing. [57] The aspects of Facebook that the audit focused on were informed by the aforementioned interviews, which led to a holistic review of the entire company and not just a single aspect such as employment practices. No two companies are identical. (go back), 73As You Sow: Racial Justice, available at https://www.asyousow.org/our-work/social-justice/racial-justice. https://www.sec.gov/rules/final/34-40018.htm (citing Reebok Intl Ltd. (Mar. (go back), 116See How Amazons Emissions are Hurting Communities of Color, Amazon Employees for Climate Justice, May 26, 2020, available at https://amazonemployees4climatejustice.medium.com/environmental-justice-and-amazons-carbon-footprint-9e10fab21138; Amazon workers demand end to pollution hitting people of color hardest, NBC News, April Gleiser and Leticia Miranda, May 24, 2021, available at https://www.nbcnews.com/tech/tech-news/amazon-shareholders-demand-end-pollution-hitting-people-color-hardest-n1268413. (go back), 98Wells Fargo & Company, Notice of Annual Meeting and Proxy Statement, Schedule 14A, filed with the SEC on March 16, 2021, available at https://www.sec.gov/Archives/edgar/data/72971/000119312521082907/d71313ddef14a.htm [hereinafter Wells Fargo Proxy Statement]. Just like its environmental and corporate governance counterparts, addressing social concerns can be equally important to companies and investors alike as this can translate into, among other things, value additive results. [34]. Read More. Published Mon, Apr 18 2022 4:50 PM EDT Updated Mon, Apr 18 2022 6:22 PM EDT. In SEC filings,. (go back), 30Webinar, Cyrus Mehri, Founding Partner of Mehri & Skalet, PLLC, supra note 23. 1 grew impatient with Exxon after years of declining financials and long-continued dependency on fossil fuels, with no indication of future change. According to Forbes Magazine, the past proxy season set new records with at least 467 shareholder resolutions on environmental, social and governance (ESG) issues. [64]. [58] The audit produced three reports, which ultimately described how Facebook utilized the audit process to listen, plan and deliver on various consequential changes that will help advance the civil rights of its users in a number of categories and also recommended implementation of specific action items, including to (1) continue to onboard expertise, (2) build out the civil rights leaders team, (3) expand civil rights product review processes, (4) require civil rights perspectives in escalation of key content decisions and (5) prioritize civil rights. [59] The thoroughness of the audit and the response and subsequent actions taken by the company have led to the Facebook audit being heralded by many as a big success. Our work on racial equityfocuses on our commitments as a business, as a responsiblemember of global and local communities, and as an inclusive workplace that values diversity. According to certain proponents, the point of a Racial Equity Audit is not necessarily to critique a companys current platforms and efforts. [38] Racial Equity Audits can be designed to help identify if and where these issues exist within a company so that management can address them most effectively. Morgan Stanley, and Citigroup have conducted audits in the financial world. (go back), 20Proxy Voting Guidelines Benchmark Policy Recommendations, ISS, effective for meetings on or after February 1, 2021, available at https://www.issgovernance.com/file/policy/active/americas/US-Voting-Guidelines.pdf. (go back), 104Amazon.com, Inc., Notice of 2021 Annual Meeting of Shareholders and Proxy Statement, Schedule 14A, filed with the SEC on April 15, 2021, available at https://www.sec.gov/Archives/edgar/data/1018724/000110465921050333/tm2035374-1_def14a.htm [hereinafter Amazon Proxy Statement]. New York, November 22, 2022 - JPMorgan Chase & Co. (NYSE: JPM) released today a comprehensive report outlining the results of an independent attestation examination of its reported progress of $18.2 billion toward its $30 billion Racial Equity Commitment ("REC").. JPMorgan Chase retained PricewaterhouseCoopers (PwC) to perform the examination. [108] Amazon argued that, regardless of the proposal being framed in the form of a request for a report, this did not change the fact that the subject matter of the proposed report is within [Amazons] ordinary business and thus excludable under Rule 14a-8(i)(7). Legislative or regulatory requirements are not without their own risks, and compliance with any such minimum standards would not be fool proof to insulate a company from potential ESG proposals and proxy campaigns. https://www.sec.gov/news/public-statement/lee-statement-review-climate-related-disclosure. This report is based on a survey conducted on behalf of Morgan Stanley by Brunswick Group between August 5 and 8, 2020, in the U.S. For the sixth consecutive time, Morgan Stanley Bank has been recognized with the highest rating from the Office of the Comptroller of the Currency for its work meeting the credit needs of the communities it serves. (go back), 18BlackRock Investment Stewardship, Proxy voting guidelines for U.S. securities, BlackRock, effective January 2021, available at https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-guidelines-us.pdf. . https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/nyscrfamazon012521-14a8-incoming.pdf, https://www.sec.gov/interps/legal/cfslb14b.htm, https://www.sec.gov/ix?doc=/Archives/edgar/data/1070985/000119312521165313/d184269d8k.htm, https://thehill.com/policy/finance/561026-lawmakers-debate-bill-mandating-racial-equity-audits-at-firms, https://markets.businessinsider.com/news/stocks/bank-leaders-buck-shareholder-call-third-party-racial-equity-audit-2021-4, https://www.sec.gov/Archives/edgar/data/72971/000119312521082907/d71313ddef14a.htm, https://news.bloomberglaw.com/banking-law/shareholder-advisory-firms-take-opposing-views-on-racial-audits?context=article-related, https://www.sec.gov/Archives/edgar/data/1018724/000110465921050333/tm2035374-1_def14a.htm, https://www.timesunion.com/news/article/Comptroller-DiNapoli-wants-audit-of-Amazon-s-15815322.php, https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/shareholder-proposal-no-action-responses.htm. Services Employees International Union (SEIU), Unable to concur that Rule 14a-8(i)(7) provides a basis to exclude, Unable to concur that Rule 14a-8(i)(10) provides a basis to exclude, Unable to concur with exclusion on any of the bases asserted, Materially False and Misleading Exception (Vague or Indefinite). Since our founding in 1935, Morgan Stanley has consistently delivered first-class business in a first-class way. Will Corporations Deliver Value to All Stakeholders? We deliver active investment strategies across public and private markets and custom solutions to institutional and individual investors. (go back), 96See e.g., Goldman Sachs Proxy Statement, supra note 35 (We share the proponents focus on advancing racial equity.); Citigroup Proxy Statement, supra note 69 (While we disagree with the overall approach in this Proposal, we are completely aligned with its stated goal of addressing racial inequity in the financial sector.); see also Lawmakers debate bill mandating racial equity audits at firms, The Hill, Abigail Goldberg-Zelizer, June 30, 2021, available at https://thehill.com/policy/finance/561026-lawmakers-debate-bill-mandating-racial-equity-audits-at-firms; Shareholders want to hold corporate giants accountable for their commitments to racial equity and justice. (go back), 93See J&J No-Action Letter, supra note 78. The increasing focus on environmental, social and governance (ESG) considerations at public companies, including this years highly publicized proxy contest at Exxon Mobil Corporation (Exxon), has demonstrated the growing importance of understanding ESG and the implications it can have for investors and companies. (go back), 5ESG Matters (Part II), ISS EVA, Dr. G. Kevin Spellman and David O. Nicholas, May 18, 2021, available at https://www.issgovernance.com/library/esg-matters-part-ii/. The $10 million Fund for Racial Equity builds upon more than $200 million Goldman Sachs has granted over the last decade to organizations serving . 1 launched a proxy campaign in December 2020 to effect change on Exxons board of directors. ; see also Comptroller DiNapoli Wants Audit of Amazons Racial Justice Practices, Times Union, Rick Karlin, December 21, 2020, available at https://www.timesunion.com/news/article/Comptroller-DiNapoli-wants-audit-of-Amazon-s-15815322.php. Other external forces that may prompt public companies to adopt Racial Equity Audit policies are the SEC and the securities exchanges. Input from civil rights organizations, employees, and customers should be considered in determining the specific matters to be analyzed. Governance teams and boards have been warned to stay alert to the prospect of facing shareholder proposals in 2022 urging them to commission racial equity audits. Morgan Stanley (NYSE: MS) is a leading global financial services firm providing investment banking, securities, wealth management and investment management services. (go back), 74Big US companies pushed to tally progress on racial justice, Yahoo! Internal Audits Role in Driving Diversity, Equity and Inclusion Amy Fread, CISA Senior Manager Deloitte & Touche LLP Korynne Bernard . [98] Wells Fargo also said it is making efforts toward expanding [its] diversity and inclusion commitments with a focus on hiring, promotions, and turnover, with increased accountability across all of those areas and [is] taking specific actions in support of these commitments. [99] The board of directors of Goldman recommended that shareholders vote against the shareholder proposal on a Racial Equity Audit, saying it has taken additional steps toward racial equity in the past year, including assessing its shortcomings and committing to hiring more analysts from historically Black colleges and universities, while maintaining [its] existing programs focused on other diverse populations. [100] Goldman also pointed out that it is [b]uilding upon more than $200 million of grants in minority communities and to minority-owned businesses over the past two decades and in 2020 [Goldman] created the Fund for Racial Equity to support the vital work of leading nonprofits that are addressing racial injustice, structural inequity and economic disparity, which has committed $10 million from GS Gives in addition to matching employee contributions to recipient organizations. [101]. The investigation will be conducted by attorneys at Covington & Burling, according to an external blog post on Citi's website. (go back), 79See Citigroup No-Action Letter, supra note 78; JPMorgan No-Action LetterFebruary, supra note 77. Racial equity audits started catching on after the events of 2020 prompted a racial reckoning in the U.S. 30-10825; 34-89670; File No. Id. . The organization designed an audit process through a SACOG-wide survey that collected qualitative and quantitative research. Recently, investors and companies have also begun to appreciate that positive financial returns are often associated with investing in initiatives working towards racial equality. BlackRock, with $8.7 trillion of assets under management, said in a memo to employees Thursday that an external review of how its diversity, equity and inclusion policies impact stakeholders will. We value our commitment to diverse perspectives and a culture of inclusion across the firm. Washington, D.C. Our Impact-Risk-Profitability (IRP) framework will guide us to deeper and more intentional impact. hj0_NtJ)=;nhuB)ex(X V *pwztOxqzYr22#LPL>/k~i6jEi|MR Racial equity audit votes At least 19 proposals calling for a racial equity audit at S&P 500 companies garnered an average of 44% support among shareholders last year, an increase from. Otherwise, these proponents posit, a lackluster or hastily conducted Racial Equity Audit or failure to take meaningful action in response to an audit may actually have the opposite effect for the implementing institutioninstead of insulating the company from potential proposals demanding Racial Equity Audits, faulty or perfunctory audits may instead create a target on the institutions back for ESG activists in the following years.
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