JPMorgan Chase's recent progress report on its 2020 commitment to racial equity lacks both methodological clarity and guidance on how the bank could improve, some shareholders said Tuesday.
America's largest bank in November released a report outlining $18.2 billion of the $30 billion it promised to direct toward programs and services that are designed to narrow the racial wealth gap.
But the report, which was audited by JPMorgan's longtime accounting firm PricewaterhouseCoopers, drew criticism Tuesday from the shareholder group that pushed for its creation. That group gave a more favorable review of a racial equity audit report released by Citigroup on Monday.
The JPMorgan report only reveals surface-level details about the bank's work toward its stated goals of providing more opportunities for homeownership, increasing access to affordable housing and bettering the financial health of Black, Latino and Hispanic households in the U.S.
"It just really missed the mark," said Tejal Patel, corporate governance director at SOC Investment Group, which works with pension funds. "There was a fundamental misunderstanding of what a racial equity audit is."
Banks small and large launched initiatives to redouble their work toward racial equity in 2020 in the wake of protests sparked by the murder of George Floyd. Now, financial institutions are taking stock of their progress so far.
JPMorgan said its report did it exactly what it was designed to do.
"It examined our racial equity commitment to date and found that we're making substantial progress with more work to do," JPMorgan said in a statement.
Among the criticisms leveled against JPMorgan: the bank wrote the report itself and had it vetted by a third party instead of engaging a third party to write the report; the report didn't assess diversity, equity and inclusion issues within the bank; and much of the funds that reportedly constitute parts of the bank's $30 billion commitment were related to existing loans and programs at JPMorgan.
"It's unsurprising that JPMorgan seems to think its regular business operations are racial equity work when its business model has for centuries been predicated on extracting wealth from Black and brown communities," Saqib Bhatti, co-executive director of the Action Center on Race and the Economy, an advocacy group that challenges the status quo at financial institutions, said in a statement.
Citi's audit, on the other hand, drew praise from SOC for providing an independent review of the megabank's racial equity initiative.
Rolled out in September 2020, Citi's $1 billion plan, Action for Racial Equity, has four goals: expanding banking and access to credit in communities of color; investing in Black entrepreneurs; investing in affordable housing while supporting more Black homeownership; and becoming an anti-racist institution by improving Citi's policies and practices.
Citi was the first major U.S. commercial bank to allow an outside investigation of the way it does business and invests in nonwhite communities. It
Patel said that Citi's analysis was customized to its products, policies and goals.
"Overall, I think the report was pretty well done because it does provide an objective assessment with the racial equity lens we were hoping for," Patel said. "And it gives very practical recommendations for Citi to proceed, which will assist them in achieving their goals."
The law firm Covington & Burlington conducted Citi's audit. Citi brought the firm on board last year to assess the design and implementation of its initiative and suggest ways that it could achieve the goals of the plan and integrate them into its core business operations.
Covington said the audit took place "over the course of several months," during which the law firm "worked closely with a team at Citi to understand key elements and status of Citi's efforts to address the racial wealth gap and to identify potential opportunities for improvement."
The law firm found that Citi's plan design "effectively leveraged Citi's expertise, network of business partners and resources to address some of the key factors contributing to the racial wealth gap" and noted that while Citi hasn't achieved every objective or commitment it laid out, "it has made progress toward many of them two years into its initial three-year commitment."
Among Covington's recommendations: Citi should consider designating a senior executive or function to oversee Citi's racial wealth gap closure plan on a permanent basis and figure out how to integrate the objectives of its racial equity plan into its core business.
Citi should also continue to help consumers of color build and maintain higher credit scores and keep exploring ways it can work with regulators to come up with underwriting criteria that use alternative credit models, according to Covington.
On Tuesday, a Citi spokesperson said the bank is weighing its options and "using the report as a tool to inform future planning," but that the company cannot share details yet. Some of the areas for improvement are already in the bank's pipeline for 2023, the third and final year of the commitment, according to the spokesperson.
The JPMorgan and Citi racial equity audits are the first such audits released by financial institutions, Patel said. BlackRock and State Street are expected to release similar reports next year.
In September, Wells Fargo also
SOC Investment Group is still trying to get Bank of America to agree to a third-party audit of its racial equity initiatives.
The group has filed a proposal asking shareholders to vote on whether the Charlotte, North Carolina-based company should engage an independent auditor, according to Patel. Last year, BofA shareholders voted down a similar proposal.
