Young workers, clients press banks to take stand on social issues

Banks are feeling pressure from more sources — including young workers — to take stands on environmental, social and governance issues, executives said this week.

Though much has been made of activist shareholders’ focus on issues ranging from gender pay disparities to greenhouse gas emissions, employees and even customers are driving much of the change, several bankers said at a virtual roundtable tied to American Banker’s 18th annual Most Powerful Women in Banking celebration.

“At BNP, we really felt it all over, but the employees, the newer generation, the young grads we’re hiring out of university, have really made us move the needle,” said Claudine Gallagher, chief control and conduct officer for BNP Americas.

ESG is a broad label, but the concept has become more prominent in the past few years, especially recently because of the fallout from the COVID-19 pandemic and ongoing protests over racial inequality.

The pandemic’s disproportionate impact on low-income communities and people of color led a number of banks to pledge sizable amounts of money to addressing racial inequality in housing, education, employment and small business. Most recently, JPMorgan Chase committed $30 billion over the next five years to racial equity, including a pledge to make more home loans to Black and Hispanic customers and changes to the way it measures its progress on diversity.

Jennifer Jolley-Johnston, a senior vice president at Zions Bancorp. in Salt Lake City, offered one theory for why there may be less investor focus on ESG: The nature of banking is more abstract, and doesn’t involve manufacturing or other modes of operation that tend to be lightning rods. Analysts and investors aren’t worried that a bank is directly employing child labor, for example.

“They’re looking at [earnings per share] as much as they’re looking at ESG,” she said.

But even if investor interest is sometimes tepid, the preferences of the general public may lead the investor community and financial services industry in the direction of change anyway.

“Because this is going to become such a driver of how individuals invest, I think [ESG] will be more front and center,” said Hannah Grove, the chief marketing officer at State Street in Boston.

Some of the bankers participating in the roundtable discussed whether the banking industry would follow through on all its pledges and be able to make a lasting impact. Grove said she was hopeful the events of this year would serve as a catalyst for lasting, positive change.

“The fundamental issue is that until we have the products and solutions that truly service all demographics and that we think of it like any other business outcome and make it measurable, there can be a degree of ESG washing,” Grove said, a reference to the process by which some companies provide misleading information about steps they’ve taken to address controversial subjects.