The year of 2020 underscored the longstanding racial inequities in the U.S., from the murder of George Floyd to the disproportionate effects of COVID-19 on communities of color. The pandemic’s death rate in many communities of color was double that of white ones—a direct result of generations of racial inequity.
A racial equity audit can be a powerful tool to address these disparities. It provides businesses and organizations a way to assess their own state of equity and help them live up to their commitments to racial justice. Meanwhile, pressure is building from shareholders as the public conversation around systemic racism gains urgency and investors embrace efforts to push progress forward.
What Is a Racial Equity Audit?
A racial equity audit analyzes how a company’s operations affect communities of color and non-white stakeholders. The audit may draw on sources such as job postings, publications, internal documents, and gathered data. Hiring rates for Black, Indigenous, and people of color (BIPOC) applicants, pay and promotion data for BIPOC employees, and related policies, culture, and management demographics may also factor. This process is far more comprehensive than the corporate diversity disclosures some shareholder resolutions have requested in the past.
An audit can also examine how a company interacts with its customers or with the public. For example, the 2019 Starbucks report titled An Examination of Starbucks’ Commitment to Civil Rights, Equity, Diversity, and Inclusion sought to understand how implicit bias could lead to racial discrimination against customers and detailed its efforts to address it.
Shareholders Press Companies to Investigate Racial Impacts
Calls for racial equity audits are not just coming from outside businesses and organizations but also from within. As shareholders call on companies directly to call for equity audits, corporations face new pressure to confront their records on racial issues and publicly address shortcomings in equity and inclusion.
In the 2021 proxy season, shareholders have filed at least 435 resolutions on environmental, social, and sustainability issues. Racial justice and equal opportunity saw a particular increase. “It’s still a white man’s world at the top,” said Michael Passoff, CEO of Proxy Impact. The shareholder advocacy group tracks resolutions on environmental, social, and governance issues. “Companies came out making statements in support of racial justice, and now shareholders are going to hold them to it.”
ESG Investors Stress the S
Environmental, social, and governance (ESG) investors have taken note of the damage that systemic racism inflicts on society and are seeking ways to promote social change. In this way, they seek paths to mitigate gender and racial inequities in their investment portfolios.
“We must ask ourselves,” notes Laura LaRosa, executive director of client development at Glenmede, “What steps can we take to advance progress through our investments? How can I structure my portfolio with a focus on the S?”
Many ESG investors hear the call. In order to conduct audits and fulfill the pledges given in the aftermath of George Floyd’s death and subsequent Black Lives Matter protests, the labor-affiliated CtW Investment Group has prompted 19 proposals at companies and major banks including Bank of America, Citigroup, and JPMorgan Chase.
Progress remains slower than it should be on closing the gaps in racial equity. Nevertheless it continues forward—and investors have an important role to play in the process.