Environmental and social issues are increasingly being used to shape business practice as companies recognize the link between strong ESG performance and profit. But for those that continue to put up resistance, investors and financial institutions are playing an important role in driving change. Case in point: BlackRock CEO Larry Fink has sent a letter to CEOs of the world’s largest public companies to start accounting for the societal impact of their companies — or else, while Citi has committed to closing the gender and ethnicity wage gap in response to shareholder concerns.
Earlier this week, Larry Fink, CEO of investment bank firm BlackRock, sent an open letter to business leaders saying that in order to continue receiving the support of BlackRock, social responsibility needs to rise to the top of their priority lists. Managing more than $6 trillion in investments, BlackRock has substantial global influence, which gives Fink’s “request” considerable weight.
In the letter, Fink sheds light on the void the private sector is increasingly being expected to fill, as governments fail to adequately prepare for the future, on issues ranging from infrastructure to retirement and climate change. “Indeed, the public expectations of your company have never been greater,” Fink wrote. “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers and the communities in which they operate.”
Though Fink stated what many of us have already been thinking, his decision to vocalize these sentiments demonstrates just how far the corporate world has come. BlackRock — and many companies like it — have, in the past, done little to put pressure on companies and hold them accountable for their impacts. Now, social responsibility has just about reached the point where it is no longer merely a competitive advantage, but rather a requirement for remaining relevant, and, in some cases, a guiding principle deeply ingrained in business strategy — a fact that Fink fully acknowledges. “Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders,” Fink added.
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This position is demonstrated in BlackRock’s recent dealings with Exxon Mobil. In 2017, the firm supported a shareholder proposal for Exxon to improve its climate change disclosures and criticized the oil giant for its board members’ lack of engagement with shareholders. Exxon has since agreed to publish climate impact reports.
While it’s unclear at this stage what exactly BlackRock intends to do from here on out, we can expect the firm to keep closer tabs on the actions and impacts of its investments, engage more with board members and, in the case of "bad behavior," administer consequences.
Meanwhile, Citigroup and Arjuna Capital are taking steps to provide gender and ethnicity wage data and commit to closing the gap, making it the first US bank to respond to shareholder concerns. In response to Citi’s steps, Arjuna Capital — an investment firm focused on sustainable and impact investing — has withdrawn its gender pay shareholder proposal on Monday, January 15, 2018.
Citi’s announcement represents a major shift for US banks and credit card companies, since no financial services company so far targeted by shareholders for gender pay has taken such action.
Bank of America, MasterCard, American Express, JP Morgan, Wells Fargo and Citi all rejected proposals in 2017 asking for detailed reports on the percentage pay gap between male and female employees across race and ethnicity, including base, bonus and equity compensation, policies to address that gap, the methodology used and quantitative reduction targets.
To date, Citi is the first bank targeted to respond with quantitative reporting.
In a memo posted to its website, Citi said: “At Citi, our continuing focus on pay equity furthers our goal of being the employer of choice for employees of diverse backgrounds, and it supports our efforts to attract and retain the best talent and reward performance consistent with our Leadership Standards. These are clear business imperatives for Citi, and we remain firmly committed to them.”
“Citigroup is stepping into a leadership role on the gender pay gap that we have not seen from any of its US financial peers. This is a tipping point for Wall Street Banks. We expect women will not only receive the pay they deserve at Citi, the company will reap the benefits of talent acquisition and retention so that more women can move into leadership. Other leading banks can either follow Citi’s example on gender pay or risk further laggard status on issues of concern to women,” said Natasha Lamb, managing partner at Arjuna Capital.
Arjuna Capital filed nine shareholder proposals for the 2018 proxy season, asking Citibank, JP Morgan, Wells Fargo, Bank of America, Bank of New York Mellon, AmEx, Mastercard, Reinsurance Group and Progressive Insurance to publish the companies’ policies and goals to reduce the gender pay gap.
The financial services sector has been under scrutiny for a lack of female representation in senior roles, despite a majority of female employees. In the UK, where employers are required to publish their gender pay gaps by April, banking peers have been called out for having some of the largest median pay gaps, 24 percent on average.