What’s going on?
Between June and October of this year, Bank of America, Citi and JPMorgan Chase have invested billions of dollars to commit to the advancement of racial equity. Specifically, the former two firms have invested $1 billion each, while JPMorgan recently announced the investment of a staggering $30 billion.
The US has been gripped in a bout of civil disturbance since the murder of George Floyd in May. The coinciding of this event with the 2020 elections and the racial disparities that have become apparent from the COVID-19 pandemic has meant that conversations revolving around racial economic inequality and institutional racism have been circulating for the last few months.
Systemic, or institutional, racism is the way in which racism has been so intimately ingrained into our society that we don’t even realise it’s there. Systemic racism is subconscious and does not exclusively lie with the outspoken bigot. It is likely each and every one of us have bought into the concept of systemic racism because it is tragically the default of our society. The discussion of systemic racism extends over a number of fields and there is a danger of getting lost in the philosophy of it, but I am keen to limit our discussion to the commercial context of this doctrine.
Systemic racism in the US has an incredibly deep history that has evolved since the time of slavery. This evolution has led to a modern economic landscape where racial minorities – black and Latino people especially – are the victims of stark and persistent inequities. This largely begins with economic opportunities. Take the following example: in a wealthy neighbourhood, schools are well funded, parents can hire tutors and children have extra-curricular activities all of which help them to succeed, while in an underfunded area, the landscape and subsequent opportunities to excel are quite the opposite. Geographical studies show very clearly that there is massive racial disparity between the populations of these neighbourhoods, where predominantly white families live in wealthy areas, while underfunded areas are populated with racial minorities.
Naturally, those from well-funded neighbourhoods have more chances to excel whether that is to get into top universities or get a promotion. Contrastingly, those from under-funded neighbourhoods are restricted in their opportunities regarding higher education and job opportunities, and may even lead to effects on mental health and self-perception, all of which leads to the incredible wealth gap that we see today. The Federal Reserve’s most recent Survey of Consumer Finances reported the median White family has more than 10 times the wealth of the median Black family in 2016, where the wage gap and a family’s ability to create wealth is directly correlated.
This discussion barely scratches the surface of what systemic racism actually is and the impact it has had on our communities. The point to understand is that, even though systemic racism has been hitting the headlines relatively recently, it is an age-old concept that has incrementally led to the society we are faced with today. It is this problem that banks such as JPMorgan, Citi and Bank of America are finally looking to tackle.
So, what are the programmes?
Citi Bank is launching an initiative called ‘Action for Racial Equality’, breaking a $1 billion initiative in the following 5 ways in the next three years:
- $550 million to supporting homeownership for racial minorities
- 350 million towards supporting Black-owned business
- $50 million towards investing capital for Black entrepreneurs
- $100 million will support the growth and revenue generation of minority-owned banks, and
- $100 million of Citi Foundation grants will go toward community change agents working towards racial equality
Bank of America intends to focus their investments on improving access to jobs and helping build skills and training for workers. Similarly to Citi, BoA is committed to supporting local small businesses and housing, as well as investing in health services in the context of the pandemic. Furthermore, they intend to specifically focus on building partnerships with historically black universities and Hispanic-serving institutions that help with research programmes.
Finally, JPMorgan is intending to ‘harness its expertise in business, policy and philanthropy’ to provide opportunities to underprivileged communities over the next five years, focusing especially on Black and Latino communities. The areas of focus include the promotion and expansion of affordable housing, growing minority owned businesses, improving financial health or racial minorities and accelerating the investment in their own employees to build a more ‘diverse and inclusive workforce.’
In terms of the reasoning behind these programmes, it is apparent that the banks are intending to target the root of racial wealth discrepancies, with Citi CEO Michael Corbat saying:
“Addressing racism and closing the racial wealth gap is the most critical challenge we face in creating a fair and inclusive society and we know that more of the same won’t do.”
Additionally, all three banks seem to have employed a level of introspection and self-reflection into their programmes, aiming to hold themselves accountable in their strategies of tackling the issue. JPMorgan has stated:
“Progress will be tracked regularly and shared with senior leadership across the firm, as well as externally with the Chase Advisory Panel, to assess performance and hold the business accountable. These efforts will further allow for maximum impact and bring an enhanced equity lens to the firm’s business.”
I would highly recommend reading the articles linked to gain a deeper understanding of the perspective of banks during this time and to hear what prominent figures in these institutions have to say about the matter.
What is the benefit of banks getting involved?
– Commercial reasons
Let us first consider the benefit for the bank themselves: social issues have moved into the forefront of investor’s minds. In the context of ESG investing, every month between 2016-19, sustainable funds received 15% more investment from wealthy investors than traditional funds and BlackRock, the world’s largest asset manager, put ESG at the heart of their strategy this year. Essentially, we are seeing now, more than ever before that shareholders and investors truly care about the impact firms are making on the society around them. Therefore, while these investments by banks are excellent for ethical reasons, it is likely that it will lead to positive reactions from shareholders as well, benefiting their financial structure as well as reputation.
– Social reasons
It is well known that institutional influence is incredibly significant, from the sphere of politics to climate change. The fact that banks have taken these steps, not just to fund the racial equity gap, but just to recognise and acknowledge its relevance is huge for the legitimisation and importance of this issue. Very simply, these programmes show that banks care and if banks care, there is a potential for a ripple effect and the issue of systemic racism to become more relevant in politics and the commercial world in general. Banks are gradually taking on the responsibility themselves, recognising their flaws and building programmes to hold themselves accountable, as well as improve society at large. Furthermore, the banks that have taken these steps are global figure heads, meaning other branches in the world may also benefit from such programmes, thus tackling institutional racism in those societies as well. The UK is a clear and important target for such reforms as well.
A quick note to applicants
When I was applying for firms, I became very lost in the hubbub of which firm was the most global, who had the best clients and how many departments were ranked as tier 1, all of which are valid considerations. But as I delved deeper into my research of firms, I began to realise how important the values of a firm are to consider and whether they match that of your own character, considerations many of us often underestimate.
The ‘culture’ of a firm is often a confusing point of discussion for applicants, because how different can cultures actually be? However looking for programmes and initiatives firms are taking to make a legitimate, tangible impact in areas you may be passionate about, such as racial inequality, gender inequality, social mobility or the environment, can be a great way of understanding what the firm’s culture and values truly encompass.