The Power of Finance to Shape the World: A Focus on Racial Equity
September 10, 2020 | DIgital
1:00 pm – 2:00 pm EDT
Financial institutions are uniquely positioned to take a leading role in accelerating progress toward a more sustainable, inclusive, and equitable world. Their control over access to capital gives them an ability to shape ESG standards and catalyze corporate action.
The COVID-19 pandemic has laid bare the longstanding structural racism and inequality in our society. Increased public attention to and exposure of these issues has driven leaders across sectors to commit to bold and meaningful action. The financial sector also has a compelling business reason to do so—if left unchecked, inequality erodes market stability and constrains long-term economic growth.
This conversation explored how financial institutions can, and must, not only advance racial justice in their own teams and culture, but also leverage their capabilities as service providers, lenders, investors, and insurers to address some of the main drivers of racism and inequality.
BCG has worked extensively with its clients to develop a Total Societal Impact framework, as investor evidence from around the world has shown that companies that maximize value for all stakeholders, not just certain groups, will become more resilient and profitable in the long run.
Lowry and Newsom Reeves discussed the history of African-Americans in the US, noting that the black community has been continuously disadvantaged from slavery to Jim Crow laws to modern-day discrimination. While white household net worth has increased by 25% from 1983 to 2015, black household net worth has decreased by 16% in the same period. As Lowry stated, structural racism has been in the making for over 400 years, and there is no quick fix for it.
Lowry and Newsom Reeves also raised the need to create wealth in low-income communities, especially as many people of color have had a hard time building wealth due to historical biases. Furthermore, when a population of individuals cannot build wealth, that also means the communities they live in have not been well invested in.
Chau noted several other actions taken to correct the imbalance. Asset managers and asset owners hold leverage as shareholders and lenders to companies, and they can use this to demand disclosure and set goals for a company’s diversity and inclusion progress. These methods have worked successfully with gender diversity, as seen by Goldman Sachs’ requirement for companies performing an IPO to have at least one woman on the board.
Panelists discussed what aspects make certain programs better than others. Lowry pointed out that many successful corporate diversity programs are led by women and minorities who think differently and have unique insights. Rather than recruiting people you feel comfortable with, Lowry recommended leveraging diversity to affect change. Chau highlighted the need to not make assumptions about how businesses and individuals access financial services. For instance, the recent Paycheck Protection Program (PPP) was intended to provide a lifeline of support to small businesses yet only 2% of black-owned small businesses received financing. This disparity was caused by assumptions, such as expecting small businesses to have the financial infrastructure to fill out the initial forms.
Chau also discussed finding a balance between providing enough access and too much access to credit. In recent history, one of the largest detractors from black wealth has been the share of the population that has fallen into debt traps, like predatory lending and subprime mortgage prices. Chau emphasized the need to align the goals of financial institutions with those of customers by focusing on building financial wellness instead of focusing on the total number of products driven to the customer.
In their closing remarks, panelists provided advice for participants looking to enact change. Newsom Reeves stressed that equity needs to be fully integrated into every aspect of culture, teams, and business practices to be effective. Lowry suggested that participants take action to educate themselves and those around them while thinking big and investing in minority communities. Finally, Chau emphasized that change starts from within and encouraged participants to identify what they could do for their team and colleagues.