Linking executive pay to a company’s diversity goals is so 2020. In 2021, the way to ensure progress on environmental, social and governance (ESG) initiatives may be linking them to lending costs.
Investment firm BlackRock has agreed to pay a higher or lower annual interest rate and commitment fee to a group of lenders on a $4.4 billion credit facility depending on its improvement on particular ESG benchmarks, according to a Securities and Exchange Commission filing made public Tuesday.
Specifically, BlackRock aims to boost to 30% by 2024 the proportion of Black and Latinx people it employs. The company also wants to increase by 3% each year the number of women in leadership roles. And it wants to quintuple — to $1 trillion by 2030 — its assets under management from sustainable investments.
So much so that the company baked those three metrics — though not by number — into a contract in exchange for access to emergency funding over five years. BlackRock also sought a $400 million increase in the value of the facility.
"The ESG-linked credit facility enhances BlackRock’s commitment and accountability to achieving certain sustainability goals by integrating a component of financial alignment through our liquidity management strategy," a BlackRock spokesperson told The Wall Street Journal.
Wells Fargo CEO Charlie Scharf turned heads last June when he said the efforts by the bank’s operating committee members to increase representation and inclusion of diverse employees would be reflected in their year-end pay packages. He then set out to double the number of Black leaders at the bank within the next five years.
BlackRock’s move spreads the accountability to the firm’s bottom line — a notion Rich Fields, a partner at King & Spalding, said is spreading.
"More institutions have been thinking of sustainability-linked finance more seriously in the last year," he told The Wall Street Journal. "There’s growing interest among borrowers and lenders in demonstrating commitment to ESG performance through their financing arrangements."
The contract represents a doubling-down by BlackRock on its diversity and ESG efforts. The company, at the behest of a stakeholder, has committed to an independent audit — beginning next year — to see how its operations may have contributed to racial inequities in the financial system, Bloomberg reported Monday.
Banks such as Citi, Goldman Sachs, Wells Fargo and Bank of America are asking their shareholders to vote against calls for such audits, saying they are addressing racial injustice in their own ways. Like Wells, Goldman has laid out a number of goals for diverse hiring.
Citi and Bank of America have pledged more than $1 billion each to fight racial inequality. Citi last month achieved the highest representation of women on its board among the 20 largest global banks. It also was the first large U.S.-based bank to divulge raw pay gap data among its employees, along gender lines.
JPMorgan Chase and Citi have asked regulators to block shareholder proposals demanding racial audits. Those requests were denied, Bloomberg reported.
Morgan Stanley agreed to undergo an internal review of the diversity of its employees and senior leadership, and set up a meeting with shareholders before next year’s annual meeting to ensure equity for nonwhite stakeholders, according to the wire service.
State Street shareholders have also filed racial audit proposals. The bank typically has been an outspoken advocate for ESG progress — at least at the board level. State Street Global Advisors said in January it would start voting against board members of S&P 500 and FTSE 100-listed companies if those firms fail to disclose their boards’ racial and ethnic makeups.