JPMorgan’s racial equity audit criticised by SOC Investment Group

Pioneer behind racial audit proposal publishes analysis of financial giant’s report, highlighting ‘deficiencies’.

JPMorgan Chase’s racial equity audit has been criticised for its “deficiencies” by the SOC Investment Group, the US investment firm whose pioneering proposal prompted the US financial heavyweight to commit to undertake it. 

In its analysis of the audit, which JPMorgan published last month, SOC Investment stated: “JPM and PwC [which performed the audit] appear to have a basic misunderstanding of what a racial equity audit is and should be, despite being provided highly instructive samples from other prior civil rights audits conducted by Starbucks, Airbnb and Facebook.” 

Shareholder pressure prompted JPMorgan to commit to the audit in March this year. That decision followed 40.5 percent of shareholders supporting SOC Investment’s proposals in May 2021.  

Filed in the wake of the killings of George Floyd and Breonna Taylor, and growing awareness of the Black Lives Matter campaign, the first batch of proposals in 2021 resulted in a flurry of commitments from firms. This year, racial justice audit proposals achieved majority support at eight companies.   

JPMorgan unsuccessfully tried to exclude the 2021 resolution via the US Securities and Exchange Commission’s “no action” process.

The firm’s CEO, Jamie Dimon, made his views clear at a hearing of the US government’s House Committee on Financial Services, also in May 2021. He was reported to have said that an audit would add only “bureaucracy and BS” to the firm’s efforts to help communities of colour.  

Following a re-filing of the proposal for the 2022 proxy season, however, JPMorgan agreed to do an audit, prompting SOC Investments to withdraw its request.  

In its audit report, JPMorgan stated that the purpose was to “perform an independent attestation examination of the reported progress towards the REC [Racial Equity Commitment]”.  

The REC was a pledge made by JPMorgan in 2020 to direct $30 billion towards helping close the racial wealth gap among Black, Hispanic and Latino communities via “incremental lending and equity investments, as well as philanthropic capital and products and services”. 

SOC Investments stated in its analysis: “There are several deficiencies and concerns associated with the audit process and related disclosures.” 

One key issue was the appointment of PwC, “a financial auditor with no obvious experience or expertise in the areas of civil rights and racial equity”. 

PwC’s audit was undertaken in accordance with the American Institute of Certified Public Accountants, which, according to SOC Investments, “do not take into account racial equity related impacts that JPM’s practices may have… a central request in the proposal.” 

Moreover, SOC continued: “The third-party attestation confirms this deficiency, stating that PwC’s opinion does not ‘cover or provide assurance on whether or not JPMorgan Chase is achieving its commitment to advance economic growth and opportunities for Black, Hispanic and Latino communities’.” 

The independence of the process was also questioned by SOC in its analysis. It noted that unlike many other civil rights or racial equity audit reports by big US firms, JPMorgan’s was authored by the group itself rather than by the auditor.  

Another criticism was the absence of disclosure of any of the recommendations from PwC and any subsequent changes brought in by JPMorgan.  

Also on transparency, SOC noted that the audit report “does not list which stakeholders were spoken to by the auditor or JPM directly… Nor does it discuss which, if any, civil rights experts were consulted given PwC’s lack of civil rights experience”. 

Dieter Waizenegger, executive director at SOC Investment, told Responsible Investor that they made it “very clear that civil rights expertise would be a key requirement and component of it”, but “unfortunately they decided to go ahead and focus on the word ‘audit’”. 

He added: “I think it’s clear that if they wanted to do an audit like the one that Airbnb and Starbucks did, they could have done that.” 

Now that more and more racial justice audits are being published, “shareholders can scrutinise them and will have a chance to really make up their minds themselves which ones are taking this seriously and which ones are playing games”, Waizenegger said. 

He also noted that SOC Investments is about to embark on pre-proxy season conversations with other investors “now that the reports are out to really think through and take investors’ temperatures on this topic”. 

While it is too early to say how it could play out this season, Waizenegger said that audits are something on “our agenda and, I think, on the agenda of many other investors as they go into the annual meetings and evaluate the board of directors”.  

A spokesperson for PwC told Responsible Investor that it does not comment on client matters. JPMorgan had not commented at the time of publication.