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Three of Canada’s big banks have yielded to investor pressure to have outside firms assess the effectiveness of their diversity and inclusion policies, but two – Royal Bank of Canada RY-T and Bank of Montreal BMO-T – are resisting.

Canadian Imperial Bank of Commerce CM-T and National Bank of Canada NA-T have said they will conduct a “racial equity audit,” in which a third party analyzes a company’s employment, compensation and business practices, including how it sells products and services. Companies are then expected to publicize the findings and use the feedback to fix problems.

In doing so, the two are joining Toronto-Dominion Bank TD-T, which agreed in 2022 to engage in such an audit.

Politically progressive shareholders in Canada and the United States are bringing the issue to the fore by asking companies to conduct the audits. If they refuse, the shareholders often place a proposal on the companies’ proxy circulars so all shareholders can weigh in on the matter, applying additional pressure by forcing the companies to articulate why they won’t do the audit.

In Canada, the BC General Employees’ Union approached TD last year. This year, the union was joined in making the request at RBC and BMO by Toronto’s Atkinson Foundation, which is represented by the Shareholder Association for Research and Education (SHARE), an advocacy group. SHARE also supported Atkinson in the proposal at National Bank and backed the IBVM Foundation in filing the proposal at CIBC.

Shareholders have not yet approached Bank of Nova Scotia BNS-T with a racial equity audit proposal.

The shareholders withdrew their proposals at CIBC and National Bank after the two agreed to the requests. Since RBC and BMO refused, they face the proxy proposals, which are non-binding.

The banks’ annual general meeting season kicks off this week, with Scotiabank and CIBC on Tuesday. RBC shareholders meet Wednesday in Saskatoon. BMO shareholders meet April 18 in Toronto.

Sarah Couturier-Tanoh, a SHARE associate director who’s been speaking to the banks, says racial equity audits provide a third-party check on companies’ promises and minimize risks that a business will stumble into legal or regulatory trouble because of inattention to matters of equity.

“Most of the time, they think they’re doing great things and they think they’re making a difference, but without a proper monitoring system, it’s really hard to go to the effectiveness of their initiative,” she said. “And this is problematic from an investor perspective, especially when you invest so much money into these kinds of initiatives. When you see Canadian banks investing $100-million in an equity initiative, they’d better be effective.”

RBC, in its explanation for why shareholders should reject the proposal, acknowledged “wide-spread systemic racism” and cited its Action Plan Against Systemic Racism and various programs that promote equity and greater lending to disadvantaged groups. It also noted that in late 2020 it performed a comprehensive employment system review under the Employment Equity Act.

The bank, however, doesn’t want to do an audit until the banking industry develops standards that apply to all. “We believe further exploration of such a third-party racial equity audit through the Canadian Bankers Association is needed so that a robust and cross-sector assessment and approach can be established,” RBC told shareholders.

RBC spokesperson Gillian McArdle and Mathieu Labrèche, a spokesperson for the Canadian Bankers Association, confirmed that RBC had approached the CBA.

For its part, BMO cited its “Zero Barriers to Inclusion 2025″ plan and listed 18 programs or financial commitments in the U.S. and Canada, including “BMO EMpower,” US$5.5-billion in loans and investments in underserved communities and the Indigenous Advisory Council it formed in 2020.

BMO said that since it has “a commitment to continue to track our progress … management does not view a third-party racial equity audit to be additive or necessary at this time.”

In its proxy circular, National Bank said it already had work under way with an external auditor related to the United Nations’ Principles of Responsible Banking and that it will collaborate with SHARE “on further racial equity audit work.”

CIBC said its audit will allow it “to build on” its existing commitments. The bank will report on its employment policies as part of its fiscal 2024 disclosures and on its commercial practices in fiscal 2026.

In an e-mailed statement, Scotiabank spokesperson Clancy Zeifman said the bank is “evaluating a racial equity audit.” He said the bank tracks progress on employee diversity goals and “continuously strives” to remove bias.

SHARE’s Ms. Couturier-Tanoh said “all these banks have established plans to better support communities of colour. And I genuinely thought all the banks would be responsive [to doing an audit], especially considering TD’s early commitment and considering that we’ve had several banks in the U.S. also committed to do that.”

The RBC and BMO shareholder proposals may get a boost after proxy adviser Glass Lewis & Co. Inc. recommended a “yes” vote, saying “the requested audit could help to identify and mitigate potentially significant risks.”

Glass Lewis noted that, in January, a U.S. subsidiary of RBC, City National Bank, agreed to pay US$31-million to settle with the U.S. Justice Department after it accused the bank of refusing to underwrite mortgages in predominantly Black and Latino communities in Los Angeles. It was the largest settlement of its type in the history of the Justice Department.

RBC’s Ms. McArdle said “City National is committed to ensuring that all consumers have an equal opportunity to apply for and obtain credit,” adding that the bank is engaged in “a robust community lending program that reaches beyond the terms of the settlement.”

Institutional Shareholder Services, the largest of the proxy advisers, recommended shareholders vote against the proposals. ISS noted the two banks’ prior commitments and said in its BMO report that “there does not appear to be consensus supporting the practice in the form presented.”

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 23/05/24 3:35pm EDT.

SymbolName% changeLast
Royal Bank of Canada
Royal Bank of Canada
Bank of Montreal
Bank of Montreal
Canadian Imperial Bank of Commerce
Canadian Imperial Bank of Commerce
National Bank of Canada
Toronto-Dominion Bank
Toronto Dominion Bank
Bank of Nova Scotia
Bank of Nova Scotia

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