TD releases first racial equity audit for a Canadian bank, finds ‘significant’ progress made but more needed

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Toronto-Dominion Bank has unveiled the first racial equity audit by a Canadian bank as shareholder advocacy groups urge the country’s lenders to reveal their own investigations into their diversity and equity policies.

TD TD-T is the first bank and one of the first public companies to conduct and release a racial equity audit in Canada. Washington-based Covington & Burling LLP and Toronto-based WeirFoulds LLP – the law firms that the lender hired to conduct the 10-month review – said in a report Monday that TD has made significant progress in building a diverse and inclusive employee culture, and identified opportunities for the bank to improve its hiring, development and investigation procedures.

“The assessment found that TD had taken significant steps towards promoting diversity and inclusion in our workplace, including through extensive diversity and inclusion initiatives and programs and committed leadership across the bank,” TD vice-president of diversity and inclusion Diana Lee said in an interview. “And the report also concluded that there is still work to be done – and we agree that continued progress is necessary.”

These audits have already become more widespread in the United States. In that country’s banking sector, Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. have engaged in reviews, as have other companies that include Airbnb Inc., Starbucks Corp. and Facebook parent company Meta Platforms Inc.

TD’s report explored internal procedures regarding its employee policies, human-resources investigations, talent acquisition and company culture. On all four themes, the law firms said TD’s procedures are designed to promote equal employment opportunities, prevent workplace discrimination, identify and remediate complaints, and recruit diverse talent.

B.C. General Employees’ Union – the shareholder that initially approached the bank about the audit – said that while TD has “blazed the trail” by becoming the first Canadian bank to agree to and publish an audit, the report is missing key information that limits TD’s ability to properly inform investors and stakeholders on the effectiveness of its diversity and inclusion efforts.

“We really do see that the company has committed to a lot of initiatives and has a lot of programs and policies in place,” Emma Pullman, BCGEU’s head of shareholder engagement and ESG, said in an interview. “Within that, this audit provides an inadequate amount of insight into the effectiveness of those policies, and it is limited to employment practices.”

In recent years, public companies have faced pressure from shareholders to produce racial equity audits in response to Black Lives Matter protests in 2020. The reviews involve investigating business models, which include analyzing how a company sells its products and services, as well as employee policies and hiring practices to assess whether they cause or perpetuate racial discrimination.

In 2022, TD agreed to conduct an audit after BCGEU approached the bank. Earlier this year, Canadian Imperial Bank of Commerce and National Bank of Canada said that they would also conduct reviews.

Shareholder groups tabled similar proposals at Royal Bank of Canada and Bank of Montreal’s annual shareholder meetings last April, but the lenders called on voters to reject the proposals and they failed by slim margins.

In November, both banks pivoted. RBC said it will conduct a third-party audit of employment practices next year, and a second review of business practices in 2025. BMO said that it will update shareholders on its approach in 2024. Shareholders have not yet filed a proposal with the Bank of Nova Scotia.

To further improve TD’s approach to diversity and inclusion, the auditors said that the bank should ensure that its policies are applied consistently, increase transparency in its investigations, and standardize its recruitment practices and collect data on applicants.

Unlike some of its U.S. peers, TD’s report did not include an audit of its customer base, or its product and services sales practices. The audit explored only its internal and employee dynamics.

Last year, TD was called to a hearing in which some community groups criticized the bank’s lending practices for Black and Latino clients in the U.S.

Ms. Lee said that the bank narrowed the focus on the audit to ensure it was manageable within a tight timeline. She added that the bank plans to apply the lessons learned from the audit across its business, including in its customer channels.

“Work is happening on that front to engage with business leaders and others across our organization,” she said. “This really is another chapter in our broader commitment to diversity and inclusion.”

In its environmental, social and governance (ESG) report in 2022, TD said that while 48 per cent of its overall work force in Canada identified as visible minorities, just 26 per cent of that group were in senior management roles. In the U.S., 37 per cent of employees identified as minorities, but only 16 per cent of that group were in executive positions.

In 2020, TD committed to increasing the representation of diverse employees at senior levels of the bank. It has already met its goal of doubling the representation of Black executives at TD in North America by 2022. The bank also said it is on track to meet its 2025 goals of having women account for 45 per cent of its vice-president roles and above in Canada, and achieving 25 per cent minority representation among executive levels across North America.

But BCGEU said that the questions posed in the report fail to probe the effectiveness of TD’s policies, and that the audit does not include any specific data to identify issues in certain groups. For example, TD’s 2022 fair pay analysis found that there is only a slim pay gap, with visible-minority employees in Canada earning more than 99 cents for every dollar earned by employees who are not visible minorities. Ms. Pullman said the report should disclose data for specific visible-minority groups.

The other Canadian banks that are conducting audits have all committed to more thorough reviews than TD, according to BCGEU.

“TD is currently the leader, but by the time its competitors complete their audits, [TD] may in fact be the laggard,” Ms. Pullman said.