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The TD Bank branch at the corner of King St. West and Bay St. in Toronto, on Dec 6, 2021.Fred Lum/the Globe and Mail

It’s often said in the corporate world that “what gets measured gets done.”

That’s why one of Canada’s biggest companies is heeding the call of an institutional investor to become more rigorous about assessing the effectiveness of its diversity and inclusion policies.

Toronto-Dominion Bank TD-N is believed to be the first chartered bank and one of the first public companies in Canada to agree to an independent racial-equity audit to provide a reality check of its progress on dismantling systemic discrimination across its North American operations.

A racial-equity audit – also known as a racial-justice audit, a racial-equity assessment or a civil-rights report – is an important tool that helps shareholders determine which companies are taking real action on combatting racism. These audits are conducted by third parties and cover 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.

Dozens of public companies, including Amazon, AT&T and Goldman Sachs in the United States, have received shareholder proposals calling for racial-equity audits over the past year, according to a search of securities filings conducted on the financial-intelligence platform Sentieo.

Although more investors are advocating for these audits, some companies still oppose this type of accountability. That’s why the commitment made by TD Bank is noteworthy – it is raising the bar for the rest of corporate Canada.

TD made its decision after holding talks with the BC General Employees’ Union (BCGEU). Specifically, TD has agreed to hire a third-party law firm to conduct a racial-equity assessment of its Canadian and U.S. employment policies. It has also agreed to provide updated information about the assessment by June 30, 2023.

The details are still a bit fuzzy, but it’s progress, folks.

Diana Lee, vice-president of diversity and inclusion at TD, said the bank recognizes that “assessment and measurement are vital tools to create meaningful progress” toward racial equity.

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“We are committed to use the results of this racial-equity assessment to inform not only our employment policies and practices, but also our future business practices in supporting Black, Indigenous and minority customers and communities,” Ms. Lee added.

Separately, regulators are also putting increased pressure on banks to ensure their business practices don’t create disparate outcomes for racialized people. In the U.S., for instance, the Consumer Financial Protection Bureau plans stricter enforcement of fair-lending laws and a crackdown on digital and algorithmic practices that potentially discriminate against Black customers.

TD, of course, isn’t the only Canadian bank with significant U.S. operations. BCGEU, which has withdrawn its shareholder proposal at TD in light of the bank’s commitment, is putting other lenders and public companies on notice.

“We will continue doing everything in our power as investors to make sure that racial-equity assessments and audits become standard practice for public issuers and institutions in Canada. We will start contacting other chartered banks on this issue after the TD AGM,” BCGEU president Stephanie Smith said.

“The bottom line is, it isn’t enough for Canadian public issuers and institutions to talk the talk of diversity and inclusion by developing and announcing policies; investors deserve to know what impact those policies are having.”

Property and casualty insurer Intact Financial Corp., meanwhile, has agreed to “assess some internal practices” and to “enhance disclosure,” a company spokeswoman said.

Intact received a proposal from the Shareholder Association for Research and Education, a non-profit organization that represents institutional investors, said Kevin Thomas, SHARE’s chief executive.

SHARE, along with its clients, is interested in various employment issues affecting insurers but also whether their underwriting assumptions create unequal impacts for racialized people.

It takes a similar approach with asset managers, advocating for racial equity within companies but also pushing them “to address the potential impacts of investment decisions down the chain with investee companies,” Mr. Thomas said.

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SHARE, meanwhile, says it has also filed proposals with companies Mondelez and Constellation Software.

Mondelez has yet to publish its proxy circular so its position on the proposal is not clear. However, Constellation Software has already opposed the idea in its filing, arguing that while it believes in an equitable and inclusive work force, “the Corporation’s interests, as well as the interests of racial diversity, equity and inclusion, are best served by its existing organizational structure and approach.”

Ridiculous. We all know who benefits from the status quo. And – here’s a big hint – it’s never racialized people.

“Every CEO these days will tell you they are committed to diversity and inclusion,” Mr. Thomas said. “For investors, a racial-equity audit is our way of testing whether management is blowing smoke or whether they are delivering on that promise. That tells us a lot about management quality, ethics and their ability to implement on the goals they set – all critical questions for their investors.”

Companies must hold themselves accountable for the public pledges they made to eradicate systemic discrimination after the police murder of George Floyd nearly two years ago prompted a massive public outcry.

That’s why TD deserves kudos for agreeing to a racial-equity audit. By taking this important first step, TD is putting pressure on other public companies to follow suit. Investors will be watching to see which ones step up next.

With reports from David Milstead

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