Labor & Employment Law Daily Wrap Up, INDUSTRY NEWS, TRENDS—Texas AG warns banks against certain DEI, ESG commitments, (Jan 27, 2025)

By Patricia K. Ruiz, J.D.

Paxton’s letter states that banks may have violated their fiduciary duties by prioritizing DEI, ESG initiatives over financial returns.

Attorney General Ken Paxton and nine state attorneys general penned a letter to major financial institutions, warning that certain diversity, equity, and inclusion (DEI) and environmental, social, and governance (ESG) commitments could lead to enforcement actions if they are found to violate state or federal law. The letters were addressed to BlackRock, Goldman Sachs, JPMorgan Chase, Bank of America, Citigroup, and Morgan Stanley.

In the letter, which follows the withdrawal of every major bank based in the U.S. from the Net-Zero Banking Alliance (NZBA) after Paxton’s strong encouragement to do so, the Texas AG contends that the banks’ apparent continued commitment to DEI and ESG policies that allegedly prioritize politics over consumers and investors, including “unlawful race- and sex-based quotas” and “radical environmental policies,” may put them in violation of their legal, contractual, and fiduciary obligations.

Each of the banks “appears to unlawfully advance discriminatory employment quotas,” the letter states. The letter lists examples of race- and sex-based employment quotas in contracts and executive compensation agreements and of “pressure tactics to implement discriminatory hiring practices,” such as utilizing quotas and making year-end bonus pool allocation depend in part on meeting DEI goals. The letter also accuses the banks of setting race- and sex-based hiring goals and imposing “business-specific, action-oriented” diversity goals as part of a scorecard for each management team member. The letter states, “None of this has anything to do with meeting fiduciary obligations.”

Quotas accusation. The letter also accused the banks of unlawfully pursuing discriminatory board quotas instead of voting for board members that will maximize financial returns, as arguably required by the banks’ fiduciary duties. It further accused the banks of including racial preferences in contracts with suppliers and allocating supplier budgets based on race. The letter states, “As asset managers you appear to be violating fiduciary duties and duties of loyalty and prudence,” citing concerns that the banks may have violated their fiduciary duties by managing client assets to advance race- and sex-based quotas and to satisfy climate commitments, rather than maximizing financial returns for their clients.

The letter requested specific information from the banks with regard to decisions the banks made while they were members of NZBA and other similar organizations.

Companies: BlackRock; Goldman Sachs; JPMorgan Chase; Bank of America; Citigroup; Morgan Stanley

News: EconomicNews IndustryNewsTrends Discrimination RaceDiscrimination SexDiscrimination ESGNews