The Greenlining Institute
The Greenlining Institute
20/08/2024 | News release | Distributed by Public on 20/08/2024 21:17
DEI’s Pendulum Swing: Debunking Common Myths about Diversity, Equity and Inclusion in Financial Services
DEI's Pendulum Swing: Debunking Common Myths about Diversity, Equity and Inclusion in Financial Services
Desiree Gomez August 20, 2024
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Desiree Gomez
Economic Equity Summer Associate
Economic EquityLeadership AcademySummer Associate Program
As a person who comes from a disadvantaged community of color, I cannot imagine myself in an institution whose initiatives do not reflect the needs of diverse people. But when institutions lack diversity, they often lack an understanding of how to develop initiatives that address the unique needs of diverse communities. This perpetuates inequities by limiting access to services and eroding the trust of communities of color. Yet many institutions-whether in finance, healthcare, education, or the legal system-remain predominantly white. This lack of diversity is not coincidental; it is the result of legacies of racism, discrimination, and disinvestment that have historically limited social mobility.
Communities of color want to see themselves in the institutions that serve them. We want to establish relationships, and build trust with institutions meant to serve all. However, the Supreme Court of the United States' anti-affirmative action ruling in June of last year-influenced by conservative and republican critics-has contributed to a rise in myths and misconceptions on the need for Diversity, Equity, and Inclusion in our institutions. The termination of race-conscious admissions in higher education has led to an anti-DEI backlash across various sectors, with critics suggesting that considerations on race are no longer necessary to ensure equitable outcomes.
Against the backdrop of this country's persistent racial wealth gap and long history of discriminatory economic practices, the pushback against DEI in financial institutions poses a dangerous threat. The purpose of this blog is to debunk common arguments against DEI in financial institutions, and shed light on the negative implications these misconceptions have on communities of color and our economy as a whole.
Why DEI Matters
During my undergrad at UC Merced, I worked at the university's Multicultural Center as a Scholar Coordinator for the Social Justice Initiatives and Identity Programs department where my role was to promote diversity and a supportive environment for all students and faculty. Through community building workshops and town halls, I listened to students' describe their lack of trust in predominantly white spaces, low confidence in achieving academic success, and the social conditions that limited their upward mobility. Having grown up in a disadvantaged community with limited access to quality services, I understood these feelings deeply.
My experience in the MCC helped me better understand my unique needs in pursuing academic excellence and how this was mirrored in the struggles of others. I made connections with people whose parents also did not go to college, faced language barriers, and experienced financial hardship-all barriers that were unique to the students of color the MCC supported.
The MCC was an essential resource for students of color, helping to address the systemic experience of institutional isolation. Students who felt othered and unwelcomed on campus came to the MCC to find community as well as tailored support to help them overcome the challenges they faced. The experiences of isolation and feeling othered is not a stand alone issue in higher education.
Historic movements for civil rights, social justice, and racial equity paved the way for DEI initiatives like SJI that were vital to me and many students of color during our time at university. These movements also paved the way for DEI frameworks in the workplace. DEI was created as a tool to address the inequitable impacts of institutions that for decades, explicitly barred people of color from access and opportunity, or were not built with people of color in mind. DEI is rooted in the understanding that without targeted resources and support for marginalized communities, institutions will continue to perpetuate historic inequities.
DEI in Financial Institutions
In the financial sector, DEI is designed to address social and economic barriers that limit equitable access to wealth-building and economic opportunity. Race-conscious initiatives are essential to reverse decades of racist policies in our financial system. These programs aim to include communities of color that have been excluded from traditional banking services and products due to predatory and discriminatory practices, past and present.
After the murder of George Floyd and the "racial awakening" that followed, financial institutions made bold commitments to combat racism in the workplace and provide services for communities of color recognizing the role financial institutions have to play in addressing systemic and economic inequities. Corporate leaders pledged to engage in DEI initiatives including hiring more people of color, investing in historically Black colleges, and removing branding that perpetuates racist stereotypes. Despite this momentary rush to support the movement for racial equity, attention and investments on DEI related-efforts have steadily diminished. This is a disservice to communities of color who continue to struggle to increase their wealth.
DEI's importance in the financial industry must be reaffirmed to combat divisive narratives that seek to maintain the status quo of inequity. Below, I unpack common myths about DEI in financial services, and explore the role of financial institutions in ensuring services continue to evolve in a way that benefits all communities, especially those that have been historically marginalized.
Common Myths About DEI
DEI is no longer needed.
Context: Even as the United States continues to become more racially and ethnically diverse, the racial wealth gap continues to widen. The current racial wealth gap was created from historical discriminatory policies like redlining, segregation, and the barring of people of color from accessing jobs, education, and other services which prevented communities of color from building wealth for decades, and the legacies of this persist. Further, while practices like redlining are now illegal, new forms of financial discrimination continue to emerge. The false assertion that racism is not real in America continues to persist.
✅ Debunked
DEI initiatives that intentionally drive investments into formerly disinvested communities of color are essential to close the racial wealth gap and foster a healthy economy.
Race-conscious laws and policies, a major component of DEI, is needed to close the racial wealth gap. Federal laws like the Community Reinvestment Act, designed to address the impacts of redlining by requiring banks to reinvest in formerly redlined communities, is an example of how DEI can be used as a tool to right these wrongs. While the CRA isn't perfect, its positive impact is undeniable: since 1996, banks covered by the CRA have invested over $980 billion back into communities of color.
Closing the racial wealth gap requires intentional, race-conscious investments to address deeply rooted economic inequity.
DEI isn't effective in improving financial services for people of color.
Context: Conservative critics and political figures claim DEI programming promotes undeserving people who only advance because of their social status, and does not actually lead to better outcomes for people of color. However, financial work spaces continue to be dominated by predominantly white, male leadership.
Critics also falsely conclude that mandatory diversity training has no effect on employee attitudes, and that employees do not need to learn about implicit biases or diverse perspectives to satisfy the needs of the people they serve.
✅ Debunked
Diversity at all levels of financial institutions are proven to indicate higher diversity in leadership and increased investments in underserved and predominantly minority communities. When banks and other financial services prioritize diversity through race-based policies and programming, not only are they promoting fairness but they also enhance productivity and profitability.
Hiring and retaining more diverse staff is crucial for serving diverse communities with varying needs-especially as the banking industry trends towards consolidation, leading to bigger banks with wider, more diverse customer footprints. Diverse workforces are better equipped to interact with employees and address the needs of a demographically diverse customer base. This is important because communities of color often don't have the same needs as their white counterparts.
Citi and Oportun recognized that a one-size-fits-all approach doesn't address the unique needs of communities of color and fails to address the manifestations of structural racism. By prioritizing an internal-external approach to DEI, addressing internal efforts for employee diversity and inclusion, both banks were able to implement strategies that advance racial equity and business growth:
- Citi noticed that many lower-income people, often people of color, avoid banks due to worries about fees. To help, they created Access Accounts, which have little to no fees and are now popular, making up about 23% of new accounts.
- Oportun hires employees who reflect their diverse customer base, with many being bilingual and from similar backgrounds. This approach has helped over 700,000 people with no credit history start building their credit for the first time. By embracing DEI, these financial institutions have taken steps to create an inclusive, accessible, and just economy that seeks to narrow the racial wealth gap.
DEI is exclusionary. Race-neutral programming is more effective to ensure equal opportunity.
Context: Critics argue that DEI amounts to reverse discrimination and is harmful to white people. DEI is perceived to target white counterparts because of conversations about white privilege, white supremacy, and the system of whiteness that allegedly create dialogues that encourage hate. Conservative figures use this rhetoric to challenge corporate institutions by asserting that a race-neutral approach to policies and programming is more fair for all.
✅ Debunked
DEI is not designed to disadvantage white people or any other racial group. Instead, DEI acknowledges the current status quo which disproportionately favors and benefits white people, as evidenced by racial wealth and opportunity gaps, and takes steps to equitably address these gaps.
In financial services, the key contributors to the racial wealth gap are racial differences in home equity, financial assets, income and type of debt held by households. As of 2023, Black households owned 23.5 percent of the wealth of White households whereas the average wealth for Latino households was less than one-fifth (19.2 percent) of that of white households. Discrimination in lending also persists as documented by the Consumer Financial Protection Bureau and Department of Justice who just recently filed a fair lending enforcement action against Colony Ridge, a Texas-based developer, for targeting Latinos with inferior mortgages. The persistence of discriminatory practices in financial services reveals that communities of color continue to experience unequal access to economic opportunities.
A race-neutral approach individualizes people's experience with discrimination, rather than examining and addressing the root causes of unequal access to economic opportunities. To truly close the racial wealth gap, we need targeted, race-conscious policies that address historical injustices and create paths for equitable access to resources and opportunities for communities of color.
It is unlawful for financial institutions to engage with DEI.
Context: Protected by Title VII of the Civil Rights Act of 1964, race discrimination in employment and contracting violates state law. Following the SCOTUS case, conservative figures expanded their interpretations of Title VI and Title VII to include policies aimed at creating equity for people of color.
Opponents of DEI used components of the 1866 Civil Rights Act, the first major law to prohibit discrimination on the basis of race, to challenge race-based policies and practices. Conservative activist Edward Blum used the 1981 section of the Civil Rights Act to target the Fearless Fund, a venture capital fund that invests in businesses owned by women of color, demonstrating that the fund excludes people from the program based on their race.
In light of the SCOTUS case and Title VI of the Civil Rights Act, corporate diversity programs that mirror college admission standards, initiatives that create preferences based on social status, are vulnerable to legal challenges. Republicans have warned large companies that certain DEI-oriented workforce policies could be illegal.
✅ Debunked
Subject to the same limitations under Title VII and Section 1981 of the Civil Rights Act, the anti-affirmative action ruling is limited to higher education, specifically to admissions policy, and private sector employers (i.e. traditional banks) can continue to pursue race-based policies and programming because they are not federally funded through the state. For instance, banks are allowed under federal civil rights law to create Special Purpose Credit Programs, race-specific programs, to increase lending to Black consumers and other disadvantaged groups if existing lending practices result in racial disparities. The U.S. Equal Employment Opportunity Commission clarifies that employers can implement DEI and accessibility programs to establish equal opportunity in the workplace and therefore, private companies remain free to expand access to employment and contracting opportunities.
The ongoing politicization and weaponization of DEI, especially during the current election season, further muddles its purpose and value, often by those who don't value or support the equity goals of DEI. This reflects the industry's vulnerability to false narratives that lack legal grounding. Legal efforts to use the anti-affirmative action case in the financial industry are intended to stall racial and economic progress, rather than address legitimate legal concerns.
It is crucial for the financial sector to collaborate with racial and economic equity organizations for proper guidance and consult with legal experts, such as the Lawyers' Committee for Civil Rights Under Law, who continue to affirm the legality of Diversity, Equity, Inclusion, and Accessibility (DEIA) initiatives in the workplace. These efforts are essential for creating fair and inclusive environments that not only comply with legal standards but also promote equal opportunity and prevent discrimination within financial services.
Moving Forward
Hesitancy to maintain or engage with DEI initiatives is-in most cases-the result of misconceptions rather than actual risk. Equal employment, hiring, and anti-discrimination laws have not changed since the SCOTUS' anti- affirmative action ruling. Banks and various financial institutions continue to have the legal justification to pursue race-based programming and DEI in financial services. And backing away from DEI at a time when inequity remains deeply rooted in our economy is a disservice to the Black community and other marginalized communities of color.
Financial institutions should continue to engage with DEI initiatives because…
- The financial market must cater to evolving demographics in the United States, which are becoming increasingly diverse. Without DEI, financial services risk perpetuating inequality, limiting access to opportunities, and failing to meet the needs of a diverse population.
- The racial wealth gap continues to widen and it is imperative that financial institutions do not fall into misinformation traps that instill fear over the legality or importance of these programs.
- Continuously engaging with DEI addresses the ongoing evidence of past and ongoing experiences of discrimination. Pushing back from DEI sends a message to communities of color that addressing the discriminatory and harmful practices is not a priority nor the industry's responsibility.
Regardless of the various myths and attempts to dismantle DEI, it is imperative that we strengthen and not weaken its role in financial services. DEI is essential and important to communities of color because these initiatives, when implemented intentionally and with community input, pave the way for individual and collective progress. Ultimately, DEI is not simply a box to be checked but a foundational strategy for addressing systemic inequalities and fostering inclusive economic growth.