This month, 19 Republican state attorneys general sent a letter to JPMorgan Chase & Co CEO Jamie Dimon, accusing the US’s largest bank of denying customers banking services because of their political or religious affiliations.

Their allegation – reported by the WSJ – is that the bank is engaging in a “pattern of discrimination.” The claim echoes those contained in a letter sent by 14 Republican state treasurers in March.

The 19 allege that JPMorgan has terminated client accounts due to the client’s religious beliefs, and they demand that the bank respond to detailed survey questions about issues of concern to conservatives.

Religion and politics

Specific allegations include saying the bank has canceled organizations’ checking accounts and asked screening questions about religion and politics before reinstating them. They claim the bank “abruptly closed” the checking account of the National Committee for Religious Freedom (NCRF), with its chief officer (Sam Brownback, former Kansas governor) being unable to make a deposit a few weeks after opening the account last year.

According to the transcript of a call addressing the issue that the WSJ viewed, JPMorgan blamed the suspension on a failure to receive information it needed for regulatory purposes.

“We have never and would never exit a client relationship due to their political or religious affiliation,” a spokesperson said in a statement, pointing out that the bank serves 50,000 accounts with religious affiliations.

JPMorgan’s annual shareholder meeting is scheduled for today, May 16, and the letter seems timed to coincide with it.

Indeed, one investor has asked the bank to investigate the claims being made in the letters, despite JPMorgan’s denial of the discrimination allegations. The board has recommended that shareholders vote no to the resolution.

“We have never and would never exit a client relationship due to their political or religious affiliation.”

JPMorgan

The survey referred to by the 19 contains questions that ask about bank policies around speech freedoms and whether employees of faith are free to express disagreement with workplace priorities such as diversity or climate initiatives.

It comes in the form of a new tool called the Viewpoint Diversity Score Business Index, which allows investors to measure corporate respect for free speech and religious freedom, according to its website.

It asks whether the company assures employees they are free to say what they wish on social media and queries how much money the company has donated to well-known liberal nonprofit advocacy groups.

Human rights

The letter from the attorneys general notes that JPMorgan celebrates its strong scores as measured by a survey conducted by the Human Rights Campaign, an LGTBQ advocacy group.

The letter says that when JPMorgan was asked to fill out its survey about positions important to conservatives, the bank said: “Unfortunately, we must decline completing this survey as we do not believe the organization is appropriately aligned with JPMC’s diversity initatives [sic] and direction.”

JPMorgan says that response was an error, as it was emailed to an old mailbox that does not generally receive surveys, and was declined without proper review.

The bank said it was “actively considering participating in the survey in its 2023 round and are shoring up our processes for reviewing whether or not we respond to the myriad survey requests each year from around the world”.

Regional dissonance

These letters and some targeted lawsuits around the country are part of a larger effort to target financial firms for embracing a variety of initiatives conservative politicians and organizations find problematic.

States take dramatically different stances through laws and lawsuits when it comes to how much and whether businesses should be able to embrace such things as environmental and diversity goals or support more inclusive workplaces through LGBTQ policies and statements of support.

In September 2021, the Texas governor signed Senate Bill 13 (SB 13), which is posited as protecting the energy industry in Texas from decarbonization of investment portfolios by funds and asset managers. Under SB 13, Texas state investment entities, such as state pension funds, are prohibited from investing in companies that boycott the fossil fuel industry.

The law also prohibits governmental entities from entering into contracts valued over $100,000, unless the contracting company expressly represents that it does not and will not boycott energy companies during the term of the contract.

Texit

Following the passage of SB 13, five of the largest municipal bond underwriters have exited the state of Texas.

In September 2022, the Indiana Attorney General issued an opinion stating that the Indiana Public Retirement System’s Board was prohibited from choosing investments or investment strategies based on ESG considerations, and that it must not invest for any reasons other than interests of fund beneficiaries.

In February, Florida announced plans to propose comprehensive anti-ESG legislation which, among other goals, prohibits the consideration of ESG factors in all investment decisions at the state and local level and codifies that only pecuniary factors can be considered in investing state funds.

One month earlier, Wyoming introduced the Stop ESG State Funds Fiduciary Act which would, like the Florida bill, restrict ESG investing from state pension funds.

Several measures in Kentucky, Oklahoma, West Virginia and Texas (The SB 13 bill, noted above) require or authorize state regulators to develop and maintain a blacklist of financial entities that engage in boycotts of fossil fuel companies for divestment purposes.

Certain measures contain narrow exceptions that would theoretically allow a public entity to avoid divestment where it determines that divestment would be at odds with its fiduciary responsibilities.

Fiduciary duty and the free market

Interestingly, couching one’s argument in fiduciary duty terms and free market concepts does not help determine what solution works best for financial services businesses, since there are studies showing that companies with sustainability practices may be better long-term investments.

Similarly, there are studies showing that states with anti-ESG laws are paying more in interest rates on the bond market because they prohibit contracts with lenders that consider ESG. 

And one Republican governor, Chris Sununu of New Hampshire, has said that if a business wants to be “woke,” it’s not up to the government to come in and punish or penalize it, as that is just the way free markets work.

At the same time, one notable investment manager (formerly at BlackRock) who had embraced ESG now says that, although he still believes it is a good idea in theory, the movement has not been a reliable generator of returns or a true catalyst for change.

To be sure, many of the states actively involved in crafting these measures have fossil-fuel businesses at the core of their tax-revenue streams and source of jobs in their states. Acting swiftly to protect them is what they would cite as good governance.

Regulators need to step in so the state-level fragmentation and making sense of what applies to their business – and how and when – does not consume too much time in compliance departments.

Compliance departments must work with their legal departments, human resources, and procurement departments on their ESG commitments, taking their direction from c-suite executives and boards on what objectives the company seeks through their commitments – or lack thereof.

In the United States, much of the attention by regulators has been on proposing rules that have yet to be implemented and otherwise focusing on incidents of greenwashing as enforcement cases right now.

Regulators need to step in so the state-level fragmentation and making sense of what applies to their business – and how and when — does not consume too much time in compliance departments.

Comprehensive strategy

In the meantime, organizations have the task of at least ensuring their own departments, subsidiaries, related entities and most important business partners create a comprehensive strategy around their risk-assessment approaches in these areas.

What is the level of risk of being sued, losing business, not finding the right employee talent, suffering reputational harm, loss of revenue, etc, that the business will tolerate for taking a stand on an issue and developing new standards and guidelines?

To answer that question requires data, analysis, and decisiveness – and clear reporting to justify the risk approach that is adopted. And that is true until national and less geographically unique regulatory expectations are adopted in the United States.