Posted on November 8, 2022

How Business Giants Get Lower Interest Rates for Meeting Diversity Quotas

Aaron Sibarium, Washington Free Beacon, November 7, 2022

Amid an uptick in race-conscious hiring programs throughout corporate America, many prominent businesses are now writing racial and gender quotas into their credit agreements with banks, tying the cost of borrowing to the companies’ workforce diversity, a Washington Free Beacon analysis found.

The businesses that have struck such agreements include the pharmaceutical giant Pfizer, the consulting groups Ernst & Young and AECOM, insurers Prudential and Definity Financial, private equity firms BlackRock and the Carlyle Group, the technology company Trimble, and the telecommunications giant Telefónica.

Over the past two years, each of those companies has secured a lending agreement, known as a credit facility, that links the interest rate charged by banks to the company’s internal diversity targets, creating a financial incentive to meet them. If the business achieves its targets, it won’t have to pay as much interest on the loans it takes out; if it falls short, it is required to pay more.

Under the terms of BlackRock’s $4.4 billion credit facility, for example, Wells Fargo will lower the firm’s interest rate by 0.05 percent if it hits two benchmarks—a 30 percent increase in the share of black and Hispanic employees by 2024, and a 3 percent increase in the share of female executives each year—or hike the rate by the same amount if it misses both.

The agreements, which typically involve multiple banks, are effectively credit cards for businesses: Rather than make a onetime loan, lenders extend a continuous line of credit that companies can dip into at will, either to cover operating costs or as a rainy day fund for emergencies. That means changes in a facility’s interest rate—even modest ones like BlackRock’s 0.05 percent diversity adjustment—can have an appreciable effect on a business’s bottom line.


“If a bank penalized a company’s credit rating because it had too many women or was too racially diverse, we would be appalled,” said one senior government regulator, who managed a nine-figure credit facility as a lawyer in private practice. “This is the exact same thing, except the penalized target is white men.”

The credit contracts will divert resources away from consumers, critics say, and toward diversity initiatives, where the promise of discounted loans will encourage the use of illegal hiring quotas. They will also hurt companies that don’t negotiate a diversity discount on their loans, because those firms will face higher borrowing costs than their competitors—a dynamic that could steer entire industries toward race-conscious policies.

“Let’s say Wells Fargo will loan to BlackRock at 1 percent if it meets diversity quotas, and the market interest rate is 5 percent,” said Will Hild, the executive director of Consumers’ Research. “Every other company that has to borrow at 5 percent is now at a disadvantage vis-à-vis BlackRock. So other companies will have to follow BlackRock’s lead, or they will go out of business, because BlackRock will be able to subsidize its products through Wells Fargo.”


The contracts represent a new twist on the Environmental, Social, and Governance (ESG)-linked loans that have proliferated in recent years. When banks lend to businesses, they typically base interest rates on several factors, such as a company’s cost structure or debt ratio, that drive credit risk. {snip}

With diversity quotas in the mix, that gap between credit risk and credit access has only grown. “There is no evidence that diversity makes a borrower likelier to repay its loan,” the government regulator said. “It’s like handing out credit based on astrological sign.”

When a bank lends irrationally to one client, the regulator added, it “invariably makes its loan terms less fairly priced for everyone else.”

The credit deals come as race-conscious programs are exploding across corporate America—and sometimes in the companies’ own faces. Pfizer, one of the businesses that has tied its lending costs to diversity, was sued in September over a prestigious fellowship that bars white and Asian applicants. Programs at Microsoft, IBM, and Google use similar criteria, as do American Express and Amazon, both of which are now facing civil rights lawsuits.

Race-conscious loans will encourage such policies, legal experts said, and could expose companies to legal liability. Even if businesses don’t adopt overt quotas, said Adam Mortara, a prominent civil rights litigator, the agreements could be used as evidence that the firing of a white or Asian employee was racially motivated, “because of the incentives this kind of race-based discounting creates.”