WASHINGTON — A growing chorus of conservative pundits and politicians have said that Silicon Valley Bank’s failure was the result of the bank’s “wake” policy, and blamed on the California lender’s commitments to diversity in the workplace and being environmentally and socially conscious given investments.
These claims are unfounded. The bank’s collapse was due to financial missteps and a bank run.
In addition, the company’s diversity, equity and inclusion policy – also known as DEI – is similar to that widely adopted in the banking sector. The same is true of his approach to incorporating environmental and social considerations into investments – known as ESG – although this has become a goal of conservatives.
In fact, Silicon Valley Bank is considered average in the industry when it comes to these issues.
Here’s a fact check.
What would be said
“They were one of the brightest banks in their search for an ESG-like investment policy.”
– Rep. James R. Comer, Republican of Kentucky, in an appearance on Fox News Sunday
“This bank is so concerned about DEI and politics and all kinds of stuff. I think that really kept them from concentrating on their core mission.” — Gov. Ron DeSantis of Florida on Fox News on Sunday
Evidence for this is lacking. First, experts largely agree that the bank’s demise had little to do with “awakening.” As the New York Times and others explained, the collapse was due to a bank run triggered by a drop in seed funding, rising interest rates, and the company selling government bonds at huge losses to raise capital.
The bank’s lending to environmental and community projects “was not a major factor in the collapse of SVB,” said Itay Goldstein, a finance professor at the University of Pennsylvania’s Wharton School. “There is no immediate indication that these loans have accelerated the investor rush.”
Silicon Valley Bank hasn’t been an outlier on its diversity goals or its ESG investments, either. US investment in these assets is expected to grow to $33.9 trillion by 2026. A 2022 report by the Consumer Financial Protection Bureau found that 59 percent of banks had lending programs specifically for women- and minority-owned businesses, financing that falls under the ESG’s “social” umbrella
George Serafeim, a professor at Harvard Business School, said that blame for the failure of such initiatives reflects either “a complete misunderstanding of how banks work or a deliberate misattribution of causality for the bank’s failure.”
Maretno Harjoto, a professor of finance at Pepperdine University and an expert on ESG investing, agreed that “there is nothing to the claims”. He added that banks often set ESG and diversity targets due to pressure from investors and stakeholders.
Silicon Valley Bank said in a recent report that it will invest about $16.2 billion over the next few years to fund small business and community development projects, affordable housing and renewable energy. That level of investment represented about 8 percent of his $209 billion fortune.
But Silicon Valley Bank wasn’t the only one pursuing these kinds of investments. Of the 30 largest banks in the United States – Silicon Valley Bank at number 16 – all but one (First Citizens Bank) have made and published reports on ESG investments. And the three largest U.S. banks — JPMorgan Chase & Company, Bank of America, and Citigroup — all have between 8 percent and 14 percent of their total assets invested in social and environmental investments in 2021. All three have committed to at least $1 trillion in sustainable investment by 2030.
In fact, among all banking institutions, Silicon Valley Bank ranks average on ESG issues, according to three metrics developed separately by financial research firms MSCI, Morningstar and Refinitiv. Among the top 30 banks, its middle MSCI A rating put it on par with 11 banks, while 11 others received the higher AA rating, characterizing it as a leader. Morningstar’s rating of the California lender was among the worst of all 30 banks. And its Refinitiv score was worse than all but one financial institution and on par with Signature Bank, which failed this week.
Silicon Valley Bank’s commitment to improving diversity under its leadership was also fairly typical. The 30 largest banks in the United States have all committed to more inclusive career advancement.
The bank’s most recent inclusion report found that 38 percent of executives and 42 percent of board members were women, and that 30 percent of executives and 8 percent of board members were nonwhite.
According to these demographics, Silicon Valley Bank was one of the more racially diverse financial institutions, but not exceptional. Analysis found that about 19 percent of financial services executives were non-white and 30 percent were women.
While The Times was unable to find data on the demographics of board members in the financial sector as a whole, the boards of the eight banks in the United States that were considered systemically important were, on average, more ethnically diverse than Silicon Valley Bank. Of the 104 board members who run these banks, 23 percent were from racial or ethnic minorities and 39 percent were women.
