Moody’s has described Lloyds Banking Group’s programme to promote more black employees to senior roles as “credit positive”, marking the first time that the rating agency has explicitly linked a company’s stability to ethnic diversity measures.

Lloyds, the UK’s number one bank by current accounts, announced a race action plan last week after a promise to “do more” to promote equality in response to global protests that erupted following the killing of George Floyd by a white police officer in May.

The bank acknowledged that some groups were “still significantly under-represented” within its ranks. Its programme includes a target of increasing fivefold the proportion of senior roles held by black employees by 2025, and publicly releasing data on its ethnicity pay gap. 

In a note published on Thursday, Moody’s said the bank’s efforts were “credit positive because they will improve staff diversity at all levels and reduce Lloyds’ exposure to social risk”.

Edoardo Calandro, a vice-president and senior analyst at Moody’s, said this marked the first time the agency had “responded directly, and with credit implications, to a diversity programme for black employees and other ethnic minorities established by a private sector firm”.

Investors and rating agencies are increasingly considering businesses’ environmental, social and governance (ESG) risks, as sustainability moves up the political agenda. Social risks are typically those that affect the community in which a company operates, such as through health and safety, working conditions or economic opportunity.

Mr Calandro added that the bank’s cost of funding was unlikely to be affected by its new social policy in the short term, but called it a “positive step”. The agency left Lloyds’ rating unchanged, at single A with a negative outlook.

The debate over racial equality has moved from the streets to the boardroom, with pressure building on companies to increase diversity in their top tiers. Numerous businesses have come under fire for failing to actively address workplace inequality.

Diversity programmes have typically focused on improving the representation of women or black and minority ethnic employees across the workforce as a whole. By concentrating on promoting black employees to senior roles, Mr Calandro said Lloyds had “taken a specific action on a specific category to close a gap within the gap. That’s a step further than what we’ve seen elsewhere”.

Mr Calandro added that besides the incentive to boost the company’s creditworthiness, such actions could help keep businesses on the right side of ESG-focused asset managers. “There are funds and investors which are actively avoiding banks which are not sufficiently diverse,” he said.

Earlier this month, Institutional Shareholder Services, one of the most influential shareholder advisers, urged American companies to disclose the ethnicities of their senior directors. 

“Policies that indicate strong management of diversity and inclusion [are] supportive of overall good risk management within the business,” said Samantha Lamb, head of ESG for fixed income at Aberdeen Standard Investments.

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