In recent weeks, we focused on the environmental aspects of ESG. This week we shifted gears towards more social dimensions. Of particular note, the financial sector had the second highest mentions in the social category on our Safeguard ESG platform over the last 30 days.
As our economy pushes towards a more sustainable and equitable future, financial institutions have played a major role in how the future is shaped. In September we covered initiatives from Bank of America geared towards addressing economic inequality. Today we’re asking the question: How have they done since setting out these goals? We use our Safeguard ESG platform to find out.
Over the past 30 days we’ve seen banks making progress on these goals, and particularly in addressing access to capital and home ownership.
In June of 2020, Bank of America (BAC) announced a $1b commitment over four years towards addressing racial inequality in the economy. By September the bank allocated $300m of this commitment towards investments in black and minority owned businesses as well as minority depository unions. In late January the bank allocated an additional $150m in a second wave of funding. The money will go towards 40 different funds across the U.S. that invest in minority-owned businesses. Bank of America also announced early this month that their affordable housing initiative launched in 2019 will triple from $5b to $15b by 2025 due to high demand in lending services.
Wells Fargo announced equity investments in six black-owned banks earlier this month. This comes as a follow-up of its commitment from March 2020 to invest $50m in minority depository unions. The bank did not disclose how much would be invested in this round of allocation. While laudable, it is fair to ask, why have they not disclosed the exact monetary value of this allocation? The lengthy timeline from goals to action could be attributed to the onset of the pandemic shortly after their goal was set.
Another notable initiative by the bank includes lending through its Diverse Community Capital Program. The program has lent $350m to black-owned small businesses since 2015.
J.P. Morgan Chase bolstered its housing finance program building off its October commitment of $30b to address housing inequality. Housing grants for qualified homebuyers are now doubled from $2,500 to $5,000. The goal of the program is to finance 100,000 affordable housing units and write loans for 40,000 new homeowners. The new grant funding will help many first-time homeowners cover initial down payments and close on mortgages they otherwise may not have been able to, increasing access and affordability to the housing market.
The two methods banks are taking to address social inequality in our economy are affordable housing and access to capital for black- and minority-owned businesses. Investments in minority depository institutions, or MDI’s, are especially important. A recent study by FDIC states that charter MDI’s overall have shown to be decreasing since 2007. Many of these institutions are the life-blood of local economies and small businesses. Support and coordination for MDI’s by large banks puts capital into the hands of regional banks like MDI’s that understand the needs of their communities.
These types of actions can drive increased participation in the economy as financial institutions like Bank of America continue to hit milestones on their socially equitable finance targets, while others start to make commitments of their own. Increased participation in the economy not only goes towards creating a more equitable economic landscape, but also provides small businesses with the means to succeed. The increased economic activity could, in turn, be beneficial for larger consumer banks if it results in more individuals using their financial services and products. From a business perspective it makes sense for larger banks to get more people involved in the economy. Going forward we will keep an eye on which banks are following through on their commitments and being transparent about their goals and milestones.
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This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.
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