The Dark History of Redlining Still Impacts Black Communities: We Need Different Solutions.

For decades, U.S. financial institutions refused to offer their services in inner-city neighborhoods with predominantly minority populations. Maps had red lines or circles drawn delineating geographies where insurance, mortgage lending, and basic banking were simply not available. Denial of the key ingredients for participation in the modern capital markets led to a self-fulfilling effect that caused neighborhoods to deteriorate and remain underinvested in for generations.

There is evidence that the underlying reasons for redlining were structurally and intentionally racist. The Civil Rights Movement and the murder of Dr. Martin Luther King, Jr. prompted reforms. Some of the remedies for redlining were race-based, such as the Fair Housing Act of 1968; however, many, including the Community Reinvestment Act (CRA) of 1977, focused on the mandatory provision of services in specified neighborhoods and targeted geographies.

As a result of public outcry followed by federal regulation and legislation, banks that began to invest in Black communities and other communities of color have played an important role in community investing and promoting racial equality over the last five decades. More recently, the space has expanded and attracted additional types of investors including foundations, religious organizations, nonprofits, insurance companies, pension funds, high-net-worth investors, and family offices.

While place-based impact investing efforts have been helpful, they are not adequate on their own to correct past injustices. Racial segregation in inner cities has been reduced and gentrification has changed the income and ethnic mix of cities across the country. Many people of color have been able to move to previously all-white suburbs only to find continued discriminatory practices in their new neighborhoods. The racial wealth gap and the racial homeownership gap persist and there is much more that can be done.

After George Floyd’s murder sparked a national reevaluation of programs and policies to promote racial equity and racial justice, there was an uptick in the number of investors who sought the ability to target their investments toward racial equity. Examples of some ways the financial sector has sought to reverse the impacts of redlining include investing in portfolios that target capital thematically to economic activities supporting minority citizens, families, communities, and businesses, and developing financial instruments such as Exchange Traded Funds specifically designed to contribute to reducing the racial homeownership gap.

As Chief Impact Strategist at CCM and the firm’s subject matter expert on impact and ESG investing, it was an honor to move this work forward by participating in Confluence Philanthropy’s creation of its Racial Equity Compass, which was a year-long process in 2023 between “coop-etitors” to develop tools that asset owners, and especially foundations, could use to invest their capital and engage in other actions toward racial equity. The group assembled was lively and diverse with everyone bringing their own personal and professional experiences.

Confluence Philanthropy’s Racial Equity Compass

Confluence’s process of collaborating in the creation of the Compass occurred simultaneously with the U.S. Supreme Court hearing a landmark anti-affirmative action case and then ruling, in June 2023, that certain proactive practices by certain parties must be ended. While the ruling dealt only with college admissions, there is a grave and visible danger that a spillover and chilling effect may curtail voluntary efforts to advance racial equity and racial justice on the part of foundations and others seeking to do good.

The Compass that resulted summarizes the actions that a foundation and other mission-driven organizations can take to advance racial equity, through both exploring investment opportunities across asset classes and engaging in collective action and advocacy. It acknowledges that capital alone, without policy change, will not be effective in reducing systemic racial inequalities in the U.S. Moreover, by looking across all asset classes, it aims to be a tool that foundations can use to align a greater portion of their endowments with impact.

As someone with four decades of experience in responsible investment management, including helping to create the marketplace for bonds in support of greater equality for all races, genders, and ethnicities, I believe that the Racial Equity Compass will have value and utility in driving the conversation forward. Advocates and investors help each other when sharing best practices and remaining committed to advancing the causes of racial equity and racial justice, in the capital markets and beyond. Today, the legacies and echoes of redlining and related practices still prevent us from living in an America that realizes its full potential for all citizens. Much more needs to be done. Now is not the time for us to trim our justice-minded sails or step back from commitments to racial equity.

All will benefit from positioning their efforts, present and future, toward exploring different approaches and mobilizing as much of their resources as possible toward a shared mission. The Racial Equity Compass can be useful to those who seek to travel the path to improving racial equity, regardless of where their journey currently finds them.

David F. Sand, Chief Impact Strategist, Community Capital Management LLC

David Sand was a speaker at Confluence Philathropy's 14th Annual Practitioners Gathering in March 2024, as part of the plenary session entitled "Introduction to the Racial Equity Compass."

Community Capital Management, LLC (CCM) is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. A full list of regulatory disclosures for Community Capital Management, LLC are available by visiting https://www.ccminvests.com/regulatory-disclosures/.