US bank launches and invests in new racial bond
Marcus Martin, Managing Director and Head of Environment, Social and Governance for the Fixed Income & Capital Markets activity of the American Bank
The Minneapolis-based US bank and Washington DC-based Enterprise Community Partners have teamed up to create a new financial product: A Racial Bond to help BIPOC developers build affordable multi-family homes. Enterprise is a non-profit organization focused on investing in affordable housing; the organization also owns and operates 13,000 affordable housing units.
The $ 30 million bond will be issued by Enterprise Community Loan Fund, Enterprise’s Community Development Finance Institution (CDFI). This is the first time that a CDFI has issued a racial bond. The US bank buys the initial $ 10 million of the bond. The money will support developers through Enterprise’s Equitable Path Forward program.
“It’s the first of its kind,” said Marcus Martin, managing director and head of environment, social and governance (ESG) for the US bank’s Fixed Income & Capital Markets business. Martin is based in Charlotte for US Bank.
The bond falls under the broader category of social impact bonds, or simply social bonds, which help fund projects with positive social outcomes. The first social impact bonds were issued in the UK in 2010. The Zurich-based International Capital Market Association is regarded as the governing authority for social bond issuance and publishes a guide to the principles of social bond issues. social obligations.
“It would be labeled a social bond and we add the label of racial equity bond to it because of its restrictive nature. This bond will only fund the Equitable Path Forward program, ”said Martin.
According to an overview of the US bank’s bond:
“Enterprise will use the proceeds from the bonds to fund loan capital to people from community-led, color-led nonprofits and for-profit developers aligned with their mission. These loans are mainly intended for collective housing and collective facilities. The loans themselves will vary in both the type and stage of development of the project, including acquisition, construction, mini-perm, permanent, and pre-development.
ESG issues are emerging as a hot topic on Wall Street; A company’s ESG initiatives are often seen as an indicator of its values.
US Bank served as the structuring agent, advisor and sustainability coordinator for the New Racial Bond. The concept emerged by advising Enterprise, the client of US Bank, in the search for financing solutions.
“Our job is to advise ESG for capital markets,” said Martin. “We were brought in very early on to meet these challenges on the customer side… We were really solving the customer’s need. “
Enterprise has a national reputation and has offices across the country. According to the organization’s website, it does not have an office in the Twin Cities.
“It’s time to take decisive action to ensure that the companies that create affordable housing are more representative of the people who live there,” Lori Chatman, president of Enterprise Community Loan Fund, said in a statement. “Through Equitable Path Forward, our partnership with US Bank will allow Enterprise to support talented developers across the country who have the skills and experience to create positive change in their communities.
Martin said US Bank is in talks with other organizations and companies exploring the idea of racial bonds.
“As a Minnesota-based company, we have every intention of seeing how these types of solutions can work in our hometown as well,” said Martin.
Martin noted that racial equity has become a major issue for corporate social responsibility goals over the past 12 to 18 months.
“A lot of [bond] issuers want to understand how to solve the problem from an investment perspective rather than a charitable one, ”said Martin.
From Martin’s perspective, race bonds are just beginning as a tool that can be part of a project’s financial structure.
“We don’t think this is the end of the story,” Martin said. “We believe this brings to market an innovative framework that can be useful in solving other challenges beyond Enterprise’s racial equity solution.”