U.S. Bank Rolls Out and Invests in New Racial Equity Bond
Minneapolis-based U.S. Bank and Enterprise Community Partners, based in the Washington D.C. area, have teamed up to create a novel financial product: a racial equity bond to support BIPOC developers building multifamily affordable housing. Enterprise is a nonprofit focused on investing in affordable housing; the organization also owns and operates 13,000 affordable homes.
The $30 million bond will be issued by Enterprise Community Loan Fund, Enterprise’s Community Development Financial Institution (CDFI). This marks the first time that a CDFI has issued a racial equity bond. U.S. Bank is buying the initial $10 million of the bond. The money will support developers through Enterprise’s Equitable Path Forward program.
“This is the first of its kind,” said Marcus Martin, managing director and head of Environmental, Social and Governance (ESG) for U.S. Bank’s Fixed Income & Capital Markets business. Martin is based in Charlotte for U.S. Bank.
The bond fits under the broader category of social bonds, which help fund projects with positive social results. The Zurich-based International Capital Market Association is considered the guiding authority on social bond issuances and publishes a guide to Social Bond Principles.
“This would be labeled a social bond and we are adding the racial equity bond label to it because of the restrictive nature. This bond will only fund the Equitable Path Forward program,” said Martin.
According to an overview of the bond from U.S. Bank:
“Enterprise will use the bond proceeds to finance loan capital to people of color-led community-based nonprofit organizations and mission-aligned for-profit developers. These loans are primarily for multi-family housing and community facilities. The loans themselves will vary in both type and stage of project development, including acquisition, construction, mini-perm, permanent and predevelopment.”
ESG issues are emerging as a hot topic on Wall Street; A company’s ESG initiatives are often seen as a gauge on its values.
U.S. Bank served as the structuring agent, adviser, and sustainability coordinator for the new racial equity bond. The concept emerged through advising Enterprise, U.S. Bank’s client, on finding funding solutions.
“Our job is to advise ESG for capital markets,” said Martin. “We were brought these challenges from the client side early on…We were really solving the client need.”
Enterprise has a national reputation and has offices across the country. According to the organization’s web site, it does not have an office in the Twin Cities.
“It is time to take decisive action to ensure the businesses that create affordable homes are more representative of the people who live in them,” said Lori Chatman, president of Enterprise Community Loan Fund, in a statement. “Through Equitable Path Forward, our partnership with U.S. Bank will enable Enterprise to support talented developers across the country who have the skills and experience to create positive change in their communities.”
Martin said that U.S. Bank is in conversations with other organizations and corporations who are exploring the idea of racial equity bonds.
“Being a Minnesota-based company, we have every intention in the world of seeing how these types of solutions can also work in our home city,” said Martin.
Martin noted that racial equity has emerged as a top issue for corporate social responsibility goals over the last 12 to 18 months.
“A lot of [bond] issuers want to figure out how to solve the problem from an investment perspective rather than a charity perspective,” said Martin.
From Martin’s perspective, racial equity bonds are just getting started as a tool that can be part of a project’s financial structure.
“We don’t think this is the end of the story,” said Martin. “We think this is putting an innovative framework in the market that can be useful to solve other challenges beyond Enterprise’s racial equity solution.”