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ESG-Inspired Lending Initiatives Focused on MBEs Will Require Sustained Grassroot Commitments

 

Published:

September 30, 2021

Related Service:

ESG Strategy & Compliance
 
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Key takeaways:

  • Standard community reinvestment approach toward MBEs in the past are not enough anymore.
  • Community stakeholders, now joined by institutional investors, are challenging lenders to incorporate more dynamic engagements and ESG-based principals into their community and lending initiatives to, among other things, help remove lending inequities, reduce the financial information deficit, and create more sustainable and scalable MBEs.
  • ESG-inspired initiatives are good for business, given that larger MBEs and their employees will be in a better position to buy additional financial services and products from lenders that have multiple retail locations in communities where MBEs operate and their employees live.

In light of the rapidly changing demographics of the U.S. consumer market, Minority Business Enterprises (MBEs) are absolutely essential to the United States’ continued economic success and growth. But, to paraphrase a famous passage from “A Tale of Two Cities,” it is the best of times, and the worst of times for MBEs.

On the one hand, according to a report from the U.S. Senate Committee on Small Business and Entrepreneurship, there has been explosive growth in the number of MBEs. Currently, there are over 4 million MBEs in the United States, with annual sales totaling close to $700 billion. MBEs have created more than 4.7 million jobs, and MBEs have accounted for more than 50 percent of the 2 million businesses started in the United States in the last decade. On the other hand, MBEs are, relatively speaking, very small with respect to revenues and employee count, and according to the same Senate Report, the average revenues for MBEs have decreased by over double digits. And, of course, MBEs are currently operating in a global pandemic.

The pandemic did not create the hostile environment that MBEs face. It only exacerbated it. Seemingly insurmountable obstacles like discriminatory social policies coupled with laissez faire economic practices have severely restricted MBEs’ ability to access the requisite financial, social and information capital that MBEs need in order to sustain and grow. Mitigating these obstacles will require a grassroots effort led by large, publicly held banks, considering the massive scope of their financial and operational capabilities, existing community-based regulatory requirements, and the large number of retail banks they operate in minority communities.

During a recent Husch Blackwell-hosted MBE-focused event, Empowering Minority Entrepreneurs To Bridge the Racial Wealth Gap, we discussed with financial stakeholders what specific programs and initiatives they have implemented to provide MBEs with more opportunities for business mentoring and to access capital. One of the participants, Robert Hines, VP and Senior Business Consultant for JPMorgan Chase, described JPMorgan Chase’s $30 billion commitment to advance racial equity and how JPMorgan Chase has developed localized programs to help businesses transition from survival mode to sustainability mode. Mr. Hines also discussed an economic summit that JPMorgan Chase hosted in Fifth Ward, Houston, Texas. 

At the summit, MBEs received business coaching and had the opportunity to network with bankers and other professional service providers. Kimberly Evans, Vice President and Community Manager for JPMorgan Chase and organizer for the event stated, “We know that financial education is a key driver in closing the racial wealth gap…Chase Bank has designed mentoring programs that connect business owners to the services and support they need even inside and outside of banking.”

These types of comprehensive grassroot programs seem to underscore the fact that standard and circumferential community reinvestment approach toward MBEs in the past are not enough anymore. Community stakeholders, now joined by institutional investors, are challenging lenders to incorporate more dynamic engagements and Environmental, Social and Governance (ESG)-based principals into their community and lending initiatives, to, among other things, help remove lending inequities, reduce the financial information deficit, and create more sustainable and scalable MBEs. Finally, these types of engagements and ESG-inspired initiatives are good for business. MBEs present a significant market for both B2B and consumer products and services that should be considered and engaged by forward-looking businesses. As MBEs grow they and their employees will be better positioned to purchase additional financial services and products from lenders that have multiple retail locations in communities where MBEs operate and their employees live.

Carlos White is a member of the firm’s ESG Strategy & Compliance Team and leads the firm’s Economic Development Impact Team, which is a dynamic, innovative, cross-disciplinary legal practice group focused on sustaining and scaling MBEs. These teams advocate for and advise MBEs at all stages of their business life cycle as well as counsel large and midmarket companies in developing and implementing conscientious and legally compliant socioeconomic and impact investment programs and partnerships with MBEs.

Professional:

Carlos White

Partner
 

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