These U.S. Policies Can Help Catalyze Impact Investing—And Address Historic Challenges, Says Report – Forbes

In the face of severe racial inequities and income disparities laid bare by the pandemic, U.S. society faces gargantuan challenges—and impact investors and entrepreneurs can play a significant role in addressing them. But governmental policy needs to do a lot of the heavy lifting. That means catalyzing investment by strengthening some existing policies and creating new ones.

That’s the message of Private Capital, Public Good, a report just issued by the U.S. Impact Investing Alliance. It lays out policy recommendations for the incoming Biden administration, federal regulators and members of Congress to take over the next two years.

“We face historic and epic problems,” says Fran Seegull, executive director of the U.S. Impact Investing Alliance. “Private capital can’t do it alone. Government can’t do it alone. This is about a partnership.”

The report discusses 12 recommendations presented under two themes. One focuses on the role of existing community investing programs,  (“Transforming community investing to confront inequality”) , the other on stakeholder capitalism, (“Accelerating stakeholder capitalism to advance American economic leadership”).

Community Investing

Community investing targets the “need to counteract decades of deliberate underinvestment in Black, tribal, rural and other marginalized communities” by tapping Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs), plus tax credit programs. Since Covid first devastated US. businesses, especially small companies, CDFIs and MDIs have played an oversized role in helping underserved communities survive through loans to businesses, individuals, affordable housing projects and such nonprofit groups as local health clinics, according to Seegull.

With that in mind, the report calls for an expansion of the CDFI Fund, which currently has an annual allocation of about $250 million, to at least $1 billion, to help out the more than 1,000 CDFIs in operation and “fortify their balance sheets,” says Seegull.

An additional recommendation is to strengthen the Community Reinvestment Act (CRA), which was passed in 1977 to address decades of redlining in mostly Black neighborhoods, by encouraging banks to help meet the banking needs of low-income areas. That would include, for example, addressing what Seegull calls the “grade inflation” of CRA projects, by which nearly 90% of banks receive an often undeserved satisfactory score. Another possibility: that considerations related to what’s called environmental racism, such as the proximity of low-income neighborhoods to polluting power plants, be part of the CRA.

And another: introduce mandated, standardized reporting about Opportunity Zone investment.

Stakeholder Capitalism

As for stakeholder capitalism, meaning taking into account considerations other than short-term shareholder gains, one recommendation is to introduce a regulatory requirement that corporations issue Environmental, Social and Governance (ESG) disclosures. In 2019, the Business Roundtable made a public commitment to stakeholder capitalism, but it didn’t come with many specifics, according to Seegull. “This is a real mechanism for accountability,” she says. The report also suggests investigating developing similar disclosures for large private companies.

There’s also the related matter of addressing what Seegull calls “regulatory backsliding” by regulators. In October, the Department of Labor issued a new “factors” rule that limited the ability of retirement plans to take into account ESG considerations. Also, in September, the SEC approved rules making it harder for investors to submit shareholder proposals.

It all relates to a question of U.S. competitiveness, according to Seegull. “Europe is really leading on disclosure and the U.S. is lagging,” she says. “Our regulations need to keep step with reality and keep step with the market. We’re getting left behind.”

A bigger, related move: Using the U.S. Development Finance Corp., which focuses on investment in emerging markets, as a model for creating a domestic investment vehicle to target sustainable job creation in the U.S.  That one’s a tall order, Seegull says. But, she says, “This is a living document that we will be modifying and updating over time.”

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