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An obscure 47-year-old law designed to right the historic wrongs of redlining was the ‘original ESG framework,’ execs say. Just look at how Crown Heights and Bed-Stuy have changed

An obscure 47-year-old law designed to right the historic wrongs of redlining was the ‘original ESG framework,’ execs say. Just look at how Crown Heights and Bed-Stuy have changed


Within the finance sector, ESG might seem like a trend that’s only really caught on in the past few years—but a lesser-known banking law passed in 1977 laid the groundwork for modern ESG policies and the $450 billion community development financing industry, and it’s being updated to serve low-and-moderate-income communities amidst changes in the banking and housing sectors.

The Community Reinvestment Act was passed in response to redlining practices perpetuated by banks, which were systematically lending money to certain (often white, wealthy) neighborhoods and leaving poorer areas without access to capital. The law requires banks to invest a certain amount of their capital in low-to-moderate income areas, facilitating home loans and supporting local business.

“I can tell you the difference…in terms of what Crown Heights or Bed-Stuy or East New York used to look like,” says Lloyd Brown, a longtime executive credentialed in advising on CRA issues, speaking about three such low-income areas in New York City. “Now, there’s a challenge in terms of gentrification, but how do you balance providing affordable housing, others coming back to the community, and the impact of long-term residents? It’s not as easy as what one might think—It’s about being somewhere in the middle, like the rest of life.”

Speaking at the Fortune Future of Finance conference, Brown was joined by Jesse Van Tol, President and CEO of the National Community Reinvestment Coalition, and Tom Davidson, founder and CEO of EVERFI from Blackbaud, which hosted the breakout session. “I call the CRA the original corporate responsibility and ESG framework,” Van Tol said. “You can thank CRA for the rise of the entire [community development lending] industry.”

But new economic developments and trends in the banking industry have been subverting the original mission of the CRA. More and more consumer capital is stored in non-bank fintechs such as PayPal, which aren’t subject to the same equitable lending laws. And changing demographic trends mean banks have been funneling CRA money supposedly earmarked for low-income Americans to wealthier homeowners instead.

Rapid gentrification has disrupted the lending equation for banks and allowed them to tick CRA boxes by lending to wealthy homeowners buying property in lower-income neighborhoods. And while the policy has proven effective in getting low-income Americans home loans, it’s for the most part stopped…

Click Here to Read the Full Original Article at Fortune | FORTUNE…