Using All Our Tools to Advance Equity in the South and Beyond

While potential is universal, opportunity is not. In the American South, where the Mary Reynolds Babcock Foundation works, slavery, segregation and a host of laws, policies and practices have entrenched white supremacy, delivering enormous advantages to whites and pervasive disadvantages to people of color.

 

Some of these systems have changed, but more than 150 years after the abolition of slavery, modern-day vestiges such as school and housing segregation, sentencing disparities, hiring discrimination and wealth gaps persist. Efforts to suppress votes, racially gerrymander districts and stoke fear of immigrants and Muslims are modern manifestations of the same old patterns.

 

The South’s population is growing and diversifying rapidly, and with it, its electoral clout. The United States relies heavily on the region’s abundant natural resources, rich cultural assets and constellation of economic drivers, but racism still diminishes public investments in infrastructure and communities to the detriment of us all. Addressing the pervasive harm racism has inflicted demands foundations do more than refine our grantmaking; it requires that we examine everything we do with an explicit focus on racial equity.

 

What Does It Mean to Be an Equity-Centered Organization?

 

Increasing opportunities for low-wealth communities and people of color has been at the heart of MRBF’s six decades of work. Our efforts to support historically black educational institutions, invest in leadership development and lift up grassroots and civic engagement organizations are all oriented around building pathways to decision-making power for people of color over the years. Historically, we have sought to achieve our goals by making grants and forging relationships and networks. In the last 20 years, we’ve pushed ourselves to better embody that ethos in our internal structure, hiring more staff of color for leadership positions and cultivating a board that reflects the racial diversity of the South.

 

Today, we are learning to center equity in all our work. While our primary focus is racial equity, we recognize that discrimination based on gender, geography, ability, sexual orientation and religion also creates obstacles to opportunity and quality of life. Understanding and taking ownership of painful legacies, and pushing our own boundaries for self-reflection and accountability—particularly those of us who have benefited from centuries of unearned advantages—demands a disciplined approach to learning and doing. We are delving into the history omitted from our schoolbooks and reflecting on ways it has helped or hindered us, asking our partners different questions, and collecting new data about their organizations and the communities they serve. We’re examining our internal policies, from hiring to investing, the way we talk about our work, the vendors we use, and even the hotels and restaurants we patronize.

 

From there, you begin to realize it’s not just about whom you support, but also about how you support them and who decides what. You start to see that financial systems are some of the primary mechanisms maintaining racial oppression; these forces can intentionally or inadvertently work for or against the communities you support. Big banks and traditional investment vehicles can exacerbate existing inequities; conversely, new financial partnerships, supportive economic policies, and place-based institutions can increase access to capital and return decision-making power to communities.

 

The Potential of Community Development Financial Institutions

 

There are more than 1,200 community development financial institutions managing more than $150 billion in the United States, and more than 380 serve the Southeast. These nonprofit loan funds, credit unions, and mission-driven banks emerged out of the civil rights movement and the Community Reinvestment Act, enacted in 1977 to curb practices that systematically excluded black Americans from homeownership and other pathways to wealth. 

 

In 2004, we began to deepen our exploration into how CDFIs counteract underinvestment and racist practices in our region. In addition to financing things like affordable housing, healthcare centers, grocery stores and non-predatory alternatives for home mortgages and small business loans, they often provide technical assistance and advocate for equitable economic policies. Many are led by women and people of color, and specifically engage people of color, understanding that economic opportunity and social justice are inextricable.

 

Most CDFIs network with other organizations such as community development corporations, banks, nonprofits, and local governments; each brings distinct skills and resources to an aligned set of strategies tailored to their contexts. This compels us to understand the needs and opportunities in a place. It also challenges us to rethink how we use our tools so that we provide what is most needed, rather than what is easiest to give. 

 

Experience tells us that impact investing alone—which is still vulnerable to market forces that can exacerbate inequality—won’t create the equity outcomes we desire. We saw a powerful opportunity in South Carolina to deploy more of our tools to those ends: program-related investments, general support grants, strategic communications, and connections to other funders. More than 15 years ago, we began supporting the South Carolina Association of Community Development Corporations—a network born to help low-wealth people and black communities rebuild after Hurricane Hugo in 1989. The association has helped grow community-based development organizations, generating more than $300 million in economic impact, creating or preserving more than 5,000 jobs, and building and rehabbing more than 1,000 homes. 

 

Now called the South Carolina Association for Community Economic Development (SCACED), the network also develops leaders from low-wealth communities, and trains them to engage their elected officials and advocate for more beneficial economic policies. Members have successfully pushed for a state earned-income tax credit and a tax credit to attract private capital into low-wealth communities.

 

We also support individual SCACED members. For example, we made moderate grant investments in the Low Country Housing Trust Fund in 2007, and after several years of increasing general support grants, we made our first program-related investment. Now called the South Carolina Community Loan Fund, the organization is a statewide CDFI providing equitable access to capital and advocating for policies to build wealth. Since its inception in 2004, SCCLF has financed more than $52.8 million in loans, seeding more than 3,000 jobs, 2,000 housing units, 24 small businesses and 11 healthy food outlets.

 

Bringing the Endowment into the Fight

 

Immersing ourselves in racial equity training and revising internal strategies also meant examining how we invest our endowment and who manages our portfolio. In 2014, we started aligning our investments with our values and exploring shareholder activism. By 2017, our portfolio was 100 percent invested according to environmental, social and governance criteria—and, as a whole, it exceeds our benchmarks.

 

We continue to ask equity-related questions: Are we seeking to invest in companies led by people of color? Are our managers hiring people of color and avoiding companies with negative practices in their supply chains? We have found glimmers of ways to embed racial equity in capital markets, including a $1 million investment with Illumen Capital, a fund seeking to address implicit bias in capital markets. 

 

As part of our shift toward more conscientious investing practices, we joined the Divest-Invest movement, which encourages institutional and individual investors to pull their money from environmentally harmful companies and invest in climate solutions. Today, the movement includes more than 1,000 organizations and nearly 60,000 individuals, with combined assets of more than $8 trillion.

 

Racial equity needs a similar movement. Considering the magnitude of inequality, the lack of transparency in capital markets, and the difficulty of influencing corporate behavior, an economy that works for everyone will require more intentional practices from philanthropy and beyond. Collectively, we must define best practices and raise the profiles of investors, funds, and advisers who take equity outcomes seriously. We need a policy environment that compels industry to be more equitable and markets that reward good corporate behavior. 

Inequality, particularly structural racism, remains one of America’s deepest challenges. Pushing for equity outcomes requires that we use as many tools as we can—deeply understanding context in place, and providing flexible general support grants and program-related investments. Our partners are more successful when they have access to a wide range of supports. It is time philanthropy figures out how to unlock our market-rate investments and bring more of what we offer to this fight.

This article first appeared on Stanford Social Innovation Review's website. It is part of a series on racial equity in impact investing in partnership with Mission Investors Exchange.