U.S. Bancorp believes that a recent deal with a housing-focused nonprofit will offer a blueprint for future socially responsible investments, as clients seek more detail about how their dollars are being used.
The Minneapolis bank’s capital markets team advised Enterprise Community Partners, a community development financial institution, on a $30 million bond issuance. U.S. Bancorp also committed to purchase the first $10 million of the bond, which it has dubbed a racial equity bond.
Investors who purchase the bond will receive annual updates on how the money is being used, including data detailing the number of housing units produced and the names of the developers involved. U.S. Bancorp intends to deploy that framework in future deals, said Marcus Martin, who heads environmental, social and governance efforts for the bank’s fixed income and capital markets unit.
“Our hope is to create a public structure broadly to support our ESG advisory efforts for clients, be it another CDFI or a corporate issuer, with very targeted needs for financing as part of that solution,” Martin said.
In this particular case, the bond will support Enterprise’s Equitable Path Forward, a five-year, $3.5 billion initiative to address racial inequality in housing. A large component of the effort involves putting capital to work building affordable housing in underserved communities of color.
The Columbia, Maryland-based nonprofit is also focused on financing and mentoring small developers led by Black or Indigenous people of color. Beyond racial disparities in home ownership and the wealth gap generally, just 2% of real estate development companies in the U.S. are Black-led, Enterprise said. Black developers
The proceeds of the bond will be used to finance loans to developers that are building primarily multifamily housing and community facilities, and fit Enterprise’s criteria.
The CDFI previously worked with U.S. Bancorp through
Some CDFIs like bond financing because it is cheaper and longer duration than a loan or line of credit. Not only are larger CDFIs and municipal clients increasingly looking to the capital markets for funding, but corporate clients are asking for more transparency into investments that may have an environmental or social component, Martin said.
“You’re starting to see the municipal nonprofit world tapping into capital markets for funding needs, so there’s obviously an opportunity for folks like us to advise into those issuers just as much as we advise into our traditional corporate issuers,” he said.
