The U.S. financial system has overlooked the value that Black, brown and Indigenous-led households, businesses and financial institutions provide to the U.S. economy. Since 2000, we've lost $16 trillion in economic output due to discrimination against Black Americans alone. If we're not careful, this cycle will be perpetuated as our nation pursues a green economy that has the potential to usher in a clean environment, great jobs and financial opportunities for all. For this to be realized, Greenhouse Gas Reduction Fund resources must be directed to minority depository institutions (MDIs).
The green economy includes investment in zero-emissions transportation, clean energy development and regenerative agriculture. MDIs, as intermediaries, are key to delivering these results, especially in ways that build creditworthiness and wealth in Black, Indigenous or people of color (BIPOC) communities and in economically disadvantaged communities.
MDIs are mission-driven lenders that play an outsize role in transforming the lives of underserved households and businesses by making loans and providing vital banking products and services. As institutions with deep-rooted relationships within the community and with leadership that reflects the community, MDIs can uniquely connect with their customers to understand their needs, challenges and opportunities.
There are 145 MDI banks in the U.S. with combined assets of over $329 billion. According to S&P Global Market Intelligence data, minority banks grew faster and more profitably than the broader industry in 2021. MDIs posted a median 1.22% return on average assets, beating the national median by 13 basis points, and grew loans by a median 5.3% and deposits by 15.6%, compared with the national medians of 2.1% and 12.0%. In addition to MDI banks, there are 507 MDI credit unions with more than 5 million members and $64 billion of assets. In 2021, MDI credit unions made more than $34 billion of loans to their members.
About 17% of greenhouse gas emissions come from residential energy use in the U.S., with Black households spending 43% more on energy than white households. Unfortunately, the new green economy, with its promise of reducing greenhouse gas emissions, is leaving behind people of color. For example, Black individuals make up 8% of the clean energy workforce compared with 13% in the wider economy. Worse still, communities of color have less participation in rooftop solar despite the wealth-building opportunities that solar and clean energy can provide.
A large gap persists in wealth building and financial access for individuals and businesses in communities of color. Part of the issue is the concentration of bank closures in minority communities. This is especially detrimental given banks are much less likely to originate small-business loans in communities where they have no branches. This translates to less capital for green economy companies led by minorities, such as solar developers, energy efficiency auditors and later-stage clean-tech startups. This is where MDIs have a crucial and unique role to play in providing equitable financing that reduces greenhouse gas emissions.
With an understanding that creating a more just economy and financial system starts with leadership and ownership from those that are systemically disadvantaged, it is critical that the U.S. balance sheet — which leverages the inclusive voice of the U.S. people and has the scale necessary to transform the financial sector for the common good — invests in MDIs. Directing Greenhouse Gas Reduction Fund resources to MDIs will not only advance racial and economic justice by supporting the green lending done by these critical institutions, but will also ensure that the fund meets, or exceeds, its Justice40 goals.
A number of MDIs have already been trained by
An inclusive green economy requires the inclusion of communities of color, and the MDIs that serve them. That's why the Community Builders of Color Coalition made up of 11 national BIPOC organizations is urging the Environmental Protection Agency to ensure that minority communities can benefit equally from the Greenhouse Gas Reduction Fund. MDIs should not be sidelined in implementing the financial components of the Inflation Reduction Act, as they are central to reducing greenhouse gas emissions, improving resiliency and closing the wealth gap. That's the kind of green economy that we need.
