Beyond Rhetoric: Finding Common Ground in Community Finance
Originally published on May 14, 2024 by Impact Entrepreneur here.
The emergence and backlash of socially conscious language surged in the United States following the murder of George Floyd in the summer of 2020. Terms such as Diversity, Equity, and Inclusion (DEI) and Environmental, Social, Governance (ESG) have been repurposed and have ignited controversy among legislators and right-wing pundits.
More recently, following the Supreme Court’s decision to overturn Affirmative Action, state legislators have independently determined how to implement this decision. In numerous states, this has led to efforts to pass legislation either prohibiting “DEI” initiatives at public institutions or barring investments in ESG funds. As of April 24, nine states have successfully enacted bills targeting DEI funding or practices. This trend of anti-DEI legislation persists despite mounting evidence of its negative economic impacts.
It may surprise some that certain initiatives have remained largely unnoticed by DEI opponents. Several programs and funds addressing environmental and social issues have garnered bipartisan support.
In 2023, Virginia, a state with growing bipartisan dynamics and a Republican Governor, saw its state assembly overwhelmingly pass legislation to establish the Virginia Community Development Financial Institutions Fund (VA CDFI Fund). This bill, which also passed the state Senate unanimously, exemplifies bipartisan support for creating a stable funding source for Community Development Financial Institutions (CDFIs). CDFIs finance projects that aim to expand economic opportunities, such as increasing affordable housing, providing more capital to entrepreneurs, creating jobs, and fostering public-private partnerships. Similar legislation has received bipartisan support in other states; for instance, the California state CDFI fund garnered near-unanimous support upon its establishment in 2022.
Virginia is also at the forefront nationally. In 2022, Senator Mark Warner (D-VA) and Senator Mike Crapo (R-ID) co-founded the Senate Community Development Finance Caucus (CDFC), a bipartisan group committed to enhancing the missions of CDFIs by increasing their lending capabilities in underserved communities.
Similar to many DEI initiatives facing opposition, CDFIs aim to reduce disparities caused by race, economic status, gender, and other factors. However, what distinguishes them on the legislative floor and in public perception from other equity-focused initiatives?
A significant aspect of CDFIs’ appeal lies in their capacity to tackle systemic issues affecting a diverse range of communities. CDFIs operate in regions plagued by chronic disinvestment and persistent poverty, areas that often include both traditionally Democratic and Republican constituents. They play a crucial role in providing access to capital and resources for people of color, rural communities, women, entrepreneurs, first-time homeowners, veterans, disabled individuals, and LGBTQ+ individuals—resources that might otherwise be out of reach.
The tension between the “anti-woke” cultural stance and the practical needs of community development financing creates divergent narratives in public discourse versus actual practice. In New Hampshire, Republican legislators recently introduced a bill — ultimately rejected — that would have prohibited state funds from considering environmental, social, and governance (ESG) criteria. Despite this, the New Hampshire Community Loan Fund, one of the oldest statewide loan funds in the US, continues to finance essential assets like machinery and equipment for local food production, as well as provide small business loans to minority entrepreneurs.
CDFIs are not the only entities countering the anti-DEI trend. Other initiatives, such as Invest Appalachia, also receive substantial regional support. Invest Appalachia collaborates with investors at both local and national levels to fund projects from solar development in coal-affected communities to downtown revitalization efforts.
Several common elements characterize the initiatives discussed. Firstly, there is a strong emphasis on fostering public-private partnerships. Despite many Republican legislatures opposing state fund investments with environmental, social, and governance considerations, programs like CDFI Funds strategically use public dollars for private development. These partnerships have established trusted relationships and secured leadership support, allowing disputes to be resolved constructively rather than escalating publicly.
Another crucial aspect is their focus on local issues. Economic and community development programs directly affect individuals, particularly those related to jobs, housing, infrastructure, and entrepreneurship. Small businesses are linked to key economic indicators like job creation, and homeownership remains a vital method of wealth accumulation. Both Democratic and Republican sponsors of the CDFI bills in Virginia emphasized the significance of economic growth in their support statements, highlighting small businesses, jobs, and affordable financing as major advantages of the funding. Unlike the abstract nature of ESG factors to many voters, investments with tangible local impacts are more readily appreciated and understood.
While these programs explicitly aim to advance equity and inclusion, they effectively tie these objectives to tangible community benefits. As impact-driven investors and organizations strive to forge consensus amid anti-DEI rhetoric, recognizing successful models may pave the way for enduring partnerships.
