Sierra Club: Community Reinvestment Act Regulatory Update Offers Opportunity to Address Climate Crisis
A coalition of groups aiming to further financial inclusion, affordable housing, and racial and climate justice called for strengthened environmental justice provisions as the comment period for an update of the rules implementing the Community Reinvestment Act (CRA) comes to a close.
In a letter to the
"Climate change is a risk multiplier that exacerbates racial and economic inequality, and it is progressing at an alarming rate. The agencies must update CRA regulations with this reality in mind so that the banking system meets the changing credit needs of all communities," the groups wrote in the letter, which was led by Americans for Financial Reform, the
"Banks pour billions of dollars into fossil fuels every year. Meanwhile, the fossil fuel industry's air, water, and climate pollution continues to disproportionately impact marginalized communities," said
Key policy recommendations include:
* Expanding the list of climate-related eligible activities under the CRA regulations to include activities such as electrification and water efficiency measures for residential homes, including multifamily properties;
* Explicitly using race as a metric to ensure that historically and current redlined communities receive improved access to credit and services, including investments in community-based climate resilience;
* Encouraging banks to increase community engagement and relationship building with climate and environmental justice organizations, including through the use of Community Benefits Agreements; and
* Examining the role bank financing activities play in climate change, especially those that disproportionately impair access to credit for Black communities.
"Decades of disinvestment in formerly-redlined communities has not only resulted in a staggering racial wealth gap, but it's also left these communities increasingly vulnerable to climate change and disasters. Regulators must seize this opportunity to update CRA regulations and finally acknowledge that the legacy of redlining has far-reaching consequences," said
"The federal bank regulators implementing the CRA have begun to recognize that climate change will cause a shift in the kinds of investments and financial services that communities need--especially for those most vulnerable to climate change impacts," said
"Regulators must revisit old assumptions and modernize the CRA regulations to meet current needs," said
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Resources
The letter, signed by 93 organizations and individuals, can be found here (https://ourfinancialsecurity.org/wp-content/uploads/2022/08/CRA-Climate-Justice_-4pg-Sign-on-Letter_final.pdf).
Americans for Financial Reform,
Read more about the Community Reinvestment Act in the
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To: Chief Counsel's Office,
RE: Community Reinvestment Act Proposed Rulemaking [87 FR 33884]
OCC: 12 CFR Part 25; Docket ID OCC-2022-0002; RIN 1557-AF15
On behalf of Americans for
This thoughtful proposal would provide additional opportunities for investment that communities have been seeking, including opportunities to build climate resiliency, in addition to providing greater clarity and consistency for all stakeholders involved. The agencies should strengthen the regulations to better ensure that communities most impacted by redlining and environmental injustice receive the intended benefits of the CRA. Communities of color should explicitly be prioritized for investment, alongside low- and moderate-income (LMI) communities. Additionally, the final rule should further define activities eligible for CRA credit and properly incentivize banks to reduce their contributions to climate risk.
Economic damages caused by climate-related disasters, as well as chronic issues resulting from climate change such as heat stress, flooding, and drought, create disproportionate burdens for LMI communities and communities of color./1 Black communities have been particularly severely harmed by discriminatory "redlining" practices--practices that restricted access to capital for mortgages, which has resulted in persistent economic inequality to this day./2 LMI communities and communities of color experience higher levels of poverty, unemployment, and population loss related to climate migration,/3 with these cumulative impacts rendering them more vulnerable to the effects of climate change. Climate vulnerabilities will continue to expand in scope and severity with time, causing a shift in the kinds of investments and financial services communities need in order to be prepared and protected.
Climate change is a risk multiplier that exacerbates racial and economic inequality,/4 and it is progressing at an alarming rate. The agencies must update CRA regulations with this reality in mind so that the banking system meets the changing credit needs of LMI communities and communities of color. This proposal takes important steps in the right direction and should be strengthened to ensure that those most vulnerable to the impacts of climate change can access necessary, fair, and affordable capital and services to meet their financial needs.
The agencies should further expand the list of climate-related eligible activities under the CRA. We support the
Explicitly utilize race as a metric in CRA examinations in order to ensure that historically redlined communities, and those most vulnerable to climate change, have improved access to credit and services.
The proposal considers more investment in underserved communities; however, CRA regulations have failed to use race as a factor in evaluating bank performance and identifying investments eligible for CRA credit. As a result, they have failed to reflect the CRA's origins as a tool to redress the harms caused by banks' practice of redlining. As observed previously by the
Communities most vulnerable to climate change are most likely to be communities of color and LMI communities./7 Therefore, the agencies should ensure that banks are prioritizing those very communities for investment. The final rule should outline publicly available data tools that banks should use to identify climate vulnerable communities, and work towards building relationships and driving investment to those communities. Examples of tools include the
Encourage banks to increase community engagement and relationship building with climate and environmental justice organizations, including through the use of Community Benefits Agreements (CBAs). When this proposal is finalized, banks may become more active in investing in disaster preparedness and climate resiliency. For those investments to succeed, banks need to form community level relationships. The final rule should include measures that promote relationship building between bank CRA officers and local environmental and climate justice organizations working in LMI communities and communities of color. One measure regulators should adopt to ensure an inclusive approach is to require banks to describe, in public documents, their outreach to and engagements with organizations, including where and how these efforts were made and how banks responded. Banks should also publicly identify the organizations with which they are establishing CBAs, to ensure that banks are not cherry-picking organizations that would ask for less than what communities need, and what other organizations would request. The final rule should additionally consider incentivizing the use of binding CBAs, since they are powerful tools for communities to outline their local financial needs. For example , the final rule should reflect that a CRA exam will include an evaluation of adherence to established CBAs.
Consider how bank investments contribute to climate change and disproportionately impair access to credit for communities. Bank financing of activities that significantly increase greenhouse gas emissions (GHG) and other environmental pollution, notably fossil fuel industry activities, increases the challenges that climate-vulnerable communities--particularly communities of color--face accessing safe and affordable credit and banking services. As climate-related harms fueled by these emissions damage property, gradually impair household and community financial condition, and reduce services to these communities, banks, in turn, are becoming more reluctant to serve them. Banks are concerned, for example, that these impacts will compromise the abilities of these communities to repay loans. This has resulted in banks increasingly avoiding climate-vulnerable areas./10
As bank financing of polluting activities disparately impacts access to credit by LMI communities and communities of color, regulators should scrutinize such activities and their disparate impacts, and consider how harms to these communities' access to credit should be taken into account in CRA exams. Fair lending reviews are already part of CRA exams, and disparate impact related to climate change should be incorporated into that existing framework./11
The agencies should also consider that the financing of polluting activities, such as building of gas pipelines, can threaten tribal rights to manage tribal community development when these activities occur on their lands without the free, prior, and informed consent of these communities./12 Further, CRA regulations should maintain the government's trust responsibility/13 to federally recognized tribes by reducing points on CRA exams for banks that finance the building of infrastructure on tribal lands without tribal consent.
Do not raise the small and intermediate small bank asset thresholds. The agencies propose changing the definition of a small bank from those which have up to
This proposal is a welcome step forward in creating a consistent approach across all three regulatory agencies and we appreciate the opportunity to comment in support of finalizing and strengthening the CRA regulations. It is critical that the agencies better address the challenges of communities of color in addition to LMI communities, as originally intended under the CRA, and that those communities have access to safe and affordable investments in climate resilience as they are most likely to be impacted by the ongoing climate crisis.
Sincerely,
Americans for
Action Center on Race & the Economy
Adrian Dominican Sisters,
As You Sow
Boston Impact Initiative
CODEPINK
Congregation of Sisters of
Congregation of
Consumer Action
Dominican Sisters of
Elders Climate Action
Evergreen Action
Extinction Rebellion San Francisco Bay Area
Figure 8 Investment Strategies
FreshWater Accountability Project Ohio
Honor the Earth
Mazaska Talks
Natural Investments
New Mexico Climate Justice
Organized Uplifting Resources & Strategies
Positive Money US
Public Justice
Rising Sun Center for Opportunity
SharePower Responsible Investing
Sisters of
Strategic Actions for a Just Economy
Texas Housers
The 22 Fund
Thurston Climate Action Team
Turtle Island Restoration Network
Waterway Advocates
WE ACT For Environmental Justice
1000 Grandmothers for Future Generations
21
350 Ventura County Climate Hub
Individual Signers:
Footnotes:
1/
2/ Mitchell, Bruce and
3/ Zonta, Michela and
4/ United Nations High Commissioner for Refugees. "Climate Change and Disaster Displacement." 2020. https://www.unhcr.org/en-us/climate-change-and-disasters.html
5/ Proposal at 33905. https://www.federalregister.gov/documents/2022/06/03/2022-10111/community-reinvestment-act
6/ Barr, Michael S. "Credit Where It Counts: The Community Reinvestment Act and Its Critics."
7/ Morello-Frosch, Rachel and
8/ "EJScreen: Environmental Justice Screening and Mapping Tool."
9/ "Climate and Economic Justice Screening Tool."
10/ McDonnell, Tim. "How new flood risk maps could undermine marginalized neighborhoods." Quartz. Updated
11/ Steele, Graham. "ESG Carrots and Climate Sticks: Evaluating the Roles of Mandates and Incentives in Climate Financial Regulation."
12/ "Memorandum of Understanding Regarding Interagency Coordination and Collaboration for the Protection of Tribal Treaty Rights and Reserved Rights." Multiple Federal Parties to the MOU.
13/ Ibid.
14/ Silver, Josh. "Here's Where Changes To CRA Asset Thresholds Will Undermine Community Reinvestment."
15/ "Data Spotlight: Challenges in Rural Banking Access."
16/ "Third National Climate Assessment:
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Original text here: https://www.sierraclub.org/press-releases/2022/08/community-reinvestment-act-regulatory-update-offers-opportunity-address
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