Financial institutions and companies are dialing up efforts to put their money where their mouth is when it comes to diversity.
Sustainability experts from Carlyle, Bank of America, and Infosys share their ways forward in Insider’s virtual event.
This was part of Insider’s “Investing in People Transforms Economies,” in partnership with Bank of America, on March 8, 2022.
George Floyd’s murder in May 2020 proved a wake-up call for much of corporate America, including Wall Street banks and other financial institutions that are now doing more than ever to invest in diversity.
For years, financial institutions have offered climate-focused financing instruments, but in the aftermath of Floyd’s death, the industry zeroed in more on sustainability-linked metrics that tackled social matters like diversity, equity, and inclusion. Banks were more welcoming to diverse-owned broker dealers, and private-equity firms were demanding greater diversity on their portfolio companies’ boards, among other initiatives.
It’s a reckoning that’s well overdue, and this month, Insider hosted a virtual panel, “Investing in People Transforms Economies“, featuring three executives to dissect the strides that financial institutions have made to foster industry-wide diversity initiatives that stand the test of time.
For Karen Fang, the global head of sustainable finance at Bank of America, sustainability is really about connecting financial capital with human capital, while Megan Starr, the head of impact at Carlyle, believes the private-equity firm’s portfolio companies are better-served through inclusive teams.
And Ravi Kumar, president at IT services company Infosys, reckons the pandemic served as a gut check to employers grappling with today’s workforce that demand equity and empathy.
“There’s this sense of a ‘pandemic epiphany,’ if I may. An epiphany about understanding the purpose and priorities of people you want to work with,” Kumar told Insider. “Employers are spending time on mental health. We need flexibility in our jobs, but it’s also about who you want to work with, what’s the purpose and where your priorities are.”
Bringing financial tools to bear
Financial institutions, meanwhile, have doubled-down on efforts to enact change through debt and equity instruments that don’t just promote diversity, but seek to hold companies accountable for their actions.
“Whether it’s displacement or re-skilling that we’re talking about, all of this takes dollars and capital,” BofA’s Fang said. “The private sector has realized the role we can play through capital markets to deliver on those goals.”
BofA, for example, conducted its inaugural $2 billion equality progress sustainability bond in September 2020, which was used to support mortgages or construction loans for black and Latin borrowers. The proceeds also supported single, or multi-family housing, and affordable housing projects. And last December, the US bank followed up with another $2 billion bond that provided capital for affordable housing and for minority-owned businesses.
Last year’s transaction also employed the services of black-owned investment banks like Loop Capital and Siebert Williams Shank to help arrange the bond.
“Let’s make sure minority-owned businesses and communities get the capital, or the mortgages, and small-business loans that they require,” Fang said.
Holding corporate America to account
Carlyle’s Starr said she’s focused on changes that can be sustained over the long term. Whether it’s the private-equity firm or its portfolio companies, Starr wants the impact to last, rather than it be a reactionary flash in the pan that’s swept under the rug with the current news cycle.
“Better businesses have engaged, productive, loyal, and sticky employee bases. So I think impact right now has taken root in this idea of change over time. It’s far more impactful than just binary capital allocation decisions,” Starr told the audience.
Carlyle, for example, inked a $4.1 billion credit line in February last year that’s focused on advancing diversity within the boards of its portfolio companies. Thirty percent of these boards’ directors must be from diverse backgrounds within two years of Carlyle taking control of the company.
By implementing a more diverse board, the firm is hopeful this effort will trickle down into its companies’ broader hiring efforts.
Carlyle also is holding itself accountable. If it does not meet these targets, the firm will pay a greater cost for its debt.
“With this, we’ve tied our cost of capital to it, and we have year-over-year key performance indicators. And if we make them, there’s a real benefit to the pricing of our debt,” Starr said.
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