Washington, D.C. — A new report from the Center for American Progress outlines a new framework to restructure the Community Reinvestment Act (CRA) to address environmental racism and build climate resilience in low-income communities of color. The CRA was enacted in 1977 to combat redlining and other forms of discriminatory lending but did not factor in environmental criteria. Since then, it has become increasingly clear that climate change has disproportionately impacted the health and economic futures of low-income communities of color.
In “A CRA To Meet the Challenge of Climate Change,” CAP lays out a blueprint to identify the low- and moderate-income communities most impacted by climate change and a framework to reform the CRA to encourage banks to provide loans, investments, and other services that address climate resilience in a way that focuses more strongly on geographic racial and ethnic disparities.
The report provides the following recommendations:
- Explicitly target low-income communities of color in order to boost climate resilience where it is critically needed. Financial regulators should take environmental factors into account in their CRA examination criteria.
- Create a climate resilience and environmental justice finance mandate for the CRA. Projects should be scored for their potential to build climate resilience and address environmental racism. Projects that count toward an institution’s environmental investment score could include the construction of energy efficient affordable housing; the installation of energy efficiency improvements in homes and buildings; and the creation of green infrastructure, including parks and green spaces.
- Expand CRA coverage. Regulators should extend the CRA to include credit unions. Banks and nonbanks should also be incentivized to invest outside their traditional assessment areas. This requirement will expand access to credit in banking deserts, including central cities and rural areas.
- Strengthen CRA enforcement. Providing more stringent, quantitative benchmarks for institutions has the benefit of establishing clear and uniform standards and mitigating both grade inflation and regulatory uncertainty. In addition, bank performance should be measured by outcomes in assessment areas; by tracking social and economic outcomes; and by assessing the responsiveness of the investments to community environmental needs by, for example, monitoring carbon emission levels.
- Increase public accountability. The role of community benefits agreements should be formalized within the CRA to ensure that communities of color have a role in identifying investment needs and to increase accountability for financial firms. Also, CRA regulators should expand and improve the data they report publicly in uniform formats to allow for independent analysis.
“If climate resilience planning and policy do not account for racial equity and racial justice, we will only perpetuate racial segregation and the health inequalities that have led Black and Latino communities to suffer worse outcomes during the COVID-19 pandemic,” said Michela Zonta, senior policy analyst for Housing and Consumer Finance Policy at CAP and a co-author of the report. “By modernizing the CRA, a new administration can use its regulatory powers to effectively confront environmental racism and build climate resilience in low-income communities of color.”
Read: “A CRA To Meet the Challenge of Climate Change” by Michela Zonta and Zoe Willingham
For more information on this topic or to speak to an expert, contact Julia Cusick at [email protected].