Heralding a new era of what it calls “climate adaptation finance,” a June 14 report issued by the San Francisco Federal Reserve Bank calls for using the Community Reinvestment Act (CRA) to guide lending practices in economically depressed communities throughout the United States.

Enacted in 1977 to spur economic development in low-to-moderate-income communities, the CRA sought to end the practice of “redlining,” in which banks were alleged to have avoided making loans in downtrodden neighborhoods deemed unlikely to produce a return on investment. Using the CRA’s provisions guiding pre- and post-disaster investments, the report argues for transforming the statute into an instrument of climate/environmental policy.

“Climate change is already causing disruption to regional economic activity. Low-to-moderate income populations are highly vulnerable to these impacts, in part, because they have fewer resources to adapt,” the report says. “The stability and prosperity of local economies in the face of climate change depends on how well the public, private, and civic sectors can come together and respond to the shocks and stresses of climate change.”

The report, “Climate Adaptation and the Community Reinvestment Act,” was co-authored by Jesse M. Keenan and Elizabeth Mattiuzzi. Keenan is with the Graduate School of Design at Harvard University; Mattiuzzi is with the Department of Community Development at the San Francisco Federal Reserve Bank.

“Collaborative efforts to fund climate adaptation not only reduce the burden on highly vulnerable populations, but they also offer the opportunity for co-benefits within a broader portfolio of community development ambitions,” the authors explain. Targeting community development practitioners, investors, and policymakers, the report stresses the importance of “sparking new ideas about how to develop partnerships and funding streams for CRA-eligible activities – in both eligible communities and areas within a federal disaster declaration …”

From Redlining to Greenlining

The authors acknowledge that their report “provides an interpretation of potentially applicable existing administrative authority” under the CRA. In fact, their report is a blueprint for banks and, more important, banking regulators to use the CRA to favor green investments in communities covered under the law. In effect, a statute designed to put an end to redlining would be repurposed to promote greenlining.

Kennan and Mattiuzzi applaud efforts undertaken in the name of sustainability to “advance behaviors, actions, and strategies that reduce negative environmental impacts and reduce consumption to levels that are commensurate with currently understood notions of stability in managed ecological systems.” But climate mitigation and similar steps are not enough. Hence the importance of developing “additional pathways for investing in communities in the face of climate change.”

Although they cite no climatological data to support their assumption, the authors underscore the importance of “reducing greenhouse gases that cause global warming and climate change.” Yet their blithe acceptance of a politically fashionable narrative justifies hijacking a 42-year-old law in order to alter banks’ lending practices – and doing all this administratively, with zero input from Congress.

Global Trend?

This development is not restricted to the United States. The Wall Street Journal (June 19) reported that Banque de France Gov. Francois Villeroy de Galhau has raised the prospect that the European Central Bank (ECB) could give “green” bonds better treatment than other assets, “putting its lending power behind the fight against global warming.” According to the Journal, over 30 central banks worldwide, excluding the U.S. Federal Reserve, are now members of the Network for Greening the Financial System, created in 2017.

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