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BrandonHoltFirstEssay 9 - 07 Jun 2022 - Main.BrandonHolt
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| | | There is a precedent for this proposal in the climate space with "sustainability-linked loans". Under this loan structure, a borrower's interest rate is adjusted based on to their attainment of agreed to sustainability targets. Specifically, the loan's interest rate is lowered if the target is attained and the interest rate is increased if the borrower fails to meet the agreed targets. A related idea has been applied in the racial justice context. Napoleon Wallace’s firm, Activest, rates municipalities’ credit worthiness by incorporating police brutality prevalence into traditional municipal credit ratings. When occurrence of police brutality is high and the frequency and amount of lawsuit settlements are also high, the riskier the rating Activest assigns. | |
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< | The public commitments corporations made to improve diversity could motivate lenders and borrowers to initially consider this type of proposal, particularly if special interest groups connected the sustainability-linked loan precedents to diversity attainment commitments and demands. But the benefits of this proposal to the bottom-lines of both lenders and borrowers provide reasons for parties to actually adopt and agree to these terms. For borrowers, this scheme provides access to favorable rates on funds that can be used for general corporate purposes and demonstrates a commitment to diversity to its stakeholders (e.g. boards, shareholders, employees, and consumers). For lenders, this scheme could increase the lender's executed deals and client base, result in higher returns, and bolster a lender’s reputation as assisting borrowers in fulfilling their public commitments on diversity. In essence, the scheme allows for borrowers and lenders to speculate on the ability of the borrower to diversify within established time frames. | >
> | The public commitments corporations made to improve diversity could motivate lenders and borrowers to initially consider this type of proposal, particularly if special interest groups connected the sustainability-linked loan precedents to diversity attainment commitments and demands. But the benefits of this proposal to the bottom-lines of both lenders and borrowers provide reasons for parties to actually adopt and agree to these terms. For borrowers, this scheme provides access to favorable rates on funds that can be used for general corporate purposes and demonstrates a commitment to diversity to its stakeholders (e.g. boards, shareholders, employees, and consumers). For lenders, this scheme could increase the lender's executed deals and client base, result in higher returns, and bolster a lender’s reputation as assisting borrowers in fulfilling their public commitments on diversity.
In essence, the scheme allows for borrowers and lenders to speculate (for profit maximization by lenders and savings maximization by borrowers) on the ability of the borrower to diversify within established time frames. In this way, diversity attainment and a corporation's financial interests align. | | |
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