After the murder of George Floyd, along with the disproportionate impacts of COVID-19 on minorities in the U.S., corporate America opened its wallets to support small diverse-owned businesses with the intention to remedy centuries of systematic racism and discrimination. More than fifty corporate giants and their CEOs rushed to notify the public about their new vows to advance economic mobility through increased opportunities for education, entrepreneurship, homeownership, and financial services for historically marginalized Americans.
Now two years later, there has been an unprecedented mobilization of billions of dollars to support minority families and their businesses, but it is still too early to make a statistically significant correlation between corporate pledges and small diverse-owned business expansion.
A study compiled by Creative Investment Research revealed that corporations pledged $67 billion since 2020 to address racial injustice across all sectors of the economy, but only $625 million has been disbursed as of August 1, 2021, accounting only for the first two fiscal quarters of the year.
One might say that Floyd’s tragic death sparked a new wave of corporate philanthropy. Charity contributions directed to economic mobility or education have always been pretty standard. For example, Google is donating $50 million to Black colleges and universities across the country to uplift Black presence in tech. The Washington Post’s analysis of corporate giving revealed that around $70 million have been donated to organizations working on criminal justice and policing reform, considered controversial by some due to hundreds of related protests sparked across the U.S.
What’s more, over twenty-eight retail giants like Sephora, Nordstrom, Macy’s, and many others signed a contract with the Fifteen Percent Pledge, thereby committing to dedicating at least 15% of their shelf space to Black-owned brands. To date, across these twenty-eight retail partners, almost $10 billion worth of revenue has been shifted to Black-owned businesses.
Target has also been on the frontlines of diversifying its supply chains and has committed to spending more than $2 billion towards advancing racial equity in retail through 2025. In May 2022, the company reported a 50% increase in its investments in Black-owned businesses from 2020 and has displayed more than 100 Black-owned brands in stores and online.
Some early data shows that the number of Black small-owned businesses in the third quarter of 2021 was 28% higher than pre-pandemic. However, one can't conclude that these numbers have improved solely because of corporate pledges. The pandemic led to the boom of small-business formation across all races and ethnicities, as more people left their jobs and pursued other ways of making money. According to an analysis of the U.S. Census Bureau data, new business applications increased more in 2020 than in the past fifteen years combined. The retail sector saw the most growth, accounting for 25% of all new business applications.
JPMorgan Chase made the biggest pledge out of them all, announcing a $30 billion commitment in 2020 toward closing the racial wealth gap over the next five years through small business loans, mortgages, and loans to affordable housing developers. According to the bank’s 2021 ESG Report, it has deployed more than $18 billion already.
Many of its peers have declared similar but more narrow pledges. Bank of America announced a $1.25 billion four-year commitment to battle racial and economic inequality in the nation’s communities, and its latest financial report states that $450 million has been spent. Citi reports that it has already allocated $1 billion out of its $1.1 billion pledge to address similar issues.
Now, there is also an important distinction between donating to charity and doing business.
Around 90% of the corporate banking pledges are administered through loans and equity stakes with JPMorgan and Bank of America, meaning that these companies will still be gaining profit. Still, a number of critics agree that large corporations should be bringing more Black businesses into the economy in order to build national economic resilience. Some estimates show that providing these businesses with equitable access to resources and opportunities can generate an additional $1 trillion to $1.5 trillion in annual GDP.
On the other hand, some argue that loading poor communities up with debt in the form of new loans can also be quite risky. After all, just starting a business does not guarantee that it will survive long-term. Corporations need to be careful when balancing between building minority resilience versus putting those same people and communities into unhealthy debt.
Furthermore, these companies need to strengthen trust and awareness, especially in communities where there is a large minority presence, which can be carried out by diversifying their workplace or by engaging directly with local organizations and their leaders in order to ensure the lasting success of minority entrepreneurs.
Another important distinction between charity and business is the level of transparency that these companies are required to reveal. Corporations must disclose their investments and business practices in their financial reports, but corporate giving works differently. Unlike in traditional philanthropy where grantmaking foundations are legally bound to disclose their donations to the IRS, corporate donations are not required to do so, unless they choose to. Some have corporate-sponsored foundations which must adhere to the reporting legalities. Other than that, it is up to the corporations to decide whether or not they wish to periodically update the public on their monetary contributions.
As much as one wants to see measurable and tangible outcomes resulting from the $67 billion pledge, more than just two years need to pass before one can derive any conclusive findings. More information will be available as corporations release their annual 2022 financial reports and as researchers collect more recent data.
Una Osili, a leader in research and publication of Giving USA, told the Washington Post that it will continue to be a challenge to assess whether corporations deliver measurable results because no single entity is tracking the discrepancies between pledged and spent, nor is there really anyone holding these companies accountable. After all, unless these corporations choose to publicly disclose their commitments, it is almost impossible to know.
Apart from acknowledging the needs of minority-owned businesses sparked by tragic events, it is critical for these corporations to practice transparency in their commitments in order to continue building supportive business ecosystems through better access to funding, financial advice, and deeper peer networks among minority entrepreneurs. Doing so will not only allow the U.S. economy to prosper, but will also create a more equitable society.
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