ServiceNow has turned to RBC to create a $100 million fund to support Black homebuyers and communities.
ServiceNow in late January unveiled a $100 million “racial equity fund”—in the form of a separately managed account— that will be managed by RBC Global Asset Management’s impact investing team.
- In mid-February, during Black History Month, ServiceNow senior treasury director Tim Muindi, who played a leading role in the process, described the project to other NeuGroup members who work at high-growth tech firms. ServiceNow runs a software platform to help companies manage workflows.
- The company is among corporates paving the way by taking concrete action aimed at improving diversity and inclusion (D&I) and promoting racial justice in society.
- These businesses are often focusing impact investing efforts on communities where their employees live and work. To target specific geographic areas, some others have also chosen to work with RBC.
Take the initiative, identify a goal. A decision by ServiceNow to focus on boosting home ownership in Black communities began with Mr. Muindi asking himself what he could do personally, on a professional level, to effect social change given treasury manages about half of ServiceNow’s balance sheet. Finding the answer included reading “The Color of Money: Black Banks and the Racial Wealth Gap” and a Citi GPS report on the economic cost of Black inequality in the US ($16 trillion in the last 20 years).
- To explain why his treasury team wanted to focus its efforts on Black communities, Mr. Muindi told senior executives, “The reason we’re going to start in Black communities is that’s what’s on fire. The house is on fire, let’s go and start working on that. And over time there will be other opportunities.”
- At the meeting, he told members that home ownership has a multiplier effect by indirectly helping ancillary businesses supported by homeowners. Deposits alone in Black-owned banks are just a part of the solution, he said.
- “We have many more roles to play in addition to deposits,” he said. “We have to be part of this entire ecosystem of capital movement, enabling the flow of capital.”
A solution and a carve-out. Mr. Muindi needed a way to keep capital flowing to lenders in Black communities to enable them to have the capacity to continue generating new loans; in some instances where the banks securitize loans, the loans are too small to interest institutional investors, he said.
- He decided, “Let’s become a catalyst so there’s an outlet on the other side” where banks can “have additional loan origination capacity” and create an income stream, which is extremely vital for Black-owned banks.
- To do that, he worked with RBC to create the separately managed account, which buys agency mortgage-backed securities (MBS), Small Business Administration (SBA)-backed loans and taxable municipal securities. Black communities are the beneficiaries of the loans in 10 US cities where ServiceNow staff work and reside.
- That required creating a “complete carve-out” within ServiceNow’s investment policy and shifting from a focus on duration limitations to weighted average life metrics, because of the assets in the account.
- “We couldn’t invest in MBSs before this,” Mr. Muindi said.
- The company’s $1 million minimum individual security investment amount has been waived for the RBC account.
The approval process. Before establishing the account and the carve-out, of course, Mr. Muindi needed the support of the company’s senior leadership and the audit committee (AC) of the board of directors. He said this involved educating people on historical context and how the company could best respond to fast-moving current events.
- He answered lots of questions about impact, outcomes and other topics. He won approval, in part, he said, by emphasizing the positive impact the company’s investments would have on people in underserved communities.
- He said the AC was very receptive to the recommendation. “So why didn’t we do this before,” he asked himself.
Slow down and communicate. Once he had the green light, Mr. Muindi’s attitude was, “Let’s get this started, let’s get going on it” by putting the money to work. His colleagues on the company’s communications team had to slow him down and helped him realize “there’s a lot more to it,” he said.
- He ultimately learned the importance of both internal and external communications on a project of this nature, the need to carefully consider the messaging to both employees and the investor community. He recommends starting early and using all resources available, including FAQ sheets.
- The communications process helped prepare him for a flood of questions following the announcements, including an employee who asked why the company chose RBC instead of a Black-owned firm. The response included RBC’s capabilities and track record in impact investing relative to other banks.
Measuring success. At the NeuGroup meeting, another member asked Mr. Muindi how the company is measuring success. He said impact reporting is a work in progress that will include both stories about business creation and data on mortgages, among other elements.
- The company plans to deploy the entire $100 million by the end of the year, Mr. Muindi said, adding, “There is a need.”