Engaging Communities: Equity as an ESG Pillar

As one of the most prominent factors of climate justice and sustainable growth, Stakeholder Engagement is a growing focus and concern for GRESB respondents. While general ESG “best practices” have become increasingly common in the CRE space, it is of special difficulty to identify and implement the best initiatives and policies that correctly engage communities – in part because of its wide range and difficulty in quantifying impact, but also because of the politically-charged and complicated sphere of influence that the real estate industry has in the equity and inclusion discussion.

However, moving beyond internal stakeholder engagement to a more inclusive external strategy that engages the community can have mutually beneficial results and help reduce risk. It proactively promotes healthy and economically viable communities and increases investor transparency. 

It is no secret that equity and inclusion play a key role in the economic health of a region, nor that it is directly both a cause and consequence of investment patterns and market trends. A recent study published by The Metropolitan Planning Council and the Urban Institute revealed segregation costs of $4.4 billion in lost income each year in Chicago, together with other social impacts (missed possibility of 30 percent lower homicide rate and 83,000 more bachelor’s degrees)[1]. Studies have also observed that regions with higher levels of inclusion generate more long-term economic growth, because the length of economic growth spells is strongly related to lower levels of metropolitan income inequality and to measures of social and spatial segregation[2].

The market tendency is that of a self‐reinforcing cycle, in which income inequality creates segregation and segregation furthers income inequality[3]. The Metropolitan Planning Council’ study on Chicago’s inequality challenges concluded it is flawed policies that can ultimately be traced back to the source of the issue. Chicago’s present-day segregation was not an overnight or natural process. Private and public policies and programs such as restrictive housing covenants, urban renewal, and Redlining are some examples of policies that brought it to life¹. But it is also strong ESG-minded policies that will create and support a solution.

Reducing income segregation and racial earning and wealth gaps is no simple endeavor. Some touted solutions range broadly from creating a local Earned Income Tax Credit to housing policies that avoid concentrating in already segregated areas according to wealth, to more transit options that connect residents to jobs. Of key relevance to the real estate industry, one calls for the preparation of equity impact statements when considering investments or developing programs, similarly to the environmental impact statements that form part of investment decisions[4]. This concept is not alien to GRESB participants; risk and impact assessments have long been touted as a smart move for ESG-minded investing and growth, and so has a stakeholder engagement policy that expands from a close-centered circle of employees and tenants to the broader picture – supply chains and communities. The acquisition and investment planning process can then include a data-driven and expert participation in answering the following questions for investment decisions:

• How does the portfolio’s performance and characteristics impact the ESG factors of the community? And inversely, how does the community impact the portfolio’s performance and characteristics?
• How can the risk profile and the factor exposures of the community and the portfolio be altered by investment decisions?
• How can it affect investors’ ability to pursue their investment strategy in the future?

Answering these questions requires a reconciliation between the entity’s ESG goals and the impact they have on the communities they operate in, as well as the engagement of community-focused organizations, groups and experts that validate community enrichment and best practices. Simple investments in energy efficiency can help reduce greenhouse emissions and water waste, while supporting lower-income communities. Greater focus and support of opportunities for better access to public transportation and education, two of the most centric aspects of segregation and inequality, is also an important tactic. Partnering with utility providers and local non-profits to provide efficiency educational programing and support access to public transportation are some initiative examples.

Public perception and investor pressures are driving an increasingly holistic approach to stakeholder engagement and community equity. Purposeful and inclusive stakeholder engagement is a key tactic toward improving environmental citizenship, reducing long-term risks, and fostering mutually beneficial relationships between business and community to combat issues of inequality.

[1] Chicago Metropolitan Planning Council. “The Cost of Segregation” (2017).

[2] Turner, Ani. “The business case for racial equity,” National Civic Review, 105.1 (2016).

[3] Benner Chris, and Manuel Pastor. “Brother, can you spare some time? Sustaining prosperity and social inclusion in America’s metropolitan regions.” Urban Studies 52.7 (2015): 1339–1356.

[4] Chicago Metropolitan Council. “Our Equitable Future” (2018).