Building the Next Economy: ESG, Impact Investing & Listening to Communities

After decades of increasing income inequality, climate change-related threats to our environment and prioritization of shareholder profits, there is a growing call for a new economy. This next economy will prioritize environmental responsibility, equitable economic opportunity and require companies to derive profits without causing societal harm. The World Economic Forum states the need for a new economic model that advances “prosperous, inclusive and equitable economies and societies that provide an opportunity for everyone to fulfill their potential.1 ESG and impact investing are trending investment tools that will help drive this change. But to truly create the next economy, the voices and needs of communities must also be included.

Environmental, Social and Governance (ESG)

    In 2005, the United Nations Global Compact published the report “Who Cares Wins,” which introduced the concept that companies should include environmental, social and governance (ESG) factors into their financial analyses to positively impact the environment and society while maintaining financial returns. 2 ESG metrics differ by industry and region and may include: 

  • Assessing a company’s climate change-related risks
  • Workplace health, and safety
  • Community relations
  • Board structure and accountability3 

Since their introduction, companies with higher rates of ESG investment and reporting have had a superior financial performance.4 Investors and companies should be taking ESG seriously. On Jan 21, 2020, MSCI chairman and CEO Henry Fernandez said that investment institutions not embracing ESG are doing so at their own peril since ESG is “a permanent change in the way capitalism works.”

Impact Investing 

Impact investing is another mechanism for generating positive social and environmental impact. These investments provide capital for social good projects ranging from renewable energy to education and healthcare while promising financial returns.6 While the term was only introduced in 2007, impact investing has grown quickly. As of April 1, 2019, the Global Impact Investing Network (GIIN) estimated that the global impact investing market was $502 Billion.7 While this means there is a lot of capital available to fund social good projects, the process for effectively measuring the impact of these investments is still being determined.  

Listening to Communities

Companies implementing ESG reporting and investors taking impact investments seriously will drive social good and help build the next economy. But to truly cause social impact we must go further than high-level concepts and ask: 

How do we impact the day-to-day lives of real people? 

Thankfully, we aren’t the only ones thinking about real people and communities. There was a palpable focus on the social aspects of a community, inclusivity, and placemaking at the recent Urban Land Institute (ULI) New York Real Estate Outlook 2020. ULI noted in the Emerging Trends in Real Estate 2020 report that the real estate world has historically viewed communities as part of a business relationship, such as ‘working with’ communities or ‘building’ new communities. Yet moving forward, ULI recognizes that real estate developers must reimagine ‘community’ to mean the personal relationships between neighbors and anticipate the needs of their day-to-day lives.8 What types of indoor or outdoor spaces do communities need to thrive?  Physical spaces that enable co-living and co-working. Co-living spaces are a way to maintain luxury while utilizing space, providing tenants with shared amenities like game rooms, playrooms or even a central gallery. 

Social Impact in Real Estate

One might be thinking that these shared community amenities are only in luxury high rise buildings. However, this trend in development is taking hold in many projects across the US in affordable housing as well. Real estate developers have an opportunity to drive real environmental and social good by listening to the needs of community members in every zip code. This takes intention and a commitment to social good in addition to a financial investment, just like any good impact investment or ESG commitment. Below are two examples of affordable housing developments that listened to the needs of the community. 

  • East Harlem Center for Living and Learning
    Manhattan, NY

    Developer Jonathan Rose transformed an under-utilized space in East Harlem into an “approximately 160,000 square foot multi-family and mixed-use building that consists of 89 affordable housing units, a 70,000sf K-8 charter school, and 6,000sf of non-profit office space.”8 

    Environmental & Social benefits:
    • New site for DREAM Charter school to allow tenants and children in the community to receive a high-quality education to prepare them for high-performing high schools and colleges. 
    • The nearby Blake Hobbs public park was revitalized for public use. 
    • The building follows the Enterprise Green Communities Criteria, which reduces the overall environmental impact and lowers future utility costs for tenants. 
  1. One Flushing – Nominated for a 2020 ULI Award for Excellence in Development 
    Queens, NY

    Developer Monadnock Development, Asian Americans for Equality (AAFE) and HANAC created an intergenerational residential project with 232 affordable apartments and 14,000sf of community space.9 

    Environmental & Social benefits: 
    • Designated spaces for a senior center, community center, and non-profit offices
    • 18,000sf of green roofs- including a rooftop garden
    • Solar array and stormwater reuse system
    • And Gym and community room

Building the Next Economy 

Building the next economy will require sweeping changes. The rising attention and success of ESG and impact investing are a good sign of traction. For real estate developers, there is a unique opportunity to dive further into social impact by building places where communities can thrive. Uncovering the specific needs of a community can be contentious and time-consuming, but technology can help. Synergize Insights is committed to making this process easier so that economic development happens with the existing community. We built a tool that allows real estate developers and municipalities to understand community needs and sentiments using real-time qualitative date. Just like ESG metrics are important for regulatory reporting, community needs insights are important for developers to measure their community impact. Real estate developers that take community insights seriously will be the ones to survive in the next economy. 

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  1. World Economic Forum, “Shaping the Future of the New Economy and Society,” https://www.weforum.org/platforms/shaping-the-future-of-the-new-economy-and-society
  2. The United Nations Global Compact, “Who Cares Wins, Connecting Financial Markets to a Changing World,” https://www.unglobalcompact.org/docs/issues_doc/Financial_markets/who_cares_who_wins.pdf (December 2004)
  3. The United Nations Global Compact (Devember 2004)
  4. Robert G Eccles and Svetlana Klimenko, “The Investor Revolution,” Harvard Business Review, https://hbr.org/2019/05/the-investor-revolution (May-June 2009)
  5. Pippa Stevens, “Index boss warns investors will underperform ‘dramatically’ if they ignore sustainable criteria,” CNBC, https://www.cnbc.com/2020/01/21/ignore-esg-at-peril-says-msci-ceo.html (January 21, 2020)
  6. Abhilach Mudaliar and Hannah Dithrich, “Sizing the Impact Investing Market,” The GIIN, https://thegiin.org/research/publication/impinv-market-size (April 1, 2019)
  7. PWC and the Urban Land Institute, “Emerging Trends in Real Estate 2020” https://americas.uli.org/research/centers-initiatives/center-for-capital-markets/emerging-trends-in-real-estate/americas/ (August 2019)
  8. “East Harlem Center for Living and Learning,” New York Housing Conference, https://thenyhc.org/projects/east-harlem-center-for-living-and-learning/
  9. “One Flushing,” 2020 ULI New York Awards for Excellence in Development,  http://nygala.uli.org/awards-finalists/finalists/excellence-in-affordable-housing-development/ (2020)

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