SOURCE: WSP

SUMMARY:

Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position. Please refer to official GRESB documents for assessment related guidance.

DESCRIPTION:

There’s much to celebrate in the advancement of climate-informed investment decisions. 

This is largely owing to the growth of actionable data that measures climate and environmental risk and opportunities — the “E” in Environmental, Social, and Governance (ESG). However, there is little captured about “S,” which means that these climate-informed decisions can be made without considering social impacts. The lack of clear, measurable data to identify and assess social considerations like justice, equity, diversity, and inclusion can lead to unintended consequences, maladaptation, and divestments from underserved communities, making communities even more vulnerable than they are today. 

In this article, we present a more robust definition of social impact, identify the considerations necessary for understanding social impact, and present a method to quantify the potential social impact of climate-informed investment decisions.

Existing quantification of “S” in GRESB Real Estate

The GRESB Real Estate framework does integrate social as part of its assessment. For standing investments, where the performance component encompasses 70 percent of the total score, 11 percent of the component’s score is dedicated to the “S.” In the framework, social is defined as: “indicators related to the entity’s relationship with and impact on its stakeholders and direct social impact of its activities.” 

The social questions in the GRESB Real Estate assessment are mostly geared towards building tenants, not community stakeholders. As such, social risk factors center on issues such as tenants’ decisions to leave a particular area, limited labor supply should people choose to leave, and certain markets are becoming ‘less attractive’ due to climate change. Data that accounts for social impact in real estate is not currently abundant and leaves many investors without sufficient information to make informed and equitable decisions. 

Social impact is significant in real estate. The population’s vulnerability and resilience largely determine the impacts of climate change on communities. Real estate investors and companies have a critical role in bolstering municipal resilience through investment in areas exposed to climate hazards. Conversely, investors and companies may exacerbate vulnerability by redlining certain communities (reducing the city’s ability to finance adaptation measures) or even by driving climate gentrification. 

Enhanced social impact data is essential to help real estate investors understand existing social vulnerabilities and the potential for their decisions to exacerbate these vulnerabilities and inequities further — or, more positively — to promote community or city-wide adaptive capacity and resilience.  

Near-term opportunities to center “S”

Bridging this gap requires a revision of these frameworks to ensure that social risks to communities are factored into climate-informed investment decision-making. In the interim, here are actionable steps investors can take to benefit communities and provide far-reaching long-term sustainability to private investments:

1. Engage community members early (through paid collaboration efforts) to understand historical and current social inequities
2. Give community members a voice in those business decisions that impact community adaptation and resilience and empower their place-based ideas.
3. Consider each asset’s broader community dependencies in physical risk and adaptive capacity assessments.
4. Implement a holistic, collaborative, and place-based approach to enhance resilience, investment returns, and social equity

“To survive this next phase of our human existence, we will need to restructure our social and economic systems to develop collective resilience.” – Colette Pichon Battle, Esq., Executive Director of The Gulf Coast Center for Law and Policy

(Pichon Battle, Colette. “An Offering from the Bayou”. All We Can Save: Truth, Courage, & Solutions for the Climate Crisis, edited by Ayana Elizabeth Johnson and Katharine K. Wilkinson, One World, 2020.)

Step 1: Redefine “S” to more effectively account for past, current and future social impacts

To create collective resilience, real estate investors should not simply consider the needs of communities that have been marginalized by systemic oppression and subject to systemic inequities but intentionally center these communities’ needs within the decisions made on climate action. Ultimately, there is no collective resilience without collaborating upon a future in which the most vulnerable communities are considered first and foremost.

Decisions made by institutions or asset managers, whether to mitigate climate risk via divestment from a community or to invest in community resilience, have societal implications. Even when investing in an area to improve the community in which a company operates, it’s important to understand social data for a variety of time horizons (historical, current, and future). 

Investing in resilience without this essential data and understanding past inequities can lead to unintended consequences such as climate gentrification, forced migration, and abandonment. When municipalities and private companies invest in green and resilient infrastructure, for instance, the same patterns of climate gentrification can occur. Lower-income households can be priced out of neighborhoods that are becoming more resilient. Climate gentrification has already affected numerous cities in the United States, including Miami, Florida, and New Orleans, Louisiana, as lower-income communities of color are being priced out of high elevation areas less prone to flooding. 

Understanding past injustices and assessing potential impacts of climate risks and adaptation actions to communities is essential; not doing so can further existing inequities. It can perpetuate investment decisions based on climate risk reduction for investors and companies yet exacerbate climate and social risks for the surrounding or dependent communities. This makes already at-risk and often underserved communities even more vulnerable to climate change and systemic social injustices. 

Secondly, lack of disclosure requirements perpetuates the low quality or absence of data on social equity, which allows a blind eye to be turned to social issues. Integrating social data into these decisions is imperative to understanding those impacts and planning the most equitable and economical way possible. 

Why should businesses and communities care about equitable community adaptation?

Benefits that businesses bring to cities, such as jobs, tax revenue and services, are key incentives for cities to improve their adaptive capacity and overall resilience. And businesses are reliant on public infrastructure, labor, essential services, and environmental policies to support and guide their operations. The coordination between cities, businesses, and community members leads to better resilience citywide. All sectors benefit from a greater understanding of each other’s climate change risks and adaptation actions, and companies can help reduce citywide risks by embedding local community-driven adaptation needs within their business operations

Step 2: Consider the interconnections of “E” and “S”

Real assets are essential resources for communities during emergencies. For example, in the wake of extreme weather events, hotels can serve as staging areas/command centers for emergency management and emergency shelters for those who have experienced housing damage and loss.

The COVID-19 pandemic created similar needs, and commercial real estate was important in helping the broader community stay afloat. 

For example, Marriott and other hoteliers supported high-risk community members, primarily frontline healthcare workers and individuals without a permanent residence. The “Hospitality for Hope Initiative,” organized by the American Hotel & Lodging Association, allowed hotels to offer a needed resource while gaining occupants at a typically discounted rate during a time of economic instability. The financial, social, and reputational benefits of helping the broader community created real value. 

Commercial real estate also played a role in COVID-19 vaccine distribution. Members of REALPAC, a Canadian real property leadership association, committed vacant real estate for vaccination or other medical services to reduce burdens on healthcare spaces. 

These positive, community-level outcomes are just the start. Assisting asset owners in transitioning from episodic support of community emergency needs to contribute to broader, ongoing community stewardship consistently is the goal. 

Similarly, in June of this year, Amazon opened its first Disaster Relief Hub in Atlanta, storing emergency supplies to quickly help frontline community partners respond to natural disasters across the south-eastern U.S., the Caribbean, and Central America. This launch is an example of a global company investing in a local hub that can serve multiple jurisdictions quickly, efficiently, and at a scale that isn’t possible for these jurisdictions to respond individually. 

Other cities are investing in Resilience Hubs to serve as safe, welcoming community centers that provide essential resources and community support during times of crisis. Before investments like these are made in local communities, community members must play an active role in these decisions early in the process to design and implement them based on the community’s needs. 

When the physical risk assessment performed during climate scenario analysis considers each property’s broader community, the interrelationship between the community’s resilience or vulnerability to climate risk — and the resilience or vulnerability of a particular property — becomes clearer. 

The property often depends on its surrounding community for water, power, access, and essential services, and the property’s vulnerability and resilience are linked with that of the community. Assessments of the community’s risks, adaptive capacity, and resilience are integral to understanding an asset’s overall vulnerability, adaptive capacity, and value at risk. Because climate scenario analysis is a fundamental aspect of any TCFD analysis, there is a great risk to any company not assessing these factors in the surrounding community.

Step 3: Quantify “S” as part of a holistic climate risk assessment

Considering environmental and social equity factors leads to more effective and ethical decision-making, particularly from a climate risk perspective. Based on our research, it is evident that not including data on the risks that investors carry for the community and the opportunity investors have to improve the community in investment decision-making can inhibit mutually beneficial opportunities for resilience and risk reduction. Conversely, we found that investor engagement in communities exposed to climate change creates the opportunity to help build the economic and social strength needed to adapt to climate change.

The only resilient future — the only truly sustainable future — is an equitable future in which we prosper together.

Author Bios:

WSP USA 

Hannah Slodounik served as the lead author of this article from the WSP USA Sustainability, Energy and Climate Change (SECC) practice. She is a Senior Sustainability Consultant within SECC and has nearly ten years of experience working to implement sustainability strategy across organizations and using sustainability assessment frameworks, including GRESB. She holds a Graduate Certificate in Sustainability from Wake Forest University, a BS in Environmental Science from the University of Redlands, and is a member of the American Society of Adaptation Professionals (ASAP) and Women in Climate Tech. Corporate climate resilience practitioners Emily Wasley, Practice Leader, and Dr. Susan Kemball-Cook, Senior Project Director of SECC, were contributing authors. 

The Climate Service

Tory Grieves served as the lead author of this article from The Climate Service. She is the VP of Analytics for The Climate Service (TCS), where she utilizes her technical expertise in both environmental science and business to guide TCS’ approach to assessing the climate risk of real assets and financial instruments. Grieves holds MBA and Master of Environmental Management (MEM) degrees from Yale University and graduated with a BA in Environmental Studies from Hamilton College. Additional contributors from TCS were Devyn Parks, Technical Account Manager; Lauren Rosenfeld, VP of People & Social Responsibility; Katherine Taylor, Senior Climate Risk Analyst; and Allie Thompson, Project Lead.  

This article was written by Hannah Slodounik a Senior Sustainability Consultant at WSP USA and Tory Grieves VP of Analytics at The Climate Service (TCS).

Tweet me: In this article, @WSPUSA presents a more robust definition of social impact, identifies the considerations necessary for understanding social impact, and presents a method to quantify the potential social impact of climate-informed investment decisions. https://bit.ly/3eQtoWD

KEYWORDS: TSX:WSP, WSP USA, GRESB, climate change