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Environmental, Social and Corporate Governance Disclosure or ratings ( ESGD or ESGs), have emerged as a means of measuring and demonstrating the sustainability and societal impact of an investment in a company or business. By highlighting corporate values, ESG indices provide asset and investment managers a means of attracting capital in the global Socially Responsible Investment market, or SIR, from socially minded investors who are integrating their values and mission into their financial objectives. This market is estimated to be at $23-Trillion. Businesses operating in manufacturing or services have come to rely on ESG scoring to highlight internal values as well as improve their financial performance. There is now enough evidence correlating better ESG ratings with improved financial performance.
To expand on existing ESG scoring, the MIT CityScience group is working to include risks related to community development and the impact of interventions on community performance and well-being. Through the evaluation and scoring process ESG+Community ratings will facilitate community acceptance, trust, and authority approvals. More effective and comprehensive data-driven, evidence-based metrics for community engagement and risk assessment are needed.
Attracting SRI capital has become increasingly important for community-building as more and more private investments fuel urban transformation. As this trend becomes more relevant for cities, ESG ratings alone are not sufficient to assess the impact changes and interventions are having on community health. Moreover, traditional evaluations, including LEED and ISO ratings, do not guage many developer benefits, such as the increased asset value of well functioning communities, as well as the risk mitigation that results from stakeholder engagement, regulation evaluation and ultimately profitability. Adding confidence through advanced modeling and simulation as to how a project interacts with its surroundings, provides insight on development risks in addition to long-term financial profitability for the developer and community alike, such as increasing property values.
Real estate development is inherently different from most other businesses as it is intricately linked to the surroundings with which it is being made. As a result, metrics that reflect the impact these investments are having on their surroundings are needed to both mitigate risk as well as improve financial performance. Factors, such as Public health threats, environmental degradation and social inequity are some of the many challenges that threaten community development and the economic viability of real estate and infrastructure investments. As private investment becomes instrumental in the shaping of the built environment, ESG metrics alone do not assess the impact investments have on the physical, social and economic transformation within the communities they are being made. By including community metrics, investors gain confidence in how a project will interact and ultimately perform within its surroundings in a way that was previously intangible through traditional means, mitigating many developer risks and returns.
Hence, externalities need to be included in the assessment of real estate development and urban transformation, which we call ESG+CR or Community Resilience that highlights a mutually beneficial relationship between the real estate community and the different stakeholders.