The Intersection of Climate Change and Inequality: Balancing Systemic Risks and OpportunitiesTheIntersectionofClimateChangeandInequality:BalancingSystemicRisksandOpportunities

Climate change is the most important structural transition for long-term investors in generations, presenting implications across all asset classes — including real estate impact investments. Although we usually look at climate risk with regard to locations, such as coasts or areas prone to fire, climate change is also having a disproportionate impact on some people—especially people in low- and moderate-income communities. In a closer look at the role that real estate investment decisions can play in mitigating that disproportionate impact, Lisa Davis, portfolio manager, U.S. Impact Value Partners (IVP), discusses the intersection of climate change and inequality.

How does climate change disproportionately affect certain communities?

Climate change, including rising sea levels and extreme weather events, has a much bigger effect on low-income communities, and can have -longer-term negative impacts on low-income individuals and families. Many factors have contributed to that increased vulnerability, including the fact that low-income communities are often located in areas more prone to climate impacts like flooding and that low-income households have fewer financial resources, and, in turn, fewer options for adjusting to climate change.

What are the potential near- and long-term implications of that imbalance?

Low-income families have less ability to weather the financial shocks and displacement that may result from climate change. For example, they may experience bouts of homelessness when their houses get destroyed and are not adequately insured. These events can affect family members for the rest of their lives when children miss school, credit scores become damaged, families enter bankruptcy and climate stress causes physical and mental health issues.

Low-income families may not have the financial resources to move to different housing in response to changing climate or climate events. That often means they get left behind as wealthier residents flee regions experiencing adverse climate change impacts, temporarily or permanently. Regions that are unable to provide resilient, affordable housing may suffer from essentialworker shortages and even civil unrest, as climate change and its impact accelerate. Building and acquiring affordable housing in only the lowest-cost areas are short-term, unsustainable strategies if it means a disproportionate share of affordable housing continues to be built in climate vulnerable areas.

Consideration of the disparate impact that climate change has on low-income communities—especially communities of color—is an important part of any racial justice/racial equity initiative. It is also important to consider disparate climate-change impacts in the undertaking of scenario planning and modeling. It is not enough to plan at the regional or aggregate level; we must consider the impacts on specific, historically underinvested communities and on vulnerable people if we are to maintain stable communities for all in the face of climate change.