Investment in DEI and ESG Must Maintain Strong Despite Market Uncertainty
Updated: Dec 20, 2022
Reprint from Colorado Real Estate Journal
The Fed announced interest rate hikes for the sixth time in 2022, bringing concern for what the economy has in store in the new year. These countermeasures to slow inflation have made the cost of capital the highest it has been in a decade. This uncertain market is impacting how average Americans and investors determine how to move forward in what feels like the verge of a recession.
Despite inflationary concerns, Q2 of this year saw significant investment, with $178.8 billion traded; second-quarter volume was up marginally from Q1 and 18% from one year prior. In addition, the past four quarters have seen a combined $905.2 billion in sales, according to data from Colliers US Capital Markets Snapshot Q2 report.
The market is at a critical point. As businesses adjust to the increased cost of capital, potential deals and proposed projects are getting delayed. Yet steady job growth provides optimism that the bottom of this cycle may not be catastrophic. This unique set of circumstances is causing many investors to take a wait-and-see approach to decision-making.
Concerns are merited, but the US economy is not about to crumble in the face of growing inflation. As the commercial real estate (CRE) industry assesses what 2023 has in store, caution is becoming a guiding principle. Budgets are being tightened, and initiatives designed to support Diversity, Equity, and Inclusion (DEI) and Environmental, Social, and Corporate Governance (ESG) are often the first to be eliminated. Industry associations and organizations dedicated to supporting CRE to achieve their DEI and ESG goals are bracing for what is ahead.
As we emerge from years where we struggled through the global pandemic, geopolitical challenges, and a racial awakening, which many argue was one of the most challenging times in modern history, there is a lesson we all learned. In uncertain times, there is still an ability to invest in DEI and ESG. Despite the insecurity of living through COVID that forced some industries to stop completely, corporations pledged to invest billions over 3 to 5 years to support DEI work in the wake of George Floyd's murder.
When we were in isolation, we collectively experienced an injustice that awakened our consciousness because there was nothing to distract us from the painful reality before us. US GDP fell by 8.9 percent in the second quarter of 2020, the largest single-quarter contraction in more than 70 years. Most other major economies fared even worse, according to a White House report on the US Economy and the Global Pandemic. But this didn't stop the outpouring of investment into DEI/ESG because it was simply the right thing to do.
Fast forward to 2022, the world has opened up; capital markets are uncertain but significantly more robust than in the early pandemic days. But yet, the whispers of decreasing DEI and ESG in the face of market pressures are starting to emerge. If there was a will in 2020, surely there must be a way in 2023 to maintain these commitments.
Manikka Bowman is the executive director of Project REAP.