ESG Investing

Residential Segregation Continues to Exacerbate ESG Issues


Informal but institutionalized residential segregation in many cities and towns continues to inhibit and even exacerbate efforts to close racial equity gaps. Segregation encourages higher crime rates, lower academic achievement, and greater economic segregation—issues that impact-minded individuals can help combat with focused social impact investments.

The Impact of Segregation in America Now

The 2020 US Census counted approximately 331 million residents representing a wide range of races and nationalities. Nonetheless, people of different races and incomes continue to live separately from one another. A 2021 UC Berkley study noted that “23.6 percent of metropolitan areas were more segregated in 2020 than they were in 2010, and 54 percent of metropolitan areas were more segregated in 2020 than in 1990.”

Merely prohibiting individual acts of discrimination cannot reverse ingrained patterns of residential segregation.

The Persistance of Residential Segregation

Residential segregation can be tied to historic plans, policies, and practices that have systematically disenfranchised certain racial and economic groups by denying people of color access to resources and investments. This backdrop can leave underserved communities with failing schools, marginal services, environmental blight, and higher levels of reported crime.

However, merely prohibiting individual acts of discrimination cannot reverse ingrained patterns of residential segregation. For example, discrimination in housing persists when exclusionary zoning policies such as requiring large lot sizes and limiting multifamily rental housing makes it difficult for many to live in well-resourced communities.

The Impact of Residential Segregation

The Metropolitan Planning Council revealed that segregation costs Chicago an estimated $4.4 billion in lost income each year, together with missed social impacts—such as a 30% lower homicide rate, 83,000 more bachelor’s degrees, and long-term economic growth for the entire region. The report finds that residential segregation creates and widens racial inequities by:

  • Curbing appreciation in housing prices and, in turn, wealth accumulation among low-income homeowners
  • Undermining children’s education
  • Reducing employment opportunities and earnings due to limited educational opportunities and community investment
  • Damaging community health through increased pollution and a lack of available resources
  • Restricting economic mobility

The negative impacts of segregation also permeate beyond the immediate neighborhood to the broader community when more affluent citizens pay for and influence public services such as police and public health systems to address the impacts of segregation. Overall, higher levels of segregation generally lead to slower economic growth for the region, making equity and inclusion beneficial across the board.

Fostering Equity through Support

One effective way to promote racial equity is by supporting organizations that address these issues on the ground:

  • The Philanthropic Initiative for Racial Equity’s guide, Grantmaking with a Racial Justice Lens, examines what it means to move from racial equity to racial justice funding strategies.
  • The Ford Foundation offers grant programs to shift repressive power dynamics that allow structural inequality based on gender, race, class, disability, and ethnicity.
  • The Center for Effective Philanthropy’s 2020 report explored foundations’ efforts to incorporate practices against racism and discrimination.
  • Habitat for Humanity carries out direct construction and renovation work and promotes concrete, practical public policy housing solutions to provide quality, affordable housing across the country.

Investment in such foundations is perhaps the most direct way to foster equity among communities. Investors can also review portfolio holdings to identify those that either reinforce systemic segregation or encourage diversity—including in the innovation economy and restorative economics—and alter their portfolios accordingly. As individual investors consider equity and diversity in their portfolios, companies may feel more pressure to shift their policies away from those that engender segregation of all kinds.

Any company, security, fund or other investment identified herein is provided solely for illustrative purposes and should not be construed as a recommendation or solicitation for the purchase or sale of any such investment. By clicking on a weblink included in the above article, you may access a website operated by a third-party. Please review the website’s terms of use and privacy policy upon entering the site. We are not responsible for any content, links, products or services available on third-party websites.

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