The growing ‘impact’ of real estate investing
This blog explores the growth of impact investing – what it is, who the main participants are, and why this is now attracting attention.
Impact investing has attracted much attention and capital in recent years. Leading global wealth managers across asset classes have launched funds which integrate social and environmental goals alongside financial ones. Organisations with an established reputation as impact investors, such as Bridges Ventures, have seen unprecedented growth in AUM.
What is Impact Investing?
Impact investing places capital in businesses and funds that generate positive social or environmental outcomes as well as financial returns. It should be distinguished from ESG mandates, which simply require avoidance of certain sectors or companies, and ‘green’ investing which focuses on environmental impacts. The two key components of impact investing are:
- Intention to make positive social and environmental outcomes.
- Ability to measure these outcomes.
Why Impact Investing?
There are three main reasons for the current buzz:
- The numbers stack up. Many of the assets that fall under the ‘impact investment’ umbrella are also in high demand and short supply, such as affordable housing. Financial return does not have to be compromised. Most participants in the 2018 Global Impact Investing Network Survey were targeting market returns.
- Buildings are a key contributor of greenhouse gases. Regulation is consequently incentivising emission reductions. As part of the 2015 Paris Climate Agreement, the EU agreed to an 80% reduction in CO2 emissions on 1990 levels by 2015. Minimum energy efficiency standards in the UK have followed. Landlords can consequently no longer let a non-domestic property with an EPC rating of F or G.
- There are clear brand advantages to aligning investing priorities with social/environmental outcomes.
What can impact investing in real estate look like?
- Sustainably accredited buildings are becoming increasingly common. In 2014, Triodos Investment Management went further in its real estate fund, as the first of its kind to be carbon-neutral.
- Affordable housing: The Ethical Housing Company (TEHC), aims to create a portfolio of affordable homes in Teeside. TEHC acquires one- to three-bedroom homes for rental by people in housing need. Its partner, The Ethical Lettings Agency CIC (TELA), manages the homes.
- Community buildings, which can mean anything from elderly care, housing for the homeless, adult social care, to supported living. The Cheyne Capital Social Property Impact Fund is a key example. With £900m AUM, the fund will lease its assets to social service providers at affordable rates.
Impact investment is still in its infancy. The growth in impact funds and increasing focus on ESG issues means that investors will need to pay due attention to the extra-financial outcomes of their investments. At the very least, impact investing helps funds to self-promote. But it can also mobilise capital to address societal and environmental issues in a meaningful way.
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