Impact investing is a further evolution of the integration of environmental, social and governance (ESG) factors into investment strategies alongside an overriding desire to ‘do good’ by delivering a social and total return.
Although impact investing has to date largely been seen outside the real estate asset class, institutional and private investors are increasingly looking at property as a credible option to satisfy their desire to make a positive impact.
So what has driven this trend? An increasing recognition of the environmental and social challenges facing the world has meant that investors’ attitudes towards merely thinking about black and white returns has shifted to employing a longer-term, more socially responsible approach.
Rise in ESG investment
In fact, a 2016 Bank of America research paper suggested that the millennial generation could put between $15trn (£11.8trn) and $20trn into US-based ESG investments – and in doing so double the size of the US equity market.
The Planet Earth-watching, reusable-coffee-cup generation is much more aware of the challenges facing our planet and is therefore becoming more attuned to investments that can make a positive impact beyond an economic return.
With the built environment accounting for 41% of all global energy usage, 40% of natural resource usage and 38% of all carbon dioxide emissions, this should not come as a surprise.
We are already aware that investors’ mentalities are shifting from a purely return-driven strategy. However, in looking more closely at what kind of real estate they are investing in, there has been a step change in recent years towards delivering significant social returns.
Funds across Europe and the US, including M&G Investments, Schroders and Hermes Investment Management, are all active in this space.
Much of the focus has been on residential space and improving or delivering new social housing. But recently there has been a shift towards commercial assets, and education and healthcare assets have thrived as a result.
Demand for care sector assets
While overall healthcare investment levels in the UK rose in 2018 by 3.8%, according to Savills, it was investment in the global elderly/long-term care sector that set a new record – $13bn at the end of 2018, according to Real Capital Analytics. Investor demand for these types of property far outstrips supply, with particularly strong demand from non-domestic investors.
So what does the future hold for this burgeoning investment approach?
With research from the University of Oxford/Arabesque Partners showing a positive correlation between good corporate sustainability performance and good financial results, we can expect to see a lot more demand to satisfy impact-investing needs.
The challenge for multi-asset investors will be finding impactful companies or assets to invest in and I believe that health, housing and educational real estate will benefit from this.
Mat Oakley is head of UK and European commercial property research at Savills