Why impact investing’s time is now

12 Sep 2019

Policy area: Sustainability

Charlie Jacques, Head of Sustainability and Impact Investment, Schroder Real Estate

We are in a new world of responsibility and positive action - the “Blue Planet” effect, the rise of veganism as an environmental choice, the emergence of Extinction Rebellion as a serious force for change, calls for disinvestment from fossil fuels.  This new era of environmental awareness is leading the public and investors to demand that more is done by business to improve the world we live in.

Buildings are heavy users of energy, which contribute significantly to global carbon emissions and our sector must be part of the solution. Enhancing the built environment’s contribution to the UK economy and society, while improving its carbon footprint, should be firmly at the top of our sector’s priorities. Positive change at pace will require a much-needed look at impact investing and how this approach can be placed at the heart of real estate investment.

What is Impact Investment?

The Global Impact Investing Network defines impact investments as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”.

Impact investing goes beyond sustainability and the wider ESG agenda because those that adopt it seek to proactively take action to support improvements to society and the environment, while crucially aiming to deliver attractive returns to investors.

Do Investors want sustainable investment options?

Most investors that we surveyed in the Schroders Global Investor Study 2018 want to know their capital is being invested by companies and people that are serious about sustainability. However, many investors have yet to fully recognise that their investment decisions enable them to personally contribute to a more sustainable society.

We therefore have a significant opportunity to present investment ideas that deliver sustainable values and investment ambitions.

What are the key impacts for real estate?

We have defined our key ‘pillars of impact’ as people, planet, place and prosperity, recognising the contribution that buildings have to people’s lives, communities, economies and the natural world. We have key performance indicators to ensure impact is an integral part of our investment approach. 

It is now common to align activities and influences with the UN Sustainable Development Goals (SDGs) to help us all focus on how business can make positive impacts. Schroders’ ‘pillars’ are linked to goals we consider most relevant for our real estate operations: SDG 8 Decent Work and Economic Growth, SDG 11 Sustainable Cities and Communities and SDG 13 Climate Action. For any organisation, this can be a useful step in aligning your activities and influence to help ensure you deliver positive impact evident to all stakeholders.

Impact Investing can provide attractive returns

Historically, there was a perceived trade-off between social and environmental benefits and financial returns. In our view this is not the case anymore.

Social supported housing and retirement living are two alternative real estate sectors in the UK which demonstrate this. The fundamentals for both sectors are good, with significant shortages of supply relative to high and increasing demand.

Some four million older people live alone and 1.9 million suffer loneliness - this figure is only expected to increase. A home within an attractive communal setting has the potential to integrate people back into society and alleviate care needs.  Residents’ improved quality of life and positive health outcomes are one obvious positive impact while their move from residences or hospital settings also releases much needed accommodation for others, including those with more acute healthcare needs and new entrants to the housing market. All of this represents a positive impact on people, place and prosperity.

The Government is keen to improve care in the community and set to close the health gap between people with a learning disability and the rest of the population. Adults who move into supported housing appreciate the independence this brings and enjoy a better quality of life and a greater sense of wellbeing. Investment into further supported housing offers the economic gain of lower care costs - an impact on prosperity, as a cost-effective solution for the UK Government.

Real Estate needs to adopt Impact Investment

Schroders’ Mega Themes, which underpin its real estate investment philosophy, are rapid urbanisation, demographics, technology, resources and power and the shift from West to East.  Impact investing is now our sixth investment Mega Theme given its significant importance to society.

As industry participants, we must all take a leading position across the sector. The reward will be a better future for society and the planet, as well as the potential for attractive returns in the long term, ensuring real estate is fit for purpose. 

 

Important information 

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy. The views and opinions contained herein are those of the authors, and may not necessarily represent views expressed or reflected in other Schroder communications.