Under pressure from socially and environmentally-minded stakeholders – and keen to avoid being left behind in a changing world – institutional investors are being drawn to impact investment with its image as a turbo-charged form of environmental, social and governance (ESG) investment. While impact investing is linked to areas of ethics, it does have clear differences from ESG. Impact investing, according to the UK National Advisory Board on Impact Investing, focuses on one or more issues, with an intention to make a positive social or environmental impact. The spotlight has mainly shone on bond issues so far, but real estate is beginning to come under the glare.
Simon Chisholm, investment director at Resonance, says: “For us, [impact investing] is an investment which has an intentional and measurable positive social impact, as well as a good financial return.” The firm, set up in the UK 15 years ago to invest in social enterprises, runs three property funds: two in a series of Real Lettings Property Funds focused on London, and the National Homelessness Fund. “Much impact investing in real estate to date has focused on positive environmental impact – energy efficiency, and so on – but we are focusing here on positive social impact,” he says.
In that area, Chisholm says there is a spectrum of impact that ranges from the traditional financing of social housing – via housing associations, for example – through to more innovative approaches of investing in the private property market, but still linked to social enterprise models. An example of this is Resonance’s National Homelessness Property Fund. The financing market for the social housing sector, particularly through bond issues by housing associations, has been established over decades, and is now an efficient, large-scale flow of capital into that sector. “However, the growth of a wider impact investment market in property has only started to establish in the last five to 10 years,” he says
There are now impact funds focusing on both residential and commercial property, Chisholm says. Some of these are run by specialist impact investment managers, others are impact initiatives from mainstream managers. Chisholm sees many reasons why the impact investing trend is taking hold in the property sector. “Firstly, there is great interest in impact investment overall, since the past decades have shown the need to better align investment with environmental and social outcomes – and what happens when we don’t,” he says.
“Secondly, there is clear opportunity for positive social impact through real estate investment – the need for both residential and commercial property to scale up social enterprise models is huge and still largely unmet.”
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