Who cares wins: socially responsible investing is going mainstream
Is impact investing really something more than just a fad? Does it make a real difference? Can non-financial considerations help companies improve their profitability and hence increase investment returns for investors? According to ULI’s Emerging Trends in Real Estate report, the answer is crystal clear: yes!
Socially responsible investing is steadily gaining momentum among real estate investors and it looks like it is slowly but surely coming of age. The use of a wider range of non-financial measures to assess the value of real estate and real estate businesses is gradually becoming widespread. And, non-financial metrics are receiving growing attention when it comes to measuring return.
Former Secretary General of the UN Ban Ki-Moon gave the opening keynote speech at MIPIM this year. He made it abundantly clear that to prosper over time, every economic actor should not only deliver financial performance but also demonstrate how it makes a positive contribution to society. But most importantly, he insisted that the real estate industry is uniquely positioned to address such crucial challenges as climate change, sustainable community development, gender inequality or poverty and equity:
“building sustainable and resilient cities is not a project for the future anymore. It is a project for today!”
Climate change is no longer a debate; it’s a fact. So beyond sustainability certifications for every building we build, renovate or simply own, Ban Ki-Moon advocates for more and asks that real estate investment companies start integrating equity and inclusion in their investment strategies :
“It’s not enough to be smart, before anything, cities need to be designed for all: poor and rich, women and men, young and old.”
The changes Mr. Ki-Moon aspires to require simultaneously a deep understanding of each and every neighborhood one invests in, but also international collaboration to find and build solutions together:
“We need a new civilization where knowledge sharing, data, innovation leads to the dissemination of centralized thinking in cities.”
Surprisingly or not, Ban Ki-Moon concluded his speech with an invitation to live a global life and to transcend borders so we can continue to push boundaries and force progress.
We still have a long way to go in the impact investing world: a significant number of investors continue to worry that focusing on non-financial criteria might detract from financial performance. Old mistaken beliefs die hard! But luckily, when faced with climate change and the worldwide inequality crisis, great leaders emerge. And, they carry a lot of weight in convincing our industry that this is the way to do business now. Larry Fink, CEO of BlackRock is one of them. According to him, companies that focus solely on profit will soon lose out to their competitors (see his Letter to CEOs). And Fink hammers home his point:
“We are going to see evidence over the long term that sustainable investing is going to be at least equivalent to core investments. I personally believe it will be higher.”
For many, impact investing stems from end-users and consumer pressure, on the one hand, and the general scarcity of assets paired with tech and demographics megatrends (career mobility, evolving family structures, urbanization, etc.) on the other hand.
We are likely at a turning point in people’s mindset. Consumers’ and project managers’ aspirations influence the way we do real estate. Property owners now invest in inclusive mixed-use assets because they value, monetarily, communities vibrancy and social capital, in the long run. Investing in quality public realm through placemaking or “soft infrastructure” such as public parks or shared mobility schemes creates positive social returns, which “actually supports the long-term financial returns” reports ULI.
Tomorrow’s real estate owners love living in their cities. They want to contribute to bettering this experience for all and genuinely invest in spaces they aspire to. The next generation of real estate leaders invests a “good city life”, i.e. in a city that is efficient and connected but above all sustainable, resilient to climate change, inclusive and safe. And as we look ahead to potential developments in the next decade, we get a clear sense of the purpose of our role, with an ambition to be genuine ambassadors of impact investing among our partners, providers, and investors.
