What is Real Estate Impact Investing?
Updated: May 24
Under pressure from environmentally and socially-minded stakeholders, institutional investors are increasingly drawn to impact investment, now seen as a turbo-charged version of environmental, social, and governance investment.
The term real estate impact investment was coined in 2007 and refers to a strategy that combines corporate social responsibility with financial returns. It weds Environmental, Social, and Governance (ESG) with Socially Responsible Investing (SRI).
Impact Investing is now considered central to investment in the housing and real estate sector. Historically, investors using the vertically integrated business model have always sought a tradeoff between financial returns and social justice.
Investors are Seeking Sustainable Investments
Although impact investing comes with a clear appeal to asset owners seeking to push their ESG agenda forward, many in-built financial benefits can be reaped. Most investors are looking for sustainable investment options while people are more interested in a spectrum of environmental and social issues (Social Impact Investing).
Impact investing seeks to proactively take action towards improving situations for the good of society, the environment while providing potential for attractive returns. The opportunity is therefore available to present or propose impact investment ideas that clearly deliver on people’s values. Ideas that facilitate investment supportive of the society and also meeting investment ambitions. Impact investment is a balance between Sustainable Investing and Responsible Investing.
Though many socially responsible investment projects have been in operation for many years, there are increasingly more investors beginning to use the ESG Funds to impact investing in housing. Forms of impact investing such as community facilities and affordable housing are needed on a massive scale. The involvement of more social Impact investors is vital if the challenges of low wages, wealth gap, unemployment, and other social ills are to be addressed across the country.
What Form Does Impact Investing Take?
Impact investing in real estate can assume diverse forms, all striving to uplift or uphold a community’s quality of life standards. They aim to improve or preserve health by addressing human rights and social needs, often by championing environmental sustainability values. In affordable housing, specifically, impact investments can preserve or create economic opportunities for the community. Many real estate-focused impact bonds and funds are focusing on affordable housing and/or green real estate.
If a community already has affordable housing, other types of impact investing can create opportunities for upward socioeconomic mobility. Impact investing allows vertically integrated companies to invest in areas that they would like to see some change. For example, if your vertically integrated business thinks homeless is an issue in, for example, Brooklyn, you may consider investing in affordable housing. That allows your company to become a socially responsible example in the fast-changing real estate world.
A fast-growing sector, impact investment is witnessing many institutional investors coming forward to deploy capital. Impact funds are now focusing on both commercial and residential property. Some are being managed by professional impact investment managers, others are new initiatives from mainstream managers. For example, impact investing now has a strong following as corporations like Bamba Stocks have proven that the model works in the US and abroad.
Balancing Between Social Justice and Profitable Investment
Investors are stepping up every day and making a tremendous social impact while at the same time seeing a worthwhile return from their investment. It’s a misnomer to assume that you cannot grow your investments and help communities.
Impact investing is a unique equity and social justice strategy. It has a double mandate to generate market-rate financial returns and positive social change. Companies invest a percentage of their profits and invest in tackling a social issue. For both objectives, performance measurement must be put in place to ensure that the impact realized is accurate and intentional, and that one is not sacrificed in favor of the other.
By investing with a vertically integrated company like BrownstoneNYC that has a social justice mission, you can contribute to corporate justice and make an impact. You can explore such opportunities in housing and other sectors like healthcare, microfinance, food, energy, and agriculture. Impact investments using socially responsible funds (Socially Responsible Investing) can create access to affordable housing and a unique investment opportunity in real estate.
Impact of the Biden Administration
Under President Trump’s isolationist policies, it became much more challenging for impact investors to make headway in emerging markets. With the election of Joe Biden as the US President, investors expect that to change.
Ironically, Trump’s approach to underserved populations and the environment is considered a key reason why investment dollars have been pouring into social strategies seeking to impact Environmental, Social, and Governance (ESG) matters over the last couple of years positively.
Under the Biden presidency, impact investors can expect to see their investments go further within their ESG portfolios. The new President has already launched a $2 trillion plan designed to develop and boost the green economy. This is expected to provide a significant boost to ESG Investing, ESG Funds, and renewable energy.
It, however, remains to be seen how far capital market investors in the US will shift their interest toward sectors that the new administration is making more investor-friendly attractive for sustainable impact investment.
The Bottom Line
Real estate positive impact opportunities for investors can be achieved in existing portfolios and other emerging sectors such as socially supported housing and retirement living. Critical to this social justice effort will be to help industry members and players understand what impact investing is and what is not. That can help avoid well-intentioned socially responsible investments being misdirected or misused.
Impact investing is when financial targets are set alongside positive environmental/social impact targets. Impact investing assets under management (AUM) are currently estimated at $80 billion; a figure is expected to grow substantially by as much as $15 billion annually. This is because investors are catching on fast and rushing to meet the high demand in the sector.
However, the true test of impact investing success comes during an economic downturn, and the Covid-19 Pandemic is one such downtown. The COVID-19 crisis has also raised a fundamental, ethical, and social justice question for impact investing. Is it sustainable? Does impact investing form part of the housing solution, or is it a luxury devoid of corporate justice? Although impact investing could be set back by the COVID-19 crisis, so far, it seems to be doing well and holding up nicely.