All real estate investment and development has the potential to deliver social impact, according to a new report by the Urban Land Institute (ULI) in partnership with DLA Piper, the global law firm.
The global report, “Social Impact: investing with purpose to protect and enhance returns”, concludes that often with relatively small adjustments to strategy, real estate can deliver market rate returns, while at the same time intentionally deliver social benefits that would not have otherwise occurred to underserved people, communities, and locations. A social impact approach can also offer specific risk management benefits that support market rate returns.
“Real estate and social infrastructure always create an impact on society”, said Lisette van Doorn, CEO, ULI Europe CEO. “The shift now is from unintended consequences to considered outcomes. Investors need to leave behind a mindset that sees social impact as something different from what they already do in managing real estate and serving customers. It is still best practice real estate investing and asset management focused on tailoring products and services to customers – it is just those customers that are new.”
The industry is aware of the rise in social impact investing, with 68% of investors and 97% of investment managers expecting their social value and social impact activity to increase over the next three years. Key drivers identified by investors are public pressure and reputation (75%), closely followed by socio-political risks (67%), according to the report.
Social impact investing is more commonly applied to housing, healthcare, education, civic building and placemaking strategies, but there are already strong examples of its integration into wider forms of real estate. Through impact strategies that bring benefits for underserved communities in wealth, health, education and inclusion, the report finds it is possible to deliver gentrification without displacement.
The research demonstrates through a range of global case studies that social impact strategies improve the intrinsic value of assets by enhancing net income, reducing risk, lowering sensitivity to market cycles and ensuring the long-term viability of the project, including potential capital growth.
These benefits to net income and certainty of income are not yet fully understood by the market, while benefits in reputation and recruitment are more widely accepted.
The report makes a clear distinction between social value and social impact investing and finds that only 46% of the real estate investment industry is conscious of the distinction. Social impact is characterised as social value creation fully integrated into the investment process and delivering intentional and additional beneficial value to underserved people and communities, with both social and market rate returns targeted and measured. All social impact creates social value, but not all social value delivers social impact.
Developing a strong corporate social value culture is key to unlocking the potential of social impact investing. . “Like environmental considerations, we see that social impact will simply become best practice over time through integration into all stages of investment decision-making,” said van Doorn.
Delivering social value provides the necessary foundation from which all companies can take the next step to incorporate social impact investing.
“Impact investing not only has the ability to improve lives, it also has a growing commercial imperative whereby net incomes can be improved, costs reduced and certainty provided”, said Susheela Rivers, Global Co-Chair, Real Estate Sector, DLA Piper.