Social impact and good returns go hand in hand, experts say

Having a positive social impact and delivering returns to investors are increasingly seen as complementary rather than conflicting strategies, delegates heard at Real Asset Media’s Impact & ESG briefing, which was hosted by CMS at their offices in Amsterdam.

“We are seeing that the impact factor now tends to come first,” said Hilke Nijmeijer, senior portfolio manager, CBRE European Residential Strategy. “Even smaller investors are determined to make an impact and then they are glad if they make a return as well.”

As social impact has risen up the agenda companies are aware of their capacity to make a difference on the area, the community and society, but many still fear it will limit their capacity to make optimal returns.

“Striving for a social objective doesn’t have to negatively affect the risk return profile,” said Marsha Sinninghe, fund manager, ASR Dutch Core Residential Fund, ASR real estate. “Having a solid risk return profile is clearly a must, but it’s also important to look at your social responsibility, the future and the state of the planet. Having a dual objective, a social or environmental objective on the one hand and a financial objective on the other, is the way to go.”

Providing affordable housing is a clear example of social impact. Most European countries have a housing shortage problem, but it is particularly acute in the Netherlands.

“It is obvious that we’re in a housing crisis,” said Nijmeijer. “Often social housing for the lower income bracket is taken care of by housing corporations, but the major part of society, the middle income group, is really facing affordability issues. In some cities spending even 60% of their income on housing costs when it shouldn’t be above 30-40%.”

There’s also a strong business case to be made for affordable housing, because it does not just meet a demand in the market but it also provides long-term stable and inflation-linked income returns.

“It has a very low risk profile,” said Nijmeijer. “Having long-term stable tenants not only sustains stable rental income, but also lowers maintenance and management costs, so it’s a good investment proposition.”

Social impact is notoriously harder to measure than environmental impact, but regarding the affordability of rents it is easier to provide evidence of the success of the project.

“The impact on tenants’ ability to afford the rent is a clear target to measure, as a percentage of median household income in the relevant city,” said Nijmeijer. “Tenant satisfaction is the next thing to measure and that can be challenging. But it’s important to have confirmation that the occupiers are happy because that shows whether we succeed in making the intended positive impact on their lives. Also it lowers the rotation rate, which improves the financial return.”

Having a clear strategy and communicating it clearly is almost as important as delivering it.

“It is important to be transparent about your objectives and progress. Define a clear and measurable objective: what is your affordability threshold, how did you determine this threshold, how many affordable dwelling do you aim to add to the portfolio and what financial returns are required,” said Sinninghe. “Also identify in advance how you measure and monitor progress in terms of (for example) the number of affordable dwellings added to the portfolio and financial returns.”