03 / 07 / 23 - 5 minute read
In a sense, impact - or socially responsible - investing is as old as the hills. After all, both Jewish and Islamic holy scriptures contain guidance on what sort of investments are permissible in the eyes of God.
Indeed, the origins of impact investing in the US in the 18th century also had deep roots in religiously inspired ethics, when Methodists campaigned against investment, the slave trade and gambling, as well as companies involved in the manufacture and promotion of alcoholic drinks and tobacco products.
From a modern perspective, however, impact investing really started to gain currency in the 1960s, when protestors against the war in Vietnam demanded that universities stop investing in arms manufacturers. A similar movement emerged aimed at undermining the Apartheid regime in South Africa and led to genuine change in both companies and governments.
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Amit Bouri, CEO and co-founder of the Global Impact Investing Network (GIIN)
Today, the definition is somewhat broader - but the concept still has the potential to stimulate positive change. So, what does impact investing look like in the 21st century? And how has PATRIZIA embraced the concept?
According to the Global Impact Investing Network (GIIN), impact investing can be defined as ‘an investment strategy that aims to generate specific beneficial social or environmental effects in addition to financial gains’.
Those three pillars are of equal importance. After all, if there are no or limited financial gains, impact investing would cease to be attractive to investors, thereby limiting the scale of future environmental and social improvements for society.
Clearly, however, impact investing can indeed generate substantial returns, judging by the growth of the movement in recent years. According to the latest GIIN study, the impact investment market recently passed the $1 trillion mark for the first time in terms of assets under management (AUM). GIIN co-founder and CEO, Amit Bouri, describes this as “a significant psychological milestone for an industry still maturing and growing in sophistication”.
Amit adds that industry growth has never been more needed, given global environmental and social threats, not least climate change. “Urgent action and vast allocations of capital are required to achieve the United Nations Sustainable Development Goals by 2030 and to reach net zero emissions by 2050,” he says.
“Impact investing strategies are showing significant momentum despite disruptions from COVID-19, with impact investors growing their AUM and new entrants joining the industry. Despite clear progress, this is no time for complacency. The work to scale the market with integrity is crucial if the world hopes to reverse the tide of climate change and address social inequity head on. All industry players have a role to play in ensuring that impact investing fulfils its promise.”
PATRIZIA very much counts itself as one of those ‘industry players’. As a business taken as a whole, the company believes that real estate investment and development has the potential to do a great deal of environmental and social good in the world.
This position is evidenced by PATRIZIA’s decision to launch its ‘PATRIZIA Sustainable Communities’ impact investment strategy last year - the company’s first strategy purely dedicated to impact investing in a strategic commitment to significantly boost the company’s impact investment activity.
The strategy aims to create sustainable communities by providing thousands of affordable homes, including social housing and additional social infrastructure or public facilities, such as libraries, day care centres and healthcare facilities, to underserved communities in around 25 locations in and around major European cities.
It is classified as an impact investment strategy in that it provides homes for key workers who cannot afford to live close to their workplaces and for people on the social housing waiting list. In addition, the strategy promotes social inclusion, boosts connectivity and reduces the carbon footprint in the communities it invests in, while targeting attractive returns.
The strategy addresses some huge challenges in society. Recent European studies have shown a growing need for more affordable housing and greater social inclusion, with over 80 million Europeans reported to be overburdened by housing costs and 75 million said to be socially isolated.
Speaking at the launch of the strategy, Mathieu Elshout, PATRIZIA’s Head of Sustainability and Impact Investing, said that the strategy had been designed so that it meets some investors’ key requirements. “The strategy is fully aligned with the UN SDGs and provides a dual return to investors,” he said. “This dual return consists of a financial risk-adjusted return, on the one hand, and measurable positive social and environmental outcomes, on the other.
“This is a really exciting time to get involved in the fast-growing impact investment space. With support from our clients and because of our 38-year proven track record of building social infrastructure and sustainable communities, PATRIZIA’s ambition is to become a leading global impact investor in the real assets sector with a meaningful part of its AUM in impact investments by 2035.”
The Sustainable Communities strategy is little more than a year old, but Mads Rude, Head of Global Partners at PATRIZIA, says it is progressing well. “The social angle that we have as a goal is to build residential developments for lower to middle income people,” he explains.
Mathieu Elshout, PATRIZIA Head of Sustainability & Impact Investing
“We have a target of delivering at least the percentage of social housing that is required locally, but actually more than that. We stretch as much as we can. And the remaining part needs to be affordable. We have defined affordable housing to be where no more than 35% of residents’ gross household income is spent on rent.”
It’s also clear that much thought is going into development locations and who specifically will benefit. Providing key workers with affordable housing – close to their places of employment – is important. “It could be close to a hospital, for example, or a big university,” says Mads.
“We really need to focus on the people working in this location so that they can actually live in the communities we build that are close by. Often, the issue that some of these workers have is that they need to travel for 30 or 40 minutes or more to get to work.”
Mads Rude, Head of Global Partners at PATRIZIA
The communities also need to be as environmentally sustainable as possible, something that benefits not just the planet but residents too, while at the same time keeping build costs down in order to ensure a healthy return. “It is about being innovative in how you build but I don’t think one excludes the other,” says Mads.
“It's also, of course, about reducing the energy costs for residents by building net zero carbon in operation buildings, having solar panels on the roof and so on. If it takes a little bit more back and forth [with planning authorities], so be it. That's the core of the impact. We try to make all three elements - social, environmental and financial - go hand in hand.”
As set out at inception, the strategy is about more than just providing housing. After all, a housing development without community facilities can hardly be described as sustainable. “We’re engaging with local schools, Scout clubs, YMCAs and so on,” says Mads. “We always look at the community and ask: what's missing? We're talking with local communities and municipalities and seeing what they need and what they would be willing to support.”
All being well, the strategy should soon move from the theoretical to the tangible. Recently, it made its first acquisitions, two sites in south-west Dublin, and it is clear that it won’t be long before spades are in the ground. “We are quite advanced there already in terms of finding general contractors, designs and so on,” shares Mads.
“We will be working with very experienced and well-connected local teams because their local knowledge and relationships are crucial. We are building in partnership. We have a very positive dialogue in Ireland currently with two different housing associations that will potentially be looking after the projects and doing everything on the leasing side of things without any leasing risk for us. It’s really a win-win situation.”
Further investments like this are being worked on to create a diversified impact portfolio in real estate that provides real life positive change for people across Western European cities and an attractive, financial, risk-adjusted return for investors.