Are there other real estate firms in this space?
There are many investment managers doing what we do, but those that do exist tend to operate in single sectors. That is, they invest solely in, say, key worker housing or in social housing. These sector specific solutions have grown rapidly in the last few years.
Our view is that real estate impact investments don’t need to be siloed. We prefer to be diversified and make as much positive social and environmental impact as possible. This has an additional benefit of improving performance: our diversified approach has consistently outperformed our reference benchmarks since 2016. With a diversified strategy, we have more opportunities to buy mispriced assets or to add value to existing ones. We are never forced buyers: we can buy cheap, rather than having to buy a particular sector even if that sector is expensive.
Is this an opportune time for your approach?
Our approach is not directly linked to economic factors, so can add value throughout the cycle. Now is particularly opportune, however, with the FCA’s Sustainability Disclosure Requirements (SDR) being phased in during 2024.
The key components of the SDR, applicable to all real estate firms in the UK, are an anti-greenwashing rule and a labelling regime. The anti-greenwashing policies aim to ensure that sustainability-related claims are fair, clear and not misleading. Firms must produce clear and concise consumer-facing disclosure for products with a label and/or products using sustainability-related terms without a label.
In this respect, our full conversion to impact investing is timely. We are ahead of the curve and, in fact, liaised extensively with the FCA to tick all the SDR boxes before the boxes even existed.
Who does real estate impact investing appeal to?
During the last two years we’ve seen a retrenchment of allocations to real estate, driven by significant market repricing, the increased cost of debt and the denominator effect impacting investors’ weightings.
However, we still see strong demand for impact investing. Clients are becoming increasingly aware of their responsibilities to invest responsibly, and we’re encouraged by the amount of engagement we’re having with existing clients and new prospects. Local government pension schemes in particular are enthusiastic about improving their local areas and place-based impact investing is a way for investors to put money to work in their own back yards. It is therefore an interesting time for a diversified sector portfolio to find mis-prised investment opportunities, given the current market cycle, where value can be created and a positive impact made.
The built environment has a huge influence on people’s everyday lives and we think there’s a compelling opportunity to invest in a way that creates both a tangible positive social and environmental impact, while also achieving return objectives for investors.
Published in March 2024
