As real estate fund managers have become increasingly keen to provide suitable products to meet institutional investors’ demand for real estate impact investments, INREV’s ESG committee has taken steps to provide more clarity and consistency in this important area. 

Abigail Dean, Head of Sustainability, Real Estate, at Nuveen in London and leads the Impact Investing sub-group within the INREV ESG committee, commented, ‘as a committee, we are conscious that impact investing is an increasingly strong trend that started getting real traction in our industry in 2019.’ The committee determined that in order to address the lack of a thorough industry-wide understanding about what constitutes impact investing in the real estate sector and real-world best practice examples, INREV should try to bring more clarity, focused on defining what real estate impact investment is, how it is done and how it can be measured, steps that have already been taken in other asset classes.  

‘First, while every real estate investment has impact, hopefully positive but perhaps sometimes not, that does not make them impact investments. Impact investing requires that a defined approach is followed, so we decided the best place to start is ensuring clear definitions,’ Dean noted. She pointed out, for example, that for an investment to be considered an ‘impact investment’, there must be intent to have an impact and impact investment criteria must be as important as financial return criteria. Terms such as ‘intentionality’ and ‘additionality’, along with impact investment transparency, among others, are critical to a full understanding of how to achieve impact investment in real estate practice. 

Impact investing requires that a defined approach is followed, so we decided the best place to start is ensuring clear definitions 

The committee published 13 definitions related to impact investing that are now included in the Definitions Database on the INREV website, together with INREV’s Spectrum for Impact Investment, which is a framework to map out different investment approaches for real estate, depending on investors’ ambition for environmental and social impact, without imposing a rigid structure. 

Following publication of the definitions and Spectrum this past March, the impact investment sub-group started to work on a white paper that will be released later this year. It will more fully address issues such as defining different categories of impact investing, along with the critically important step of monitoring and measuring impact, supported by best practice examples.  

‘There’s clearly a desire for more information and examples of what impact investing looks like in real estate,’ Dean stated. Affordable housing, healthcare and regeneration are all areas where INREV can provide meaningful insight to help fund managers understand how to develop impact investing products. This will also help investors know what questions they need to ask managers to avoid ‘impact washing’.  

There’s clearly a desire for more information and examples of what impact investing looks like in real estate 

Finding best practice examples in impact investing has been a challenge for the committee, however. While most examples in the market are qualitative, best practice examples also need quantitative evidence, but impact is often very difficult to measure. The committee is working to add good case studies of impact investing best practice in real estate to the ESG library that it developed in recent years, as it also strives to further expand the number and range of sustainability-related case studies. At the same time, the committee is working with the Due Diligence Committee to develop additional questions for the due diligence questionnaire focused on impact investing. 

The real estate investment community is rapidly embracing impact investing and the efforts of INREV and the ESG committee will hopefully help guide and shape industry efforts going forward. The current COVID-19 crisis raises a fundamental question for real estate impact investing, however. Is impact investing a luxury or is it an important part of the solution? Dean commented, ‘the real estate world has really moved forward in ESG and impact investing, so potentially it could be set back by the current crisis, but so far they seem to be holding up very well.’  

The real estate investment community is rapidly embracing impact investing and the efforts of INREV and the ESG committee will hopefully help guide and shape industry efforts going forward 

It’s noteworthy that since the outbreak of the COVID-19 crisis, preliminary evidence points to the fact that ESG funds have had less outflows than other real estate funds on average. Investors may arguably be more committed, Dean noted, but ESG funds are also less ‘risky’ from a risk-adjusted return perspective. She added that it can also be argued that ‘the current crisis has focused attention on the fact that, as a society, we’re only as strong as the most vulnerable among us and the real estate industry has mobilised to respond to the crisis in a supportive way.’  

Dean pointed out that the current crisis has highlighted the importance of businesses acting as good corporate citizens and has raised public expectations of good corporate responsibility. This trend bodes well for impact investing and suggests that, post-crisis, even further attention and effort will be put on developing and expanding real estate industry knowledge and practice in this area. 

Critical to this effort will be helping industry members understand what impact investing is and what it isn’t, which can help avoid good intentions being mis-directed. ‘I think all of us on the INREV ESG committee feel a tremendous sense of responsibility to increase both awareness and knowledge around impact investing’, Dean noted. ‘Hopefully our efforts will make a meaningful contribution to helping the real estate industry play an important role in providing needed impactful investment.’  

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