Impact investing is a further evolution of the integration of environmental, social and governance (ESG) factors into investment strategies alongside an overriding desire to 'do good' by delivering a social and total return.

Although impact investing has to date been largely observed as taking place outside the real estate asset class, we are increasingly seeing a rise in institutional and private investors looking at property as a credible option to satisfy their desire to make a positive impact.

So what has this trend been driven by? An increasing recognition of the environmental and social challenges facing the world has meant that investors’ attitudes towards merely thinking about black and white returns has shifted to employing a longer term, more socially responsible approach.

In fact, a 2016 research paper from Bank of America suggested that the millennial generation could put between $15-20 trillion into US-domiciled ESG investments and, in doing so, double the size of the US equity market.

The Planet-Earth-watching, re-usable-coffee-cup generation is much more aware of the challenges facing our planet and therefore becoming more attuned to investments which can make a positive impact beyond an economic return. With the built environment accounting for 41 per cent of all global energy usage, 40 per cent of natural resource usage and 38 per cent of all CO² emissions, this should not come as a surprise.

We are already aware that investors’ mentalities are shifting from a return-driven strategy. However, in looking more closely at what kind of real estate they are investing in, there has been a step change in recent years towards delivering significant social returns. Funds across Europe and the US, including M&G Investments, Schroders and Hermes Investment Management are all active in this arena.

Much of the focus has been on residential space, and improving or delivering new social housing, yet recently there has been a shift towards commercial assets with education and healthcare assets thriving as a result. While overall healthcare investment levels rose in 2018 by 3.8 per cent (according to Savills), it was investment volumes in to the UK elderly/long-term care sector that set a new record – $13 billion at the end of 2018 according to Real Capital Analytics. Investor demand for these types of assets far outstrips supply, with particularly strong demand from non-domestic investors.

So what does the future hold for this burgeoning investment approach? With research from the University of Oxford/Arabesque Partners showing a positive correlation between good corporate sustainability performance and good financial results, we can expect to see a lot more demand to satisfy impact investing needs. 

The challenge for multi-asset investors will be finding impactful companies or assets to invest in and I believe that health, housing and educational real estate will benefit from this.

Further information

Read more: UK Higher Education Spotlight