In 1994, John Elkington coined the phrase Triple Bottom Line (TBL), a sustainability framework that examines a company’s social, environmental, and economic impact. It placed environmental and social aims within financial objectives as demonstrated by its 3Ps - Profit, People and Planet. 

The triple bottom line approach has been hard to translate into actions. Over decades, individuals and organisations have invested large resources in corporate social responsibility but failed to move the needle on well-being and environmental issues significantly. 

The challenges we face this decade, ranging from a significant deficit of suitable, affordable, livable homes to the economic and social impacts of climate change, the Covid-19 pandemic, and, most of all, the Ukraine crisis, have started to continue to bring into sharp relief the need to invest funds wisely. 

At the same time, at PlaceChangers, we consider impact investing in housing as an essential part of moving us towards evidence-led planning and urban design of future neighbourhoods. 

What is impact investing in housing? 

Schroders, an investor in UK housing, defines impact investing in housing as “developing real estate assets with a set of defined social and environmental objectives.” Often those objectives refer to established ESG models and various criteria applied to investments. 

ESG is a philosophy and framework focusing organisations, investors, and financial analysts on Environmental, Social and Governance factors, including environmental impacts (e.g. how natural resources are utilised or impacted); social (e.g. how a company responds to and improves its social impact with internal and external stakeholders); and governance (e.g. how internal practices and processes at the board and management level drive positive change in their environment and social agendas). 

Need to get started with ESG for housing? Read more on our blog here: Getting started with ESG for housing and property development

What’s the scale? 

Many investors in property have tended to focus their impact investing in housing on acquiring or lending to either affordable or social housing.

The pandemic and associated lockdown focused institutions and the public on recognising housing as a critical long-term asset with regard to tackling human health and wellbeing while working towards more environmentally-sustainable neighbourhoods. 

Impact investing in housing has been growing significantly in the UK. Data by Big Society Capital, for instance, showed that investments have risen from £350m in 2016 to £3.8bn in 2021. Out of the available social-impact funding, social and affordable housing take the largest share, representing 48% of investments. 

Many users of the PlaceChangers platform and tools in housing are looking for evidence positive impacts their projects can have. Better place analytics and early stakeholder engagement through interactive consultations on layouts are among the key ways to ensure robust planning and design. 

How can impact investing make a difference?

Impact investing in housing influences project portfolios at different levels: It starts with a clear portfolio or programme strategies to determine the selection criteria for projects invested and seeks to capture impacts post-completion. 

Project screening: Impact investing requires reviewing housing markets from a financial perspective, but they will add additional criteria at a brief development stage, especially around the quality of a site, such as access to local services, walkability, health and wellbeing issues in the community, and existing types of homes.  

Project delivery: After funds have been committed, impact investing approaches strongly emphasise monitoring a wider range of impact measures beyond finance performance. To achieve social impacts, appropriate actions during project delivery are key. Those actions can include a socially-engaged design process that enables a project to respond to local needs. 

Project monitoring: Impact investors are also more involved when things go wrong: Jason Mitchell, Co-head of Responsible Investing at Man Group, another significant impact investor, refers to the role of stewardship of investors, which differentiates their role from normal investors. On Man Group’s website, Jason states,” Stewardship can make an impact in a number of different ways. First, it can encourage better behaviour. And secondly, it can engage with companies, which is different from traditional strategies like divestment that do not engage”

Post-completion: Overall, impact investing takes a longer-term orientation, also considering the positive impacts of investment far beyond project completion. Impact investors may require post-occupancy reviews to validate projects' impacts based on first-hand feedback a couple of years after completion. 

How impact investing generates long-term value and benefits

Impact investors in housing, such as Man Group and Big Society Capital, drive a pivot towards more sustainable development. 

Research by McKinsey suggests a strong correlation between ESG performance and higher top-line returns, reduced costs and better employee attraction and retention. 

These impacts can often appear quite abstract. At PlaceChangers, we encourage our users to relate to positive impacts that can be identified from data or resident views. For example, through a two-stage engagement process, as outlined in developers' early engagement guidance by Westminster City Council. 

Place data drives monitoring of impacts

Gallup says that impact investors “want metrics that include evidence of a positive and beneficial impact on the environment. They want new standardised official statistics that include the company’s impact on all stakeholders and their overall well-being.” 

Some consulting companies are active in the space for impact investing in property. The Good Economy is a key influencer in this space. Their goal is to influence capital flows so that the financial system plays its part in solving major social and environmental problems. 

Investment funds are asking the same questions. This will invariably pressure developers to act more responsibly and deliver greater levels of sustainable housing. There is some discussion around “naming” organisations that fail to or do meet ESG standards. 

Sebastian Weise, founder at PlaceChangers, commented on data, 

“There’s an incredible amount of place data out there these days, often to the extent that it can be overwhelming to use. To tackle this challenge, PlaceChangers has developed Site Insights, an easy-to-use data tool for critical urban design factors. Users on PlaceChangers digital planning toolkit increasingly value access to clear benchmarked place data to identify issues and opportunities early on.”

Conclusion 

The pandemic accelerated the need for digital practices to supersede outmoded physical activities, such as Community Engagement Consultations and Site inspections for proposed development projects. 

At PlaceChangers, we saw a multi-fold increase in the use of our digital planning tools during the pandemic, lockdowns were enforced, and people spent more time in their homes and local communities. 

Impact investing plays an important and growing role in guiding and shaping the development of high-quality, affordable homes. Impact investors have seen strong long-term gains, further proving the point of impact investing. 

By understanding and adhering to ESG standards, developers can ensure they build back better with sustainable and fit-for-purpose housing. They can avoid the punitive actions of buyers and investors who will increasingly shun organisations that do not evidence a strong ASG commitment and follow through with all aspects of their operational activities.