A Focus on the ‘S’ in ‘ESG’: Standard Setting to Avoid Impact Washing in Affordable Housing Investment
November 11th, 2021 | Garth Davis, Wren Laing
When it comes to sustainable investing, the asset management industry has historically focused on the “E” and “G.” The movement towards measuring companies’ environmental footprints is highly visible, with public commitments to net-zero emissions coming from investors of all shapes and sizes, asset managers, and corporations alike. However, measuring social impact in investments is just as important to the financial industry and global conversation around creating a more sustainable world. For asset managers to make meaningful progress towards sustainability goals, we must invest in a way that not only considers the environment, but also people and communities.
Organizations like the Principles for Responsible Investment (PRI) and the Global Real Estate Sustainability Benchmark have created frameworks for our industry to track progress around ESG issues. Previously starved for detailed information about the diversity of a company’s staff or the emissions of their buildings worldwide, investors are gravitating towards these frameworks so they can track the impacts that their portfolio holdings have on the world. This has led to more standardized reporting around environmental factors as well as diversity, equity, and inclusion, as investors are aligning due diligence questions with the leading global standards.
But social impacts of investments are not always straightforward to quantify. The asset manager can play a powerful role in gathering information about the financing of projects and companies – and helping those companies improve the ways in which they are impacting people’s lives. It can be useful when asset managers expand the amount of data they collect on social impact while also offering investors and their holdings actionable ways to positively influence the world.
Asset management firms can and should use technology and resources to increase investor awareness of the social impacts of their portfolios. In working towards our own goals to make the world a more equitable place, BentallGreenOak (BGO), an SLC Management company, developed the BGO Social Impact Assessment Tool, one of the first data-driven “S” factor applications for the real estate equity and debt sector. Aligned with the United Nations Sustainable Development Goals (SDGs) and other international best practices, creating this tool has helped BGO assess the social profile of its assets, including how they impact health and well-being, economic growth, and inequality in our communities. The tool launched at over 400 properties in 2020, representing more than $27 billion (USD) in global assets under management.
The time and resources put into creating and expanding this tool has refreshed our perspective on what makes for excellence in social performance at the asset level. For example, we are thinking more about the ever-evolving state of urban transportation and how our buildings will accommodate more bike traffic and other forms of clean commuting. We are also seeing first-hand how valued our investments are in common amenity spaces like meeting rooms, recreational facilities, and healthy eating options and fitness have become essential in tenant acquisition and retention. Additionally, as we embark on asset renewal plans, we are exploring how we can invite more natural light, fresh air, and artistic expression into our indoor environments. And our continuing experience with Covid-19 has added greater urgency to our portfolio-wide plans to establish best operating practices and new capital investments that will help us mitigate current and future infectious disease events.
The asset manager of today is a social convener who must be able to weave their assets into the fabric of the community in which it resides to secure long-term growth and value. Increasingly, this requires honest introspection from firms on the people and talent that we have assembled to lead our ESG journey and challenging where we fall short on diversity, equity, and inclusion. As we continue to invest in dynamic, cosmopolitan centres of culture and commerce, the makeup of our people must reflect that same richness in diversity too. Our investors and tenants are holding us accountable on this front, and every day we are learning how much better we are when leaders from varied ethnicities, generations, and identities are powering the decisions we make in the boardroom and in our buildings. Underperforming buildings that become obsolete over time almost always suffer from detachment to their community surroundings and social settings and falling victim to this risk is an existential risk that can no longer be taken for granted.
By creating this tool, we also learned how to bring teams with varied levels of ESG investing experience into the process of measuring social impact. In a true socially conscious enterprise, we are all ESG practitioners, and we must all be keenly aware of the role we fulfil in delivering excellence in this regard. The path to a more sustainable world is not short, and the people within our industry have entered this path at different stages of their career and in different ways. As asset managers, we must meet our own employees where they are in their own journeys by creating tools and programs that will help them reorient the way in which they think about the social impacts of their portfolios.
The “marathon not a sprint” maxim can be applied to the external challenges that came forward as we created the BGO Social Impact Assessment Tool. There were gaps in the social data that international standards prompt investors to ask. But perhaps more importantly, a lack of understanding of why social impacts need to be measured in a portfolio emerged. Third-party standards can help track progress of global companies, but they don’t always provide ways for those companies to make change. Action plans are critical for companies in sectors with heavier social and environmental footprints on the world, like industrials. A key element of this tool is that it provides bespoke strategies as to how each asset, and ultimately, portfolio, can improve its social impact over time. The financial industry doesn’t have all the answers right now as to how they play a role in improving this landscape. We must continue to innovate and evolve our own investing processes so that our clients know how their money is being put to work in our communities. We must be transparent in our communication with our clients, giving them more, and actionable, information on the progress we can all make towards social equity through investment.
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This material contains opinions of the author, but not necessarily those of SLC Management or its subsidiaries and/or affiliates.
© 2022, SLC Management
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The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.
Author
Anna Murray
Global Head of ESG
SLC Management
