The real estate industry has always been one that thinks long term. Many large real estate owners, be they family trusts or REITs, look at the asset class as a way to buy and hold a valuable commodity. Some investment vehicles, like endowments and pension funds, even have investment theses that can stretch out hundreds of years. With the growing concern over man-made impacts to the environment, like climate change, these long-term thinking organizations might be starting to put the planet first (or at least tied for first with their bank accounts).
The Urban Land Institute recently released findings from a study that show that “increasingly, investor pressure is driving companies to analyze not just typical financial risks, but also how sustainability plays into the equation and positively affects a deal.”
In the article Dara Friedman, senior vice president at Bentall Kennedy said, “We are finding that investors are asking more questions and doing more diligence on how managers adopt sustainability into their platforms.” Adding, “We have been able to see the evidence of leading sustainability practices resulting in stronger and more sustainable investment returns.”
This idea doesn’t seem to be unique to real estate. Social and environmental impact investing has been one of the fastest growing segments of the investment world reaching $30.7 trillion in assets this year, according to the Global Sustainable Investment Alliance. The interest might be more pragmatic than aspirational. “Impact investing” has been delivering returns on par with some of the best investments. McKinsey & Co., studying 48 impact deals from 2010 to 2015, found the median internal rate of return was 10 percent. For the top third, the median return was 34%. Not bad when you consider that globally, the median net IRR for venture capital funds with vintages from 2010 to 2015 was 15.9 percent at the end of September 2018.
The built world is one of the main contributors of waste, consumers of energy and depositories of long-term capital. These three things combined make it a great candidate to be one of the posterchilds of the new economy, one where social and environmental benefits come with monetary returns, not instead of them.