Positive impact for real estate: A next step in ESG integration


Matthew Ulterino

Matthew is Property Investment Project Coordinator at the United Nations Environment Programme Finance Initiative (UNEP FI).

According to the United Nations, USD 5-7 trillion are needed each year through 2030 to meet the Sustainable Development Goals (SDGs) worldwide. This financing is needed in mature and emerging economies alike, touches on all aspects of the built environment and is expected to come substantially from private sources. There is no shortage of ways the property sector can contribute to meeting the SDGs, from investments that reduce carbon emissions (such as energy efficiency and low carbon energy), improve health and wellness (such as healthy buildings, walkable cities and healthcare facilities), make efficient use of resources (such as low-impact materials and water efficiency and reuse), improve skills (such as workforce training) and more.
In response to the need for increased financing to address the SDGs, UNEP (United Nations Environment Programme) Finance Initiative (FI) launched its Positive Impact Initiative. The Initiative is promoting the idea that impact-based investment models need to be developed and refined for financial institutions to step up their positive impact on the economy, society and the environment. Positive Impact requires that environmental, economic and societal impacts – both positive and negative – are identified and measured ex-ante and ex-post independently of financial materiality (noting the two might overlap) through transparent processes and disclosures. The Property Working Group of the UNEP Finance Initiative – a collection of 25 leading investors and banks focused on sustainable property investments and active management, and finance product development – is leading a property-specific focus within this broader UNEP FI Positive Impact initiative[1].
An impact-based approach implies that, while some economic sectors have greater potential for positive impacts, no activity is exempt from potential negative impacts. Identifying where investors have positive and negative impact influence can help investors clarify the financial, social and environmental impact they seek to create and the negative impact they need to mitigate. It can compel institutions to move from a position of responding to passive catalysts (operating in markets with long-range sustainability policy goals or incentives, for example) to discerning the social, socio-economic and/or environmental needs and gains available and seeking and executing investments in pursuit of them. Impact intentionality, thus, becomes part of strategic value-driver for businesses.

Practical guidance for property investors

Positive Impact seeks to provide a new perspective on how individual institutions and, collectively, the whole of the finance sector creates sustainability benefits. UNEP FI sees this as part of an ‘adoption curve’ for more rigorous assessing, screening and valuing, and measuring investment impact opportunities and outcomes. Moving up the impact-based approach adoption curve is both a change in mindset from investors and a process of developing skills and capacity. The process, as shown in the graphic, is presently in its early stages.
Source: UNEP FI (informed by The UK National Advisory Board on Impact Investing)
Source: UNEP FI
To support investors as they move up the adoption curve, UNEP FI is developing an action-oriented framework, i.e. steps to be taken by practitioners and the results sought at each stage of the property investment cycle. The framework is structured around a set of investment objectives, presented as guiding questions that can inform decision-making during key stages. They move from investment thesis (clarity of impact) through investment outputs (market and sustainable returns; measurement of impact) to hoped-for outcomes (additional finance; impact flows). These objectives complement existing ESG integration processes but go further in their reach.
A fuller explanation of these investment objectives and an outline of a Positive Impact investment framework are presented in a discussion paper issued by UNEP FI (May 2018) as part of a larger dialogue with industry practitioners. It also outlines a practical framework for implementing an impact-based approach in real estate investment activities. This paper incorporates open questions to generate comments and constructive criticisms from real estate practitioners. (For a copy of the discussion paper, please contact matthew.ulterino@un.org).
While the framework provides a structured approach to inform decision-making, UNEP FI believes the greater value will be in identifying and supporting the creation of resources and tools to assist investors in setting impact intention, generating and measuring impact returns over time and creating additionality through their investment. From case studies submitted to UNEP FI by investors and in discussion groups with practitioners, there is consensus that improved resources needed for:

  • identifying positive and negative impacts across all three sustainability realms (economic, social, environmental);

  • undertaking ex-ante and ex-post measurements; and

  • framing investments to address the SDGs around holistic impacts rather than targeting sectors.

Addressing these needs will be part of an ongoing effort of UNEP FI and its collaborators to make this impact-based transition part of normal practices and investors’ fiduciary duty. We invite all EPRA members to be active participants in this process.

[1] External collaborators to the PWG on this includes the Royal Institution of Chartered Surveyors (RICS), the Principles for Responsible Investment (PRI), and the Global Investor Coalition made up of Institutional Investors Group on Climate Change (IIGCC), Investor Group on Climate Change (IGCC), AIGCC (the Asia Investor Group on Climate Change), and Ceres Investor Network on Climate Risk and Sustainability.