Renovation

Retrofitting – or renovation – is a core component of many real estate impact strategies. Nuveen, for example, is an investor in dynamic glass company View, which improves the energy footprint of buildings.

Glass needs to be replaced around every 30 years, and View’s products are often retrofitted into existing spaces. In fact, Nuveen’s own New York offices are currently being fitted with the automatically tinting glass.

Renovation and retrofits are also important components of Nuveen’s residential strategy. One of the firm’s three pillars of impact is affordable housing and the firm is continually acquiring multi-family housing stock, not only to improve its environmental sustainability, but also to keep rents affordable.

“It could be something as simple as changing all the lightbulbs in a property to LED,” says Nuveen’s portfolio manager, impact investing, Rekha Unnithan. “We also do audits of water and energy consumption and constantly strive to make housing as efficient as possible, even if it was built 20 years ago. There are always things you can do at the margin to improve real estate from an impact perspective. Frankly, those things also contribute to our bottom line.”

Scale

The Global Impact Investing Network recently estimated that impact investment assets under management total $502 billion, up from $114 billion in 2016. The scale of global awareness is also rising rapidly.

GIIN has found that one in four dollars of professionally managed assets, equating to around $13 trillion, now considers sustainability principles. That means there is real potential for investors, who have already aligned their capital with their values, to more intentionally drive progress through impact investment.

“In addition to these quantitative measures, I think there are quite a few qualitative indicators of scale, including the emergence of an advisory ecosystem,” says GIIN managing director Sapna Shah. “For example, we now have auditors verifying social and environmental performance and law firms working on structures, terms and covenants pertinent to impact.

“A lot of progress has been made in the past decade. That said, the $502 billion is nowhere near enough to meet the climate, social and health needs the world is facing. There is quite a bit further to go.”

Ticking clock

Last year, the UN Intergovernmental Panel on Climate Change published a landmark report that claimed we only have 12 years left for global warming to be kept at a maximum of 1.5 degrees, beyond which even half a degree will significantly worsen risks of drought, floods, extreme heat and poverty for hundreds of millions of people.

The time we have to tackle a whole host of global challenges is running out.

Indeed, the most recent Goalkeepers report from the Gates Foundation indicates that while progress is being made towards the Sustainable Development Goals, it is not being made fast enough to meet all the goals by 2030.

“The good news,” says Stephanie Krater, partner at social impact consultancy the Bridgespan Group, “is that there is still a tremendous amount of private capital – more than enough to get the job done – that could be shifted towards impact investment in the near future. Private capital can be mobilised faster than any other type of capital and our hope is that the impact industry can continue to advance fast enough to meet these goals.”

UN SDGs

The United Nations estimates that some $5 trillion to $7 trillion is required annually to reach its 17 Sustainable Development Goals and 169 associated targets by 2030.

That level of support can only be reached through the joint efforts of governments, regulators, academia, philanthropists and the corporate world. But it is becoming increasingly clear that private sector financing, and in particular the burgeoning impact industry, has a critical role to play.

Indeed, the UN SDGs have created a unifying force around impact, helping to provide a common motivation for the nascent impact community. “The SDGs have provided an important framework and focus for enterprises and investors in the impact investing world,” says Chris Parsons, head of investment banking at specialist impact investment bank ClearlySo. “They have highlighted the key social and environmental issues facing the world.”

“The SDGs are incredibly important,” adds Tania Carnegie, leader and chief catalyst of the Impact Ventures practice at KPMG. “They are commonly featured as part of the impact frameworks that our clients are developing. It helps them articulate what contribution they are making to solving the bigger picture challenges that society is facing.”

According to the Global Impact Investing Network’s 2018 Annual Impact Investor Survey, more than half of investors are currently tracking some, or all, of their impact performance against the UN goals. However, given the scale of capital required, the GIIN believes it is vital that more investors go beyond alignment and instead, raise and direct new capital towards progress against the SDGs.

According to Rekha Unnithan, portfolio manager, impact investing, at Nuveen, there is a risk the SDGs are being incorporated into marketing materials more readily than into investment strategies themselves. “Obviously the SDGs have really taken off. You can’t go into a European airport lounge these days without seeing the SDGs on someone’s laptop as part of their marketing deck,” Unnithan says. “That is great in terms of being able to articulate what we do in the context of larger global goals. But we are at an inflexion point with regards scaling with integrity and I think agreeing and maintaining standards is key.”

Vadim Avdeychik, a lawyer in the investment management practice at law firm Paul Hastings, adds that while the SDGs have been important in terms of helping managers identify and allocate resources consistent with those goals, the SDGs themselves have provided insufficient guidance for private investors. Avdeychik therefore welcomes the standards being unveiled alongside the SDGs around strategic intent, measurement, transparency and accountability. “Those standards have been created at the request of the investment community, to help them make sure they are deploying capital in a way that specifically contributes to those SDGs. It is all about creating a common language,” he says.