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The People Holding The Purse Strings In Real Estate Have Made Social Impact A Top Priority

How far we are from the end of the cycle is a permanent topic of conversation in real estate. What to do with defunct retail is another biggie. But another theme is starting to dominate the public discourse: how real estate can do good in the world.

Call it environmental, social or governance, call it corporate social responsibility, call it what you want, but the impact the property industry has on society is at the forefront of the minds of the people who drive profit and investment in the sector: the big corporate occupiers who take space in buildings, and the big pension funds and investors who build and own them.

“Whether it's [David] Attenborough, or Greta [Thunberg] or Extinction Rebellion, there are catalysts out there that are bringing everyone together and making us realise that we have to bind everyone together and do a better job of making capitalism inclusive,” Legal & General Chief Executive Nigel Wilson told delegates at Bisnow’s London State of the Market. “We all know it, we are starting to believe, but now we need to make it happen.”

Google DeepMind's Emma Galal

There is a growing awareness among companies in the property sector that, as has happened in other sectors of the economy where using a plastic bag is increasingly frowned upon or discriminatory practices draw public opprobrium, real estate will come under public pressure to demonstrate its value to society.

“Companies who are not part of the solution will be wiped out,” Unibail Rodamco Westfield Group Chief Resources Officer Astrid Panosyan said. “We want people to come and work for us, and cities too want to work with us, and if you don’t think about these things, they won’t.”

One group paying particular attention to the social impact of real estate schemes is corporate occupiers. It is one of the great cliches of the property world today that occupiers are engaged in a war for talent, and that the space a company occupies is a part of this. Just because it is a cliche doesn’t make it untrue, but for occupiers, the thought put into factors like diversity and local community engagement can be just as important as fancy amenities.

“If I was looking to take on a new tenancy in a building, I would want to know what does the landlord offer the employees, what are the community links they have in place, what kind of a landlord am I investing in?” Google DeepMind Central Support Manager Emma Galal told the audience at Bisnow’s Office leasing and Development event in September. DeepMind, a division of Google specialising in AI, has just taken a 180K lease at Argent’s King’s Cross Central.

Galal pointed out how developers and landlords can help companies achieve many of the social aims they increasingly harbour.

“If you were to ask any business what their biggest challenge is at the moment, they would say diversity and inclusion, and making the most inclusive office you can,” she said. “More work could be done by landlords to work out how they can create that environment, so it could be about connected space for multi-tenanted offices where you build multi-faith rooms or nursing rooms to help enable women to come back into the workplace sooner. It could be spaces for people with mental health issues, spaces that are meditation rooms.”

L&G's Nigel Wilson

“Having those spaces in the building means individual businesses don’t need to invest in them,” Galal said. “I would be much more inclined to go to a building that offered those services so I can work out if I need them in my business than just going somewhere where I get shell and core.”

The flip side of the same coin is that large corporates in particular have the power to red line landlords that don’t have the same ESG priorities as them.

“If a landlord didn’t share our values on sustainability, we absolutely wouldn’t work with them,” PWC Chief Sustainability Officer Bridget Jackson said. 

For investors like L&G, which with £1 trillion of assets is the world’s eleventh-largest pension fund, the remit is going beyond just making money to meet the liabilities of its policy holders, although it is making sure it does that as well.

“We get a 20% return on equity, we are not just dong this to be benevolent,” Wilson said. “I think we are converging, even in the investment management industry, and recognising that over the long term, the firms that work with a purpose, that do the right thing for the right reason just do better.

“Our challenge going forward is not going to be building the space, but linking it up with the environment and wider society much better than we have in the past 30-40 years. The people involved in the tech industry have a much wider view of their purpose, but also the impact on society they want to have.

“And no one else is going to do it, we have to do it ourselves. Across the world we want better healthcare, affordable housing, housing for the homeless. The technology is there, the world is awash with money, we just need to make it happen.”

This attitude is becoming more and more pervasive among big investors. BlackRock CEO Larry Fink published a letter earlier this year outlining an increased focus on ESG matters for the world’s largest investment manager; and the world’s largest sovereign wealth fund, Norway’s $1 trillion Norges Bank IM, said this year that it would sell all its stocks in oil and gas exploration companies.

The Social Value Portal's Guy Battle and Unibail Rodamco Westfield's Astrid Panosyan

The attitude of the companies that provide the capital to businesses across the economy is starting to filter through to developers. 

“We’re seeing a shift from not just saying, can we make sure we don’t do any harm to an area, to asking, what is the beneficial impact we can have on an area?” The Social Value Portal Chief Executive Guy Battle said. “That is coming from investors, pension funds saying, of course we want a financial return, but what is the benefit and impact as well. That’s finding its way into development.”

Not all investors are combining the need for financial returns and social impact, Panosyan said, and she called for more joined up thinking from investors to accelerate the process of investments having a positive impact on society.

“The normal investors don’t ask any questions about what we are doing on job creation, or carbon impact, they just don’t care. It’s about earnings and yields,” she said. “Then when I go to a conference on CSR, all of those questions get asked, and they don’t care about financial impacts. The financial community needs to be more integrated, and join the left and right side of their brains. They need to say this is an integrated business where we think about shareholders but also the externalities for all stakeholders.”

Panosyan said one of the big focuses for Unibail is on job creation, where it has a programme called URW For Jobs where it looks to find work for groups that typically have poorer access to employment opportunities.

“People forget that retail is a great way to increase social mobility in the job market, especially for people who are far away from the jobs market,” she said. “Our programme has worked with veterans in the U.S., migrants in Stockholm and young people here or in France or Spain.”

On the sustainability side, investors are putting their money where their mouth is. Earlier this year giant Canadian investor Ivanhoé Cambridge and investor Icamap put €750M of equity into a new venture that will build low carbon, timber-frame buildings in Paris. With debt the venture will have €1.6B to spend and develop 2M SF — 3M SF of assets by 2028. 

Ivanhoe Cambridge's Karim Habra

“It is an old technology that has been reinvented,” Ivanhoé Cambridge Head of Europe Karim Habra said. “It is a lot of work, but it is lighter, cheaper, quicker, and produces less carbon. It is something we would like to roll out beyond Paris.”

One challenge for investors has been to measure the social impact that a project might have, to quantify and thus justify the work they might want to put into ESG considerations.

The Social Value Portal’s Battle said his firm allows developers to measure the impact a project is having, in areas such as regional growth, jobs and skills, supporting communities, environment and promoting innovation. It takes these non-financial factors and converts them to a financial metric of the impact created, in order to help investors and developers quantify their impact.

“It is a platform for capturing data that allows you to report the broader contribution a development makes to society, which is central to what a development is about,” Battle said. “Yes, it is about yields, but it is also about the change a property brings to its area.”

L&G is utilising the platform, and Wilson said having such data makes it easier to make decisions on how to best make an impact with new schemes.

“We’re all going to be investing in this sort of thing, because we all care about social impact,” he said. “We can measure more now, the science and data exist, we want to know what we are doing and what more we can do. We have people have been left behind, and by measuring impact we can work out how we can share the benefits.”