Impact investing and environmental, social and governance strategies have a significantly higher profile among commercial real estate professionals now than they did two or three years ago, but many in the industry still don’t have a perfect grasp on what these types of investments truly do — and don’t — entail, and those working in the space say ESG and impact investing can still feel like dirty words.

Impact investors speaking at a Bisnow event in Los Angeles last week said they either shy away from the term or emphasize that, for them, impact investing does not come at the expense of returns. Moderator CJ Follini even defined impact investing as spending money “to make a positive, measurable social impact as well as financial returns.”

SoLa Impact CEO and founder Martin Muoto said he largely eschews the “impact” label after finding that it limited him when he was attempting to raise capital from institutional investors.

Over the last year, Muoto said, SoLa Impact was raising for its fourth fund and was turned away from institutional investors that seemed confused about what to do with an impact fund.

“As a category, most institutional investors are still scratching their heads” about impact investing, Muoto said.

To counteract that, Muoto said he tells potential investors that generating positive social impact is just a side effect of working in the areas in which it invests, namely housing in Black and Brown communities and predominantly in South Los Angeles. By its own account, Los Angeles-based SoLa Impact is the largest purchaser of real estate in South Los Angeles.

Muoto said these communities need high-quality housing that is affordable for them, but these areas and the people who live there are “under-invested in, overlooked,” and carry more perceived risk for investors, which has led to a pricing mismatch.

“Yes, we are an impact fund, but if you ask me, depending on who asks me, we’re just a real estate fund that is aiming to achieve at market or above-market returns,” Muoto said.

Turner Impact Capital Managing Director and Senior Counsel Roshan Sonthalia concurred: Even though almost all of the firm’s investors ask about the impact generated by their investments, impact is not the bottom line.

“We are an impact firm, but when you go out to investors, you’re not always an impact firm; people want returns,” he said. “We have investors on all different ends of the spectrum, some who really like investing with us as a defensive investment compared to opportunistic investments but then you also have philanthropists who want to make a difference but love the fact that they are able to make an investment and get a return at the same time.”

Turner Impact Capital invests in education, medical real estate and workforce housing in underserved areas, but the firm is “not necessarily focused only on impact,” Sonthalia said. “For us, it’s a balance and you have to have both — you can’t pick impact only or investing only.”

“I don’t think that it is necessarily value-destructive to do ESG investing,” BentallGreenOak Managing Director Matthew Gorman said.

Gorman said the private equity firm’s investors have over the last few years started to demand ESG and impact-focused investments. At its value-add investments, BGO tends to look for programming it can add to hit the “S” in ESG, Gorman said.

As an example of how ESG investing can pay off monetarily, Gorman discussed a multifamily community near Tucson, Arizona, that the firm had invested in. When BGO discovered many families lived at the property, it started thinking about property improvements and amenities that would be attractive to that demographic. Enhanced security and an after-school tutoring program, which took place in an underutilized amenity space, were two things the firm added.

While the overall impact was hard to pin down from a return-on-investment perspective, “the rents that you end up achieving at these places can far exceed your competition when you bring a holistic package to it,” Gorman said.

Gorman, Muoto and Sonthalia spoke on the panel with Nuveen Green Capital Vice President of Originations Kate Cusack and RealtyMogul Chief Investment Officer Chris Frawley. Almost all the panelists mentioned housing — affordable housing, workforce housing, senior housing — as the asset class where they saw the most potential to generate both social impact and financial returns.