Real estate investment is a numbers game, so it's natural for investors to focus on measurement and monetisation when looking at social value.
"We need to move beyond measurement of social value for measurement's sake and use it to inform an intelligence-led approach to improving the social good, the social utility and the social benefit of real estate." Jon Lovell, Co-Founder of Hillbreak
Real estate investment is a numbers game, so it's natural
for investors to focus on measurement and monetisation when looking
at social value. But this, says Jon Lovell, Co-Founder of
Hillbreak, is missing a piece of the value
equation.
Hillbreak is a consultancy that provides advice, training and
education to help businesses establish and drive their ESG
strategies in house and for specific products, and Lovell says
appropriate measurement of social value is one of the biggest
challenges for real estate.
He points to a ULI Europe report: Zooming in on the "S" in ESG: A Road Map for Social Value in Real Estate that unearthed a dizzying range of frameworks used to measure social value but with little consistency in approach. It makes comparisons difficult, but more than that, he questions whether the right things are being measured.
"You can look at what will have a material impact on the
financial performance of a particular product and what will have a
material impact on society," says Lovell. "The latter of
those two is still very much underplayed not just in the real
estate sector but across the capital markets. And that is because
it isn't priced in."
Inclusive assessment of the material impacts of real estate on
society is the essence of social value because it captures the real
outcomes as perceived by stakeholders in a way that "a black
box monetisation methodology" does not, he says.
He cites recent work that his firm has undertaken for a major UK
endowment, identifying the means by which it can contribute to
specific improved public health outcomes, such as alleviating
childhood obesity and respiratory illness, through an impact-led
approach to the management of its sizeable direct property
portfolio.
In measuring social value, he says it is critical to look at
negative impacts and to balance these against the positives;
otherwise, it is "cherry-picking the good bits". He
contends that most of the social value approaches we see in the
market today are biased by the latter.
A local authority will have a statutory obligation under the Social
Value Act, which translates into developers demonstrating certain
criteria in planning applications. The information provided in the
application, says Lovell, is helping fulfil those
obligations.
"What I would question is whether the information that is
being provided is telling the whole story of the true societal
impact associated with that development activity, or whether it is
simply being contrived to sell selective virtues of the
scheme," he says.
This means a change in approach. "There is a 'developer
knows best' mindset that goes into determining what social
value means in the context of a particular project," says
Lovell. "What that doesn't do is look through the lens of
local people and stakeholders to understand what the specific
needs, challenges, opportunities and aspirations are for that
place."
A more inclusive approach to envisioning and executing social value
strategies is an opportunity to address genuine needs and capture
opportunities, he says.
There are signs of a more sophisticated view being taken in this
respect by investors with, for example, some asset owners joining
forces to define investment opportunities aligned to the UN's
Sustainable Development Goals (SDG).
"These investors are looking at the underlying targets behind
the headline SDGs to determine which targets create investable
opportunities for capital markets across all asset classes,
including property," says Lovell. He adds, "It goes
beyond the lazy plastering of sustainability icons on marketing
materials, which smacks of virtue-signalling and impact-washing, by
thinking carefully about when, where and how capital can be
deployed to address specific social and environmental needs whilst
also delivering appropriate risk adjusted
returns."
"At the moment, this is quite a limited sleeve of investment
but strong momentum points to an increasing proportion of impact
capital over time relative to the broader market. We're seeing
a flag in the sand moment from an asset owner point of
view."
And that is the key to delivering social value, using a
"methodology to inform and optimise", not merely to
capture convenient numbers on the positive side of a societal
balance sheet.
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