ESG and impact investing will be key trends in 2022 – how property investors can get involved

By Jo Bentham14th January 2022

ESG (Environmental, Social, and Governance) and impact-driven investments have witnessed a significant growth in popularity among investors in recent years, becoming key investment trends starting in 2020 and now continuing into 2022.

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Whilst many investors have considered ESG and impact investing an important part of their portfolio for some time, interest in investing into opportunities that result in positive social, economic and environmental outcomes reached an all-time high in 2020, amidst the Coronavirus pandemic. 

In their annual Market Sizing Report, Big Society Capital found that social impact investing had reached a value of £6.4 billion in 2020, up from £833 million in 2011 – an eightfold increase in just nine years. 

The data showed consistent growth year-on-year, with particular acceleration between 2019 and 2020, when there was a 26% increase in the value of social impact investments in the UK. 

Furthermore, Triodos Bank’s 2020 annual Impact Investing Survey found that awareness of the potential to invest for impact was substantially higher in 2020 than in any other year since their survey began, and that Covid-19 had motivated one in five investors to explore ethical funds. 

And whilst research from Butterfield Mortgages Limited found that 30% of investors surveyed were willing to accept lower returns on an investment if it has a positive social or environmental impact, investor’s don’t have to choose between the two. 

There are a multitude of impact-driven investment opportunities that also target attractive returns and allow experienced investors to gain exposure to popular assets with a proven track record – this includes the investor-favoured residential property market here in the UK. 

 

Investing for impact with property

The resilience of the UK’s housing market throughout the Covid-19 pandemic has served to reassure many property investors that the asset remains an important one for their investment portfolios, with 2021 witnessing the market’s busiest year in over a decade, and this positive performance is predicted to continue in 2022.

But in addition to this, investing into property – namely the residential housing market via property bonds – also has potential to positively impact society, the environment and the economy. 

When investing into property bonds, experienced investors are providing small and medium-sized housebuilders with the alternative finance needed to tackle the ongoing, chronic housing shortage the country has been facing for decades. And these SME builders are imperative in increasing the amount and pace of house building activity in the UK.  

In the Planning for the Future white paper, released in August 2020, the Government stated that regional housebuilders who are “looking to build a diverse range of type and tenure of housing and those using innovative methods of construction” are a necessity. 

This speaks to other ways that supporting SME builders is an impact investment. Not only does it aid in the provision of much-needed housing – at a time when the Government-set target of 300,000 new homes per year by the mid-2020s is set to be missed by close to a decade – it also backs builders who are often able to utilise new, more environmentally conscious methods of building. 

In addition, small and medium-sized housebuilders typically deliver housing developments that are smaller and more bespoke than those developed by their larger national counterparts, meaning they are able to make excellent use of brownfield land – land that often does not offer a size and scope appropriate for larger builders – and help to preserve the UK’s renowned countryside. 

And importantly, the economic impact of supporting regional housebuilders is substantial. The Government has made clear time and time again how crucial the house building sector is to the UK’s post-Coronavirus economic bounce-back, with the industry maintaining close to 750,000 jobs across the UK. 

Regional builders greatly benefit communities by creating local jobs not only within the construction sector, but the wider supply chain – from architects and interior designers through to estate agents and more.

As well as this, SME builders often deliver mixed-tenure developments boasting a range of homes both for sale and to rent, and utilising initiatives such as shared ownership and rent-to-buy. This approach caters to a wide variety of prospective home-movers, and can potentially make housing more affordable to more people.

 

Understanding how your capital is making an impact with property

It’s clear that experienced investors have ample opportunity to get involved in investing for impact with property bonds – and this can be done in a tax-efficient manner, too, when utilising the Innovative Finance ISA (IFISA)

And another benefit of property bonds for many investors is the ability to have greater transparency over how their capital is being put to work. 

Research from Triodos Bank found that investors, now more than ever, want to understand how their funds are being utilised. In 2016, 59% of investors asked were seeking more transparency, and in 2020 this rose to 73%. 

With property bonds, this transparency is possible. Investors are able to see tangible evidence of the positive outcomes of their investment in the form of residential developments that are benefiting both local communities and the UK as a whole.