Implementing principles of conscious capitalism, investors deploy funds based on their personal passions. They stick within traditional financial parameters such as risk tolerance, return objectives, and liquidity profiles. Although one would think top-notch returns are sacrificed for the sake of doing social good, studies are proving that impact investing can actually be highly lucrative.
In 2015, for example, Cambridge Associates and the Global Impact Investing Network concluded that impact investing often outperforms conventional investment strategies. Further, a Harvard Business School study found that impact investment firms tend to be more shareholder-oriented and long-term-focused than traditional firms.
Ultimately, impact investors gain the elusive ability to create multidimensional wealth and lasting humanitarian legacies. It's no wonder this sector has grown by one-third since 2014, and per Deloitte research, it's on track to become a $1 trillion industry by 2020.
The Real Estate Avenue
As impact investing becomes more mainstream, real estate flies mostly under the radar because few impact-driven companies effectively quantify their impact. This is an immensely important piece of the puzzle for purpose-driven investors - one that keeps them engaged and enthusiastic throughout a project's life cycle.
Real estate investments actually provide ample opportunity for recording and reporting impact metrics. In fact, our real estate group has successfully done so in a number of ways.
In one example, when we partnered with the U.S. Office of Refugee Resettlement and the VA to provide affordable housing to underserved families in Lansing, Michigan, we tracked the total number of individuals who gained roofs over their heads thanks to our involvement. It was a simple - yet highly effective - metric that made our impact clear to investors.
In another example, after we refurbished an apartment complex in Washington state with energy-efficient lighting and appliances, we tracked both utility usage and crime rates over the ensuing months. As a result, we found that violent crime and property crime in the area dropped by more than 60 percent. Also, our capital improvements helped us save on our utility bills - something even the most resistant investor would find difficult to ignore.
The Benefits of Impact-Driven Investments
With a little deep thinking and creativity, real estate investing can easily yield the social change so many modern-day investors crave to create. A great investment firm will be able to find these opportunities, track their progress, and provide frequent, transparent reports to stakeholders over time.
But quantifiable impact isn't where the benefits end. Here are three additional reasons to make impact-driven investments in real estate:
- Countless Choices: Given the broad nature of this field - and the numerous ways capital can be allocated - we are able to invest in many unique opportunities that address a variety of environmental and social issues. Whether your passion lies in curbing homelessness, helping veterans, creating safer communities, or saving the environment, investing in real estate can help you achieve that goal in a scalable, measurable, lucrative fashion.
- Predictable Cash Flow: Real estate assets provide an ongoing, predictable cash flow while business plans are executed. For real estate investment companies, vertical integration systematically optimizes the yield curve, and internal supply chain management systems add value to operations. Few industries can rely on such solid ground when investing in communities - or in anything else, for that matter.
- Reduced Risk: Triple bottom line investment opportunities inherently reduce operational risks. By diverting from a conventional strategy to one that is diversified to impact communities or the environment, risks are reduced and financial rewards increase.
Between less long-term risk, lucrative returns, and endless options for inducing meaningful, quantifiable change, incorporating real estate into your impact portfolio is a sound strategy.
It's a win-win for every stakeholder, and few investment opportunities can tout that claim.