In light of the impact of Covid-19, most real estate investors have been dealing with short-term liquidity issues. However, as you emerge from the crisis, you’ll be looking for new opportunities.
You might be thinking about how to ‘capitalise on the crisis’. You might also be thinking about mega trends, and whether these have been accelerated or streamlined. What is certain; sustainability and social responsibility is now firmly on the agenda, and you will need to factor social value criteria into your investment decisions. However, when it comes to delivering social value, we know that it’s not ‘one size fits all’.
In recent years, we’ve seen growing recognition of the power of good placemaking in creating vibrant and successful developments and neighbourhoods. In 2020 the focus on 'place' will increase. Mixed-use schemes have long sought to capitalise on the potential benefits of combining multiple occupational uses within a single development. Contemporary thinking now recognises that a new property development offers opportunities to go further in providing a local response to issues of growing community concern.
Investment in assets managed under ESG criteria is on the rise … the USA SIF Forum for Sustainable Investing reported that $5.61 TRILLION worth of assets managed by USA institutions under ESG criteria in 2018. Some even say … within 36 months there will no longer be a discernible distinction between sustainable and traditional investing.
Consumers, clients and employees – particularly from younger generations – increasingly demand that the organisations they deal with recognise their wider obligations to society. Companies that have a “sense of purpose” embedded in their culture will increasingly be at an advantage.
Indeed, the real estate industry will play a key role in the recovery effort in a post-Covid world, and investors, local government, and consumers will be expecting it to bring tangible, lasting benefits to people and the planet.
What do we mean by ESG? Of course, the E includes environmental aspects, such as climate change and energy sources. The S stands for social and includes factors such as the impact of assets on occupiers and communities, how new technologies are changing how we live, and socio-demographic changes such as ageing populations. The G is governance and includes things such as company culture, diversity, pay, reputation and conduct.
So, what is social value? ‘Social value’ can cover all these things…. In the U.K., the Social Value Act commands the public sector to deliver social, economic and environmental benefits with each project.
So, let’s get to it. What are we going to cover today?
1. Embracing complexity - how do we find out what really matters to occupiers and communities, and the changing ways in which people live and work
2. Developing a language - there are many ways of calculating the financial and non-financial benefits of social value… so which metrics make most sense
3. Working together - social value can only be delivered through stronger partnerships within sectors and with local institutions. So how do you work together?
Embracing complexity - start by understanding people and place
We think this is absolutely key to creating value within the built environment. Who are we dealing with, where do they live, what do they want… and need. Don’t shy away from complexity! Gather up all those insights, and consider the interconnections between social, environmental and economic factors.
Many social value initiatives are focused of measures… but, we say, focus on the outcomes. Where are we going? What is the future that we want to create? Focusing on outcomes means thinking about what is desirable and then finding ways to make it happen.
Establishing what needs to change (theory of change)
What is a theory of change? A theory of change is a tool to help you describe the need you are trying to address, the changes you want to make (your outcomes), and what you plan to do (your activities).
A theory of change should be informed by knowledge of what works in a specific context. We advise engaging with local actors and decision-makers early on… Find out what anchor institutions - such as local councils, colleges and the health service are already doing in an area - and if there are gaps in service provision? What are the key issues and how can you help?
And the key message…. Don’t shy away from complexity! Gather up all those insights, and consider the interconnections between social, environmental and economic factors.
For example, the creation of living wage employment might not be sufficient if there is a long history of joblessness in a town - and the social identity amongst certain groups is not to have a job. What are the social dynamics and cultural factors at play? What kind of jobs do local people want, and what skills and training do people require to get people into work?
Being selective - you can’t change everything
Having said that - you can’t possibly address all the challenges that people face in a particular area. You have to choose the issues that matter most - or, establish a key focus for your business.
For example, we advised a client with a retail space to focus on enterprise and entrepreneurship for young students, connecting them with SMEs in an area. In this way, they would help provide young people with a professional pathway whilst also boost local economic growth.
So, find ways to address local needs - and be specific about what you are trying to achieve - the outcomes - and how you are going to get there - the activities - and the groups and institutions you are going to work with to bring about change.
Being radical - now is the time
But… now is the time to be radical. What we do now will really have an impact in 30 to 50 years time.
Now is the time to act to make the world a better place. You have the power to influence decisions-making, change behaviour and help build a more resilient urban environment.
So, take a bold step forward… Whether that is a decision to reduce car parking on site to reduce carbon emissions… or install a book stand in the lobby of a residential building to increase literacy… every little helps you achieve a bigger goal.
Developing a language - defining commercial ambition and purpose
The greatest financial return on investment is achieved by creating buildings and places in which people and communities thrive.
However, we need a common language that enables us to identify and describe the financial benefits to investors, and long-term societal benefit for those who experience a development.
Finding measures of success - how do we communicate value?
There are a variety of ways of measuring financial and non-financial returns. For investors, what matters is the internal rate of return…. And there are probably ways of calculating return of investment in terms of the way that real estate is valued ...
Another way of thinking about financial value is in terms of commercial profit. Some businesses consider that social benefit is part of their value proposition right from the outset. This is what is known as ‘shared value’ - and value is measured in terms of what is good for employees or for communities is also good for business. There are three key ways that shared value is achieved:
1. Re-conceiving products and markets
Creating new products and services for existing or new markets which better serve societal needs.
2. Redefining productivity in the value chain
Accessing and using resources, energy, suppliers, logistics and employees differently, and more productively
3. Enabling local cluster development
Improving the local operating environment by supporting skill-development and capacity-building
A third way of thinking about the financial value of social value is in terms of SROI - social return on investment. This is the financial worth of the change that has been made to a consumer… and thus also to local government… and also investors and developers seeking to evidence ESG credentials.
Getting to know your audience
However, there are many different approaches to reporting and measuring social value. Our preference is for shared value as it works well for clients that see financial and social as integral…
In order to decide which is the approach works for you, you need to know your audience. What is the purpose of measuring the financial benefits of social value? What do you need to communicate and to who?
Using easily accessible data
Whatever measures are being used, whether from a primary or secondary source, it is important that the data that you use to track progress can be easily obtained.
You will want to measure your starting point and understand change over time. So, ensure you can repeatedly survey a population if gathering your own data or access existing data from a partner organisation or local authority.
Thinking long term - maybe, 15+ years?
Change takes time. It might take a good 10, 15 or even 20 years for both financial and social benefits to be realised.
For investors and real estate, this means thinking about gains that might not be seen within a single business cycle.
For society, it means tracking change over the long-term. And, being aware of both positive and negative outcomes. It is important to keep in mind that what is positive for some might be negative for others… so tracking change needs to be holistic.
For example, a cinema might be a great way of boosting the evening economy, but it might also detract from an existing offer that serves a specific need for affordable leisure. So, check what’s available first and get the data to explain the positive and negative impacts of your decision.
Working together - collaborating to achieve results
Partnerships will be key to success. By working closely with local actors and decision-makers, you can gain a deeper understanding of the needs of a particular group of people.
It is also important to engage with companies in the same sector that want to identify common or shared social value metics. In the UK, social housing is one such example where providers - housing associations, developers, and investors - are getting together to device common metrics and measures.
Establishing shared goals - and, achieving results
It is worth keeping in mind that most local organisations are already doing some great work - so tapping into their ambitions and interests is an easy win when it comes to creating social value.
Think about the local schools, colleagues, hospitals, and so forth. Think about the third sector that supports them… What good work is going on and what role does the private sector in helping to deliver change?
In some cases, you can probably think about KPIs - or measures of change - that are somehow tied in with the ambitions of these partner organisations. How have you as an organisation helped boost adult literacy, for example?
Having early conversations
One key stakeholder will be local government. Particularly with the backdrop of Covid-19, local government will be looking for support in the recovery effort - and this will range from helping individuals furthest from the labour market into work to offering affordable housing and workplaces to helping to create healthy and sustainable places.
These are big issues… and starting the conversation early will enable you to take these considerations into account when developing your business case.
Finding the right partners
Partners can help you when it comes to operating and programming… Once the space has been designed and developed, and planning approval has been granted... you’ll be looking for ways to operate it. Working with local actors and decision-makers, such as students from a local college, can help you to deliver a service such F&B via a community cafe or bar - and see reduced operating costs at the same time....
Social value is give and take, and be sure to take advantage of the business opportunities presented through new partnerships.
Unlocking value, together…
Social value and ESG is now part of a broader conversion about economic recovery. There are plenty of great institutions hosting debates on how the private and public sector can work together to bring about change.
Of course, there are plenty of issues to unpack - such as how to calculate land-value based on social value measures and so forth… But, this might require legislative and regulatory changes.
There is plenty that can be done and considered together… So, I would suggest tabling social value as a topic of conversation with your local real estate network, membership organisation … in order to explore the challenges and opportunities together.
So, what have we covered today?
Embracing complexity - start by understanding people and place. We might want people to fit the categories that we create for them, but they often don’t… so how do we find out what really matters
Developing a language - collaborating to achieve results. There are many ways of calculating the financial and non-financial benefits of social value… so which ones make most sense
Working together - defining commercial ambition and purpose. Social value can only be delivered through stronger partnerships with local government and within sectors; to create meaningful metrics
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