Impact investing, which involves investing in projects or companies that are making a positive social and/or environmental impact, isn't a new concept. But over the past decade, demand for sustainable, responsible, and impact (SRI) investing has increased dramatically with more investors, particularly millennials, placing money in companies and investments that align with their values.
In general, people have a strong desire to do good and want their money to make meaningful contributions while earning a return -- and professional asset managers and large corporations across the world are noticing. According to the most recent trend report from the US SIF Foundation, at the start of 2018, there was over $12 trillion worth of assets under professional management, and SRI investing has achieved a compound annual growth rate of 13.6 percent since it was first tracked in 1995. It's clear this isn't just a trend, but a shift in the capitalist system without compromising returns.
How impact investing works in real estate
Impact investing can take on many forms in the real estate and investing world. But in general, a company that qualifies as an SRI investment would be one making a lasting and significant financial, environmental, and social impact on the community it serves or in a larger, global scale, both in the short and long term. This could include companies that are doing the following:
- Using green initiatives (such as LEED certification) in building construction or renovations to reduce carbon emissions or material waste.
- Reusing or restoring old buildings through adaptive reuse.
- Using renewable energy to power their buildings or businesses.
- Using land or buildings for the production of sustainable and regenerative agriculture, which could include urban farming.
- Providing safe, clean, and affordable housing.
- Offering additional social services in their communities.
The company or investment property should provide positive solutions to the current issues the country and globe are facing, such as climate change, the affordable housing crisis, or other social, environmental, or financial challenges.
Ways to invest
One of the easiest ways to invest in socially or environmentally responsible real estate is through a real estate investment trust (REIT). There are several REITs both in the public and private sectors that are taking major action to make positive impacts, socially, economically, and environmentally.
Office Properties Income Trust (NASDAQ: OPI), Rexford Industrial Realty, Inc. (NYSE: REXR, and STAG Industrial Inc. (NYSE: STAG) were all recognized as 2019 Green Lease Leaders, a special award given to companies utilizing energy efficiency and sustainability practices, but they aren't the only REITs doing good. Prologis (NYSE: PLD), an industrial REIT specializing in warehouses; Digital Realty Trust (NYSE: DLR), a data center REIT; Kilroy Realty Corp. (NYSE: KRC); and Boston Properties (NYSE: BXP), which specializes in class A office spaces, have made huge strides in their environmental and sustainability efforts, receiving awards from Energy Star and Light Awards.
In the private REIT sector, there are dozens of REITs to choose from in renewable energy, sustainable agriculture, and affordable housing spaces.
Opportunity Zones (OZs) were created as a part of the Tax Cut and Jobs Act as a tax incentive to move money into some of the country's most rural and low-income areas of the United States. The result of this was the creation of hundreds of Opportunity Zone Funds, which are making notable improvements and lasting impacts in the communities. The Economic Innovation Group (EIG) has a map of all current Opportunity Zones by investment location or fund location, allowing investors to see the various investment strategies being employed by the funds to determine if a specific fund or project aligns with their investment goals.
Take action yourself
If you're an active investor, pursue investment strategies that align with your morals or beliefs. There is no shortage of opportunity to earn a profit and make a return without compromising your values, but before investing in a company, REIT, or project, educate yourself on what the company is doing to make a difference and how its impacts are measured. Then, review the company's or project's financial feasibility before participating.
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