ULI has launched a new report, Zooming in on the “S” in ESG: A Road Map for Social Value in Real Estate, to guide the industry on incorporating social value into corporate strategy, business practices, and even investment theory.
The report highlights that business leaders and investors across all industries increasingly acknowledge their role in tackling environmental and social problems and meeting the challenge of sustainable development. However, most attention so far has focused on environmental issues and the risks and opportunities associated with mitigating climate change rather than on social factors.
The report confirms, through global surveys, a growing interest in the social dimensions of sustainable development and the key concept of social value. Alongside this interest has come the rise of impact investing—investing with the intention of contributing to tackling social or environmental challenges, or both, while generating a financial return.
At the same time, there is no shared understanding of what constitutes social value in the real estate industry. Nor is there a common approach to describing and measuring it: an increasing number of frameworks, tools, and methods exist to support social value and the reporting and measurement of investment impact, but they can be difficult to navigate.
The report identifies six key barriers as identified through a survey of and interviews with senior real estate professionals and other stakeholders:
- political, economic, and business culture;
- fragmentation and lack of alignment in decision-making across different stakeholders;
- a focus on financial return expectations;
- lack of consensus and transparency;
- a focus on outputs, not outcomes; and
- lack of knowledge and skills.
The report asks the real estate industry to acknowledge its social responsibility and its role in leaving a lasting legacy in creation of social value, stating that for this to be achieved across the industry, creation of social value must span the value chain and the life cycle of assets. Good intentions must not be lost in the transfer of projects between organizations, teams, or stages, and metrics might need to be switched to maintain continuity as projects move from planning to construction and then to management, the report says.
The report provides the foundation for a road map for investment in social value by describing actions needed to underpin strong and enduring change in the real estate industry and earn public trust. The road map highlights six categories of action:
- government-led place-based vision and strategy;
- corporate leadership;
- transparency, accountability, and data;
- education and training; and
- lack of knowledge and skills.
Because creation of social value for real estate is by definition place based, the starting point is for government to provide a vision and establish sustainable development objectives and priorities, the report says. Local, place-based expectations and needs are best articulated at the local government level and created in collaboration with residents, community groups, and businesses.
“Leadership within my organization” was identified as the most significant driver of social-value creation by survey respondents. Prioritizing creation of social value requires a cultural shift within the industry, the report says. While impact investment has an important role to play, ultimately change will be driven by the mainstreaming of social value creation so that social and environmental factors become an integral part of all development and investment decisions. Leaders in social value creation act in the belief that any costs incurred in enhancing social benefits will help reduce risk and lead to higher long-term risk-adjusted returns and sustainable value creation.
A clear need exists for a better and shared understanding of social-value impact measurement, management, and reporting among industry stakeholders. Many methods of measuring social value measurement exist, as demonstrated in the report, which provides a practical assessment of more than 100 tools, in addition to bespoke tools and approaches used by many organizations to fit their specific objectives. To encourage creation of social value, the industry needs to use these tools more effectively, engage in more transparent measurement, and employ more consistent reporting frameworks with external audits.
“As providers and stewards of the built environment, the real estate industry clearly has a clear role to play in creating social value,” says Lisette van Doorn, chief executive officer of ULI Europe. “However, the financialization of real estate—where property is solely looked at through the lens of being a financial asset which can generate revenue and profit—has led to a disconnect between financial value creation and social value creation.
“COVID-19 is a wakeup call, and while the pandemic has brought major risks and challenges for the industry, it also opens up opportunities to rethink how to repurpose and connect real estate development and investment to local, place-based needs. We need to prioritize and consider the role of the real estate industry in helping tackle social and spatial inequalities. The key to enhancing social value creation is redefining value not just in financial terms, but also to account for social, economic, and environmental well-being outcomes over the long term.”
“It is vital all sectors across the economy ask how they create societal benefit,” says Sarah Forster, chief executive officer of The Good Economy and a report coauthor. “The built environment affects people and places in so many profound ways, which is why it is so important to explore the potential role of real estate in delivering positive returns for people and planet. We hope our research enables the real estate industry, through the Urban Land Institute, to begin to consider how it creates value beyond property values and yields. We hope this is the start of a journey that will enable companies to account for the contribution they already make to wider society and, more importantly, consider how this can be enhanced in the future.”
“Real estate is a business of people and places,” says Dr. Eime Tobari, director of COCREATIF Limited and coauthor of the report. “Whether through investment or development, decisions made by real estate professionals shape places and people’s lives. I hope our report helps organizations in public and private sectors recognize their roles in social value creation and find opportunities to make a greater contribution through collaboration and innovation.”
ULI’s report highlights that innovation, education, collaboration, and knowledge sharing are all critical for driving change. Areas identified in the report to focus on include the design of new business and financial models that embed creation of long-term social value, the development of new investment products, and the use of technology for spatial analysis and data collection, as well as innovation in governance and policy.
Professional organizations will have an important role to play in knowledge sharing and in influencing the development of education and training programs, the report says. Integration of social value into real estate education and training courses at all levels will require a review of the fundamentals of investment theory and of the dominant methods of evaluating and pricing investment opportunities.
Zooming in on the “S” in ESG was funded and supported by a select group of ULI members participating in a steering group, including CBRE Global Investors, Credit Suisse, Estabona Management, Fore Partnership, Ivanhoé Cambridge, Jacobs, and PLP Architecture. The full report is available at europe.uli.org/social-value.