[1500 Words; 20 Minute Read]
This article introduces an understanding of the use of Socially Responsible Property Investment (SRPI) in urban development. Urban development and SRPI should be a perfect match. Urban development is a series of measures designed to fix the ‘tears in our urban fabric’, creating places with positive social impacts such as sustainable jobs, affordable homes, training, leisure opportunities and safe, attractive public spaces in a mix of uses which catalyses further neighbourhood improvements. To match this progressive ‘fix’, SRPI has been thought of as maximizing the positive effects and minimizing the negative effects of property ownership, management and development, on society and the natural environment in a way that is consistent with investor goals and fiduciary responsibilities.
Put more succinctly and prescriptively, the aim of the article is to briefly explore and debate in more detail the use of SRPI, while the core objectives discuss the following:
- defining SRPI
- identifying and measuring SRPI;
- urban development and SRPI;
DEFINING SOCIALLY RESPONSIBLE PROPERTY INVESTMENT (SRPI)
Socially Responsible Property Investment considers the direct transfer of issues raised by the ‘corporate social responsibility’ agenda and later the ‘socially responsible investment’ movement to property. Socially Responsible Property Investment has evolved from wider Socially Responsible Investment (SRI) and now seeks to prioritise property’s social contribution and is a proactive private-sector approach to what has arguably been the domain of many governments since World War II.
To emphasise SRPI’s importance, its ongoing expansion and ‘mainstreaming’ has meant that there are now many opportunities for investors to realise financial returns, with the satisfaction that the activities and operating methods of companies in which they are investing are consistent with their values. The approach in this article is to draw on the SRPI conceptual framework and debate which recommends that further research should go beyond their own supply-side analysis and assess the demand side in terms of understanding the views and requirements of large institutional SRI investors to help establish the types of SRPI methods that they want.
To illustrate this evolution, over the past two decades the public-sector spend on development policy has been estimated in the tens of billions by the private sector and other agencies. On a global scale, there is the developing United Nations Environment Programme project for Responsible Property Investment (RPI), which illustrates some of the social aspects covered in this paper, as well as an integration of natural environmental concerns when providing investment for property such as in development. The growth of responsible investment (RI) and corporate responsibility (CR) agendas of investors and developers have been explored more recently with regard to urban development and social sustainability over the most recent recession. This overview further reinforces the importance of the ‘social’ as a derivative of CR and RI for property in urban development.
SRPI is now mature enough to be discussed alongside real estate investment trust (REITs). For the uninitiated, REITS are an investment vehicle that uses the pooled capital of several investors to loan or directly invest in income-producing property. The investment vehicle can then offer tax benefits as well as interest and capital gains. Despite this advance in SRPI’s effectiveness in all property, most especially its social dimension, has been difficult to measure and evaluate. To capture and professionalise such SRPI value, the research puts forward the argument by interviewees that a Social Credit Rating system could be used as a tool in SRPI which would parallel financial and market indices.
Traditional property valuation takes a cost-centred approach to social impact, via statutory obligations and taxation. Consequently, development finance packages are rarely driven in a positive sense by their public, strategic benefits. From an institutional fund point of view, there is an acknowledgement that social responsibility is part of fiduciary duty and should therefore be addressed. With this in mind, this article addressing development finance seeks to identify and investigate the actual priorities and practices that influence the flow of money and shape the final scheme.
Land use shapes the quality of life enormously, and yet its utility is still chiefly driven and evaluated by its financial returns. This utility can create harm, such as through external pollution, dangerous buildings, crime hotspots, social and economic exclusion, or simply a wasted opportunity. In development, where these policy concerns are most obviously borne by direct taxation and the public purse, there are private losses too.
Although this cycle is very rarely discussed, pension fund money, for example, comes from (and pays out to) individuals often living near the buildings that their pooled cash has built. We consider here whether the cycle of private SRPI money is capable of doing this better, as its proponents say it does, creating development schemes that benefit a wider range of stakeholders and generate greater social gains, and whether, consequently, the SRPI market will grow, or whether its principles face a different future.
IDENTIFYING AND MEASURING SOCIALLY RESPONSIBLE PROPERTY INVESTMENT (SRPI)
Socially Responsible Property Investment can be expanded on in more detail to demonstrate its emergence and maturation as a concept which could potentially be measured and audited. SRPI’s origins partly come from established SRI practices in other asset classes, such as ‘negative screening’, in which entities normally receiving investment are excluded from portfolios on the grounds of the harm that they may cause people or the planet.
Offering investors consistency with their personal, ethical values, the contemporary practice includes the positive placing of investments into entities that will generate social and environmental benefits, known as ‘positive screening’ or ‘impact investing’. Socially Responsible Investment ‘mainstreaming’, could now enter the property asset class. SRPI as a ‘process’ is identified by key milestones, analogous to quality audits. SRPI is an emerging major trend and professionals should be aware of carrying significant liabilities for creating negative schemes in the view of the general public. Three elements are clear then: namely, that commodification of property’s social benefits has taken place; that SRPI is a growing concern; and that ‘audits’ can identify it in measured form.
According to the Investment Property Databank (IPD), there is evidence of strong financial returns from development, confirming some of the conclusions on investment. There is also a set of audits taken from a wide range of sources to test whether balance and sustainability in development are being found. Although the social dimension causes them significant problems of measurement, their conclusions on the best practice of major development investors and developers are pessimistic, spotting little evidence of any robust commitment to SRPI. We should also be mindful of the spectre of ‘greenwash’, in which insubstantial environmental benefits in commercial property conflate and eclipse ill-defined social gains.
Although company-specific audits exist, identifying social gains remains non-standard. Despite this, there is a lack of standardised measurement of what SRPI sets out to do makes identification of SRPI as an asset class difficult, but by the same token, the very attempt itself seems to be SRPI’s prime marker. Any measurement, however, would be reliant on those agents that use and control such a measuring system, meaning that the behaviours of those involved in property investment for development need consideration.
URBAN DEVELOPMENT USING SOCIALLY RESPONSIBLE PROPERTY INVESTMENT (SRPI)
It is important to elaborate on the role of institutions in development, emphasising their cash size, term length and covenant strength, making them highly attractive matches for developers, to whom they consequently cascade much risk. Thus a fund manager’s ‘taste and timing’ can be well expressed through the process, while moulding the role of developers. However, urban development is not necessarily to the ‘taste’ of being adverse institutional investors, as it tends to be characterised by higher levels of risk than other development projects. Market forces will direct them towards much easier sites.
Development’s lower pricing and potential for accelerated rental growth from depressed levels should offer the rational analyst a different prospect. Investors will identify mispricing while requiring a risk premium in the scheme’s returns, or state subsidy to de-risk the scheme initially. Benchmarking urban development echoes financial assertiveness. While this may bring new investors to the marketplace, however, this is something of a minimum entry requirement. There is less discussion of how the private sector can begin scoping the wider benefits associated with effective development.
For schemes to be more effective, almost any development or land economics literature agree that mixed communities are the ‘holy grail of urban policy in recent times’. There are wide-ranging ideas of how to achieve this, largely citing lasting benefits along a triple bottom line of social, economic and environmental gains. But private-sector investment seeks profit maximisation as an explicit priority, balanced against risk and certainty. It is unlikely to relinquish financial gains to deliver such wide-ranging benefits. They predict that a new funding ethic will be required for urban development.
In conclusion, urban development is a complex mix of instruments and stakeholders, characterised by high moral aims, great expectations, and intricate politics. Socially Responsible Property Investment (SRPI) sets out to ensure that buildings reach their substantial potential for enhancing the quality of life now and for generations to come. In the development context, such social impacts can be summarised as access to opportunity and aspiration both for new occupiers and for existing neighbourhoods, through direct and indirect catalytic measures such as job creation, affordable access and improved amenity.
The full and formatted version can be cited as:
Squires, G. and Moate, J. (2012). ‘Socially Responsible Property Investment (SRPI) in Urban Regeneration: Priorities and Behaviours by Institutional Investors in Practice’ in Journal of Urban Regeneration and Renewal, Vol. 5, No. 2, pp.152-163.