While still early days, social value has become a more familiar part of the narrative around real estate investment and development. But how much further does the dial need to move before it becomes accepted as standard?
ESG is now common parlance but sustainability dominates the thinking and with good reason. The impact of climate change is tangible and reducing the impact of buildings is measurable while social value is a more abstract concept at present.
While social value is intrinsically linked to sustainability – less pollution and healthier environments for example – for broader social impact to be viewed in the same light, its direct value to the property industry needs to be demonstrated. Property is a business after all.
That doesn’t mean that social value isn’t measurable, quite the opposite, the race is on to create a suitable model that could become the equivalent of BREEAM. Having a planning system which actively encourages, and gives legal obligations, towards social value would also be a huge help.
At present, the public sector, when procuring developers and contractors are constrained by a valuation system as outlined in the Green Book which dictates ‘best consideration’ for any project. But without being able to measure social value it makes it difficult to demonstrate as part of the ‘best consideration’ equation.
In reality, it is also about how the public sector defines the outcomes, what it needs from any project. But while there are aspirations and ways you could do it the public sector is not necessarily geared up to get this right consistently,” says Sara Bailey, Partner and Head of Real Estate at Trowers & Hamlins.
The Government has promised a review of the Green Book which could be an opportunity to embed social impact within planning, making it part of the legal framework.
In the meantime, the public sector is using what tools it has to drive change towards inclusive growth. The West Midlands Combined Authority, for example, has created a clear design code, Chief Executive Deborah Cadman explains, “If local people and businesses can’t touch, taste and feel the benefit of the growth that we deliver, then that puts a big question mark over the legitimacy of that growth,” she says.
It requires bravery and being prepared to let potential partners walk away, she says, but the industry has been receptive, “What we found is that developers want to sit around the table and have that conversation, very few have walked.”
Social value principles are also filtering into real estate investment decision-making at a high level.
You have a lot of institutions beginning to say that they’re only going to work with fund managers and investors who have, environmental, social and governance policies that have signed up to various accreditations,” says Edmund Costello, Partner at Trinova Real Estate.
But he says not having a global standard to work towards remains the biggest barrier at present. Which is part of the reason developers like Jonathan Smales founder of Human+Nature can sometimes find it hard convincing investors that inclusive and sustainable development is economically viable.
Their 5,000 home development in Norfolk is not only carbon positive but also designed for people who live on average incomes. “Building a scheme that is radically affordable has implications, from infrastructure to the buildings themselves to the way people move around. It’s an incredible test for a developer to say that what you have to do is smaller homes, more affordable homes and greener homes.”
Investors such as Legal & General are making social value a bigger part of what they do. It sees the longer-term business benefits of ‘inclusive capitalism’, investing in a way that benefits a wider group of people and can help address inequalities.
Initiatives include LGIM Real Assets making a commitment that 20% of its commercial property holdings will have a ‘social value score’.
This involves assessing the wider social impact of its buildings with the aim of having both an economic value and a social value ascribed to each. It puts the holistic value of the built environment firmly in the spotlight, provides transparency and enables investors to make informed decisions about where their money is going.
Similarly, Legal & General Homes has also made social value part of all the communities it is involved with. At its Crowthorne development in Berkshire, it has worked with Social Value Portal to develop the UK’s first Community Social Value Charter. This sets out what Legal & General are going to create and enables the community to hold them to account.
I think it would great if more people were embedding consideration of social value into each of their investment processes, although I’m not saying we are the only ones focused on it – because we are not,” says Pete Gladwell, Head of Public Sector Partnerships at Legal & General.
“Our aim at the moment is to increase both the depth and breadth of analysis around the impact our investments have, and hope that others come with us as it needs to be a broad church.”