Data, data, data: Is social value in real estate properly valued?
Real estate investment is a numbers game, so it’s natural for investors to focus on measurement and monetisation when looking at social value.
“We need to move beyond measurement of social value for measurement's sake and use it to inform an intelligence-led approach to improving the social good, the social utility and the social benefit of real estate.” Jon Lovell, Co-Founder of Hillbreak
Real estate investment is a numbers game, so it’s natural for investors to focus on measurement and monetisation when looking at social value. But this, says Jon Lovell, Co-Founder of Hillbreak, is missing a piece of the value equation.
Hillbreak is a consultancy that provides advice, training and education to help businesses establish and drive their ESG strategies in house and for specific products, and Lovell says appropriate measurement of social value is one of the biggest challenges for real estate.
He points to a ULI Europe report: Zooming in on the “S” in ESG: A Road Map for Social Value in Real Estate that unearthed a dizzying range of frameworks used to measure social value but with little consistency in approach. It makes comparisons difficult, but more than that, he questions whether the right things are being measured.
“You can look at what will have a material impact on the financial performance of a particular product and what will have a material impact on society,” says Lovell. “The latter of those two is still very much underplayed not just in the real estate sector but across the capital markets. And that is because it isn’t priced in.”
Inclusive assessment of the material impacts of real estate on society is the essence of social value because it captures the real outcomes as perceived by stakeholders in a way that “a black box monetisation methodology” does not, he says.
He cites recent work that his firm has undertaken for a major UK endowment, identifying the means by which it can contribute to specific improved public health outcomes, such as alleviating childhood obesity and respiratory illness, through an impact-led approach to the management of its sizeable direct property portfolio.
In measuring social value, he says it is critical to look at negative impacts and to balance these against the positives; otherwise, it is “cherry-picking the good bits”. He contends that most of the social value approaches we see in the market today are biased by the latter.
A local authority will have a statutory obligation under the Social Value Act, which translates into developers demonstrating certain criteria in planning applications. The information provided in the application, says Lovell, is helping fulfil those obligations.
“What I would question is whether the information that is being provided is telling the whole story of the true societal impact associated with that development activity, or whether it is simply being contrived to sell selective virtues of the scheme,” he says.
This means a change in approach. “There is a ‘developer knows best’ mindset that goes into determining what social value means in the context of a particular project,” says Lovell. “What that doesn't do is look through the lens of local people and stakeholders to understand what the specific needs, challenges, opportunities and aspirations are for that place.”
A more inclusive approach to envisioning and executing social value strategies is an opportunity to address genuine needs and capture opportunities, he says.
There are signs of a more sophisticated view being taken in this respect by investors with, for example, some asset owners joining forces to define investment opportunities aligned to the UN’s Sustainable Development Goals (SDG).
“These investors are looking at the underlying targets behind the headline SDGs to determine which targets create investable opportunities for capital markets across all asset classes, including property,” says Lovell. He adds, “It goes beyond the lazy plastering of sustainability icons on marketing materials, which smacks of virtue-signalling and impact-washing, by thinking carefully about when, where and how capital can be deployed to address specific social and environmental needs whilst also delivering appropriate risk adjusted returns.”
“At the moment, this is quite a limited sleeve of investment but strong momentum points to an increasing proportion of impact capital over time relative to the broader market. We’re seeing a flag in the sand moment from an asset owner point of view.”
And that is the key to delivering social value, using a “methodology to inform and optimise”, not merely to capture convenient numbers on the positive side of a societal balance sheet.