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WHY IMPACT INVESTING?

By: Analise Roland

While in the past, some people might have seen “impact investing” as just a penny short of non-profit donations, today’s savvy investors understand that impact investing might be the smartest strategy for you and your portfolio. Let’s examine why this investment class, estimated at $1.2 trillion in 2022, is projected to reach a staggering US $4.5 trillion by the end of 2030, with a compound annual growth rate (CAGR) of 15.1%. (Grand View Research).

If we evaluate impact investing against the number one rule in business–find the trends before the masses if you want the best returns, then impact investing is a trailblazing idea whose time to capitalize on is now. One of the best examples of this smart investing strategy was right after WWII when ships were docked worldwide, costing their owners thousands of dollars a day with no visible sign of relief from the expense burden. Owners couldn’t give their ships away, let alone sell them when a Turkish immigrant came along to buy them for pennies on the dollar. Aristotle Onassis created the largest private shipping fleet and one of the wealthiest people in history by seeing opportunity in a seemingly unsurmountable challenge. 

That is exactly what an impact investor is doing–seeing the dramatic challenges across many sectors and investing in the opportunities those challenges create. Conferences like SoCap (Social Capital) started in 2008 to give a small, unknown group of investors and entrepreneurs a way to meet. However, they have now become significant venues for finding the next big advance and are attended by most large equity firms and institutional investors.

Grand View Research states, “The impact investing Asset Under Management (AUM) was valued at USD 3.3 trillion in 2022. The market growth is driven by numerous key factors shaping the landscape of sustainable and socially responsible investments. One of the main drivers is the increasing demand from investors to align their investments with their values and positively impact society and the environment. Investors are becoming more aware of our social and environmental challenges and are seeking investment opportunities that address these issues while generating financial returns.”

So why would you consider an Impact Real Estate investment? Two reasons:

1. Higher asset appreciation and 
2. Stronger asset performance.

Let’s look at both.

As climate change stretches property owners and insurance suppliers from Florida to California, creating significant upheaval in the market, all assets must be evaluated relative to their climate resilience. An impact or regenerative real estate investment with Anura, for example, will include not only evaluation of the climate risk of a property but also development plans and property stewardship to improve the assets’ adaptation to projected climate change. This could look like watershed stewardship that decreases flooding, forestry work that mitigates the risk of fire, and building science that improves the energy and water consumption of the resulting asset operation. This upfront investment may increase the initial development outlay but protect the asset value and productivity in the long run. Doing the land stewardship work positively impacts that asset and the surrounding community, but it is not a handout. It is good business.

Another way to create impact in real estate investments is by ensuring that the resulting business not only thrives but it has a positive impact on the surrounding community. This could look like affordable worker housing, purchasing local materials during construction, or as part of the ongoing operations, and expanding the market for local goods and services to your customers. Thinking of the entire economic ecosystem surrounding a real estate asset when investing improves the economic stability of the asset, improves the employment pool for staffing operations, and decreases dependence on resources outside of the region.

Impact investing is not a lowering of return expectations to be a knight in shining armor but an investment strategy that sees the challenges of today–whether a shortage of housing or a changing consumer market valuing hospitality offerings that differ from the installed hotel base as an opportunity for leader advantage, 

Impact investing also couples market trends with the opportunity to serve the newest investor market being formed by the Great Wealth Transfer that has begun moving investor decisions from Baby Boomers to Millenials.

To learn more please contact Spotlight Family Office Group at Info@SpotlightFamilyOffice.com.