Financial markets demand sustainability
Achieving positive impact investing in real estate
Domestic institutional investors such as Japan's Government Pension Investment Fund (GPIF), the world's largest institutional investor with assets under management of approximately 162 trillion yen, and major life insurance companies are actively creating frameworks in the bond and stock markets with the aim of realizing positive impact investment in financial markets.
Most recently, it has been reported that from April 2021, Nippon Life Insurance will adopt an "ESG" approach that takes into account a company's environmental issues and efforts to contribute to society when making all investment and lending decisions.
Demand from financial markets for positive impact investment in themes such as SDGs/ESG has become a global megatrend, and in the near future, including SDGs/ESG elements is expected to become a key requirement for investment and financing in corporate activities and businesses.
What is Positive Impact Investing?
Positive impact investment is "an investment that intends to generate social and/or environmental impacts in parallel with financial returns." Environmental and social issues surrounding real estate include climate change, soil, air, water, and waste, while the value that can be created is diverse, including health and comfort, employment, inclusiveness and diversity, disaster resilience, contribution to the local community, and liveliness and revitalization.
Needless to say, real estate is the foundation of life and industry, and is therefore the source of many social returns, and is expected to make a significant contribution to the SDGs, the main target of positive impact investment. On the other hand, there are many negative impacts related to climate change, air and soil, such as deforestation and greenhouse gas emissions associated with development projects. Therefore, positive impact investment requires observing social impacts from both positive and negative perspectives, measuring them quantitatively, and ensuring that the total impact is positive.
In Japan alone, the market for positive impact investment in real estate is worth approximately 210 trillion yen (J-REITs, securitized real estate, and income-generating real estate) in the direct market alone, and a total of 430 trillion yen if corporate-owned real estate is included. (Source: Ministry of Land, Infrastructure, Transport and Tourism as of March 2018)
The positive impact generated by this vast asset and the activities of the various people and businesses associated with the property is expected to have an extremely significant and positive impact on our future.
However, in the real estate investment market, the practical penetration and framework of positive impact investing is still untouched.
The untapped real estate market for positive impact investing
Real estate is the asset most closely and directly linked to the daily activities of people and businesses, yet positive impact investing has yet to take hold.
There are many layers separating institutional investors and real estate users. Traditionally, real estate operation and management has been centered on the economic relationship between the owner (operator) and tenants. While tenants (companies) may pursue social contributions for their customers, this is often separated from the real estate, and in most cases the real estate itself has not been designed for positive impacts such as social effects.
Today's real estate management focuses on the economic viability of the investment and the efficiency (profitability) of the environmental performance of each property, and does not fully fulfill the function of creating the positive impact that is the goal of institutional investors.
In order to practically meet the demands of institutional investors for positive impact investment in real estate, a "catalyst" is needed to create a function for positive impact in real estate investment and management. Examples of "catalysts" include the unique SDGs/ESG measures of real estate managers and administrators, related companies, and IT tools.
So, what kind of effects does the financial market expect these "catalysts" to have in the future regarding positive impact real estate investment?
The four investment goals of the Positive Impact Real Estate Investment Framework proposed by UNEP FI (United Nations Environment Programme Finance Initiative), which serves as a guideline for positive impact investment by institutional investors worldwide is as follows.
(Reference: Ministry of Land, Infrastructure, Transport and Tourism materials )
- Identifying and creating impact from investment activities
- Market-level and sustainable returns <br>Create economic, social and environmental benefits without trading off financial returns
- Additional financial and/or impact flows : Physical and social support that contributes to long-term economic performance for underserved products and markets
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Measuring impact , positive and negative attributes and mitigation of negative factors, linking pre- and post-event intentions to impact
In order to achieve these four investment objectives, we must create social and environmental benefits (provide options) in activities directly and indirectly related to real estate operations, visualize and analyze them, add value to real estate, and communicate in a multi-directional manner. This can be achieved by providing this to all stakeholders.
We believe that by providing the catalytic tools to meet these requirements, we can achieve a significant impact not only on the real estate market but also on society.
By providing real estate owners and managers with the right tools, the real estate ESG tech service "EaSyGo" goes beyond the boundaries of individual properties and connects them to the "lines" that connect other dots, encouraging behavioral change that will lead to a shared commitment to sustainability for people in the real estate industry.
To encourage people to actively change their behavior towards sustainability, EaSyGo provides real estate users with the elements and options necessary for sustainability initiatives, such as motivation, means, evaluation, sharing and empathy .
We spread sustainability from individuals to communities, from communities to towns and towns to cities.
