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Putting the ‘social’ back into ESG investing

ESG (environmental, social, governance) investing is a high growth area of finance. Investors are increasingly applying non-financial factors as part of their analysis process to identify growth opportunities. The coronavirus pandemic in particular has intensified discussions about the interconnectedness of sustainability and the financial system.

What is ‘social’ in the context of ESG investing?

For many, the ‘social’ element to ESG investing focuses on due diligence around the ethical practices of funds or companies you invest in.  Specific scrutiny of investment opportunities around ethical business practices such as living wages, working conditions, equality in the workplace and sustainability are becoming increasingly common.  

As Toby Simms of Fidelity International points out, this due diligence can now trigger ESG funds to withdraw companies from their portfolio, as was the case with Boohoo Clothing when it was found that it was paying workers as little as £3.50 per hour to make its garments.  

S&P Global add that this level of social policy scrutiny also makes good investment sense.  In consumer markets more attuned to the social impact of companies, those businesses who mitigate the risk of being exposed to societal factors, are likely to be more profitable, and a lower risk investment.

However, this aspect of ESG investing is ‘second hand’ in nature to the potential for investors, both individual and institutional, to make a more direct impact on big social issues, in the same way that environmental investing can be directed towards alternative power start-ups or green tech companies.

There are now numerous social issues that can be addressed through direct investment, from obesity and mental ill health to unemployment and racial abuse.  Social enterprises with a mission to solve a social issue can be supported, or research projects with commercial potential can be backed.  

The growth of social impact investing

Many funds now specialise in social impact investing and organisations such as Big Society Capital have grown to bridge the gap between investment funds or financial institutions and the social solutions that require funding.  They estimate that in 2019 social impact investing reached £5.1 billion in the UK and that a large proportion of this was investment in property.

Source: Big Society Capital

Investing in social housing

So why is property becoming such an important asset class for ESG investors? Around 600,000 people in the UK live in what’s known as supported housing or supported accommodation. This type of housing provides an environment where vulnerable adults can live as independently as possible, but with varying levels of support. Supported accommodation might provide assistance with personal care, medication and doctors visits, housework and cooking, shopping, and managing money. Importantly, there’s often a focus on socialisation, meaning many vulnerable people who might otherwise live alone get to be part of a community.

Capital to purchase properties to provide supported housing is in scarce supply in the UK. Charities and government organisations have struggled to keep up with demand and there is now a critical shortage of quality provision.  Private investment has stepped up to help bridge this gap.  To date, this has mainly been undertaken through Real Estate Investment Trusts (REITs).  However, this potential overreliance on one form of funding has been an area of concern for the government’s Social Housing Regulator.  Indeed, Big Society Capital estimates that over £1 billion invested in supported housing is managed by 3 specialist REITs in this niche.

Assetz Exchange’s approach

Assetz Exchange works more directly with charities and development partners that provide supported accommodation. Under these arrangements Assetz Exchange will actively source and arrange capital to purchase the high quality accommodation that meets the specific needs of a particular resident or multiple residents.

These properties are then leased to the registered social housing providers or charities on long leases to enable them to provide certainty with long-term housing solutions for their tenants. These long leases offer the protection and stability that the residents require while offering a long term stable income for the investors in Assetz Exchange. The lease costs are ordinarily recouped from the local housing authority by the registered provider or charity.

Our innovative platform then allows investors to buy and sell slices of these supported accommodation properties commission free, and to receive monthly income and capital gains on their investment.

For further information on investing in social housing with us, click here

For further information on Assetz Exchange and to register as an investor click here

Your capital is at risk and is not covered by the Financial Services Compensation Scheme (FSCS).


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