Consideration of ESG (“environmental, social and governance”) factors is now deeply embedded in professional asset management across all strategies and asset classes. Impact investing goes beyond the inclusion of ESG criteria in an investment strategy and requires asset managers to adopt tangible environmental and/or social objectives in addition to financial targets. In his earlier role as Head of Real Estate Strategy, Asia Pacific (APAC) for a large global asset management group, Citicourt’s COO mapped out a strategy for Impact investing in real estate in the leading cities of developed APAC markets.

Challenges to successful Impact investing in APAC real estate markets are high. They include 1) the fact that the concept is generally less developed and less well understood than in European countries; 2) great variation between markets in regulations and standards regarding sustainability, reflecting the lack of any structure like the European Union to impose harmonisation; and 3) the difficulty in judging potential returns from new sectors of interest from an Impact perspective, such as affordable rented housing.

Nevertheless, the project highlighted various potential strategies to achieve positive environmental or social outcomes in APAC as well as financial returns. In pursuit of environmental benefits, fund managers may make greater use of green leases and focus on sustainability-led building upgrades (especially of office buildings) across the region. Possible target asset types for a full social impact (SI) strategy include neighbourhood shopping centres, affordable rented housing (including very low-cost accommodation such as workers’ housing in more deprived urban markets), senior homes and medical real estate. SI investing is most likely to succeed where capital is raised and deployed very locally, and where investment approaches are tailored to the conditions of specific markets in cooperation with local governments and partners.