TGE has co-authored a new report for the global real estate industry's Urban Land Institute. Sarah Forster, CEO of TGE, thinks it could become an invaluable road map for the growing number of real estate businesses and investors who understand "social value" is an idea whose time has come
Today [15 March 2021], the Urban Land Institute (ULI) is launching its report “Zooming in on the “S” in ESG: a road map for social value in real estate”. When we were commissioned to carry out this project there was a recognition there was an increasing interest in measuring social value within the real estate industry.
But it was also recognised there was an equal measure of confusion as to how to navigate the proliferation of measurement frameworks and tools.
The original brief was to identify key elements for a common framework and a set of strategies and metrics. Our approach was to start with the fundamentals: let’s first define what we mean by “social value” and then review how the real estate industry does and does not create social value. This would pave the way to building a shared understanding of possible strategies, any existing frameworks/tools, alongside an analysis of how useful they could be.
So what do we mean by social value? Social value is fundamentally about what is good for society. The term was first coined by Joseph Schumpeter in 1908 – he said “it is society, not the individual which sets a value on things.”
The resurgence of academic, commercial and government interest in the concept of social value reflects a growing feeling the institutions set up to deliver on societal preferences – markets (the price mechanism) and democracies (the ballot box) – are not working fairly and inclusively. Neither the markets nor government policy are delivering a good economy that works for everyone.
In the report, we highlight the fact social value creation is underpinned by culture and values. When we think of the culture of the real estate industry what words immediately spring to mind? For many it would be money and greed. Success is often seen in terms of increasing property prices and how much money can be made from rental income when investing in property.
The reality that social value creation is not a priority is all too obvious when one looks at the housing market where the lack of housing affordability has reached crisis levels across many European cities and globally.
The financialisaton of real estate – where property is solely looked at through the lens of revenue and profit – has led to a disconnect between financial value creation and social value creation.
This report is named “Zooming in on the ‘S’ in ESG”. ESG is important and ESG integration is becoming mainstream in the business and investment world. To date, most attention has been placed on the “E”, the “environment”, in ESG. TGE is a specialist in the S in ESG.
This covers issues such as workforce issues – fair pay and labour standards – and how companies tackle issues such as diversity and inclusion. However, ESG is still often about corporate reputation and risk management and what is within an organisation’s control.
Social value goes beyond ESG to the UN’s Sustainable Development Goals (SDGs) – creating real world change that delivers inclusive and sustainable development. Within the investing world, we have seen a rise in impact investing – which focuses on how investment can help tackle social and environmental challenges – it aims to make SDG-related goals integral to investment strategy.
While the real estate industry undoubtedly makes a major economic contribution to prosperity and job creation, urban regeneration projects and real estate development schemes can exacerbate social and spatial inequality.
Urban development – particularly in the UK – has become property-led with success measured in financial terms – increases in property prices and land value – rather than focusing on whether and how the development benefited people and places.
For real estate, social value creation is about enhancing the prospects and well-being of places and people. At the heart of real estate development and investment should be questions about purpose: what and who are real estate development projects really for? Who benefits? How do we create cities and towns that are inclusive and vibrant places to live, work and enjoy life?
The ULI report lays out a road map to make this happen. We set out six categories of action:
First is government vision and strategy. To have social value, real estate needs to respond to local needs and priorities. Such priorities are best set by local government creating plans together with citizens and businesses. Government policy and spending can help underpin strategies that create social value, for example, investing in brownfield remediation and social infrastructure.
Second is corporate leadership. Social value creation requires a shared and more holistic understanding of value creation across the real estate value chain and an alignment of intent and activity across all actors – including architects, designers, developers, tenants, investors and government. In practice, this requires shifting from a “transactional approach” to doing business to a more “relational approach”. And it requires impact goals, such as the SDGs, to be fully integrated into decision-making and not just a badge or a labelling exercise that sits alongside decision-making.
Third is transparency, accountability and data. We need to see far greater accountability in the market for social value creation – positive impact. Social value measurement frameworks and tools exist. What is needed is more effective use of these tools and the development of value measures that integrate financial, social and environmental value.
Our other action areas cover innovation, education and training and collaboration. The greatest value will be achieved if the industry’s current interest in social value – and impact – measurement translates into greater discussion and deliberation, and then leads to collaborative, entrepreneurial partnerships designed to deliver social change.
These will need to be focused on how both public and private-sector actors can co-create social value and where the opportunities lie beyond business as usual to develop real estate in ways that respond to place-based needs and priorities. We are encouraged by the growing interest of the real estate industry in this agenda. We aim to play a role in facilitating more investment in real estate projects that deliver benefits for ordinary people and places, including low-income neighbourhoods.
We would like to thank the ULI team and all of the interviewees for their time in making this report possible. And a big thank you to Eime Tobari of COCREATIF, our lead researcher. The report is available on the ULI website here [free for ULI members]