Making the case for impact investment

COMMENT The recent growth in capital seeking social and environmental impact has given rise to a burgeoning movement: place-based impact investing. This approach not only aligns with the environmental, social and governance principles that have become central to many institutional investors’ strategies, but it also offers a tangible way to catalyse positive social change in local communities. The buildings that we live, work and socialise in form a key part of our local and social infrastructure, making real estate a key asset for place-based impact investors, looking to shape and re-make communities, drive meaningful, measurable social outcomes while achieving financial returns. PBII directs capital into projects that are designed to deliver social and environmental impact within a specific geographic area – be that a deprived urban neighbourhood, a rural community, or bustling city centre. The key differentiator is PBII’s focus on place – investing in projects that not only generate returns but also address the local area’s specific needs and opportunities.  This requires a different approach to investment. PBII is highly relational, requiring investors to get “boots on the ground” and build trust with local authorities and communities. The emphasis is on relationships that develop between the stakeholders and the outcomes they are working towards. PBII in real estate takes various forms including a mix of housing tenure – from transitional, affordable and specialist supported housing, through to homes for key workers and increasing the supply of private rented homes. Beyond housing, it spans urban regeneration projects through to the creation of community spaces, creative quarters, business hubs, and support for local enterprises. The goal is to create inclusive, sustainable communities, with investors working in partnership with places. Critical role The UK presents a unique landscape for PBII, driven by both social need and investor interest. With growing awareness of the stark disparities between different regions and communities, real estate investors are increasingly looking to PBII as a vehicle to contribute to the government’s agenda on inclusive growth and commitment to build 300,000 houses per year as well as retrofitting existing housing stock. For example, cities in the North of England and the Midlands have historically suffered from underinvestment compared with London and the South East. PBII can play a critical role in addressing these imbalances by attracting investment to areas that have been overlooked. There is also a growing recognition that real estate is not just about buildings; it’s about people and communities.  The UK’s Local Government Pension Scheme is increasingly seeking opportunities to channel capital into housing and other real estate solutions across the UK, often delivered through specialist asset managers such as Schroders and Octopus. Encouragingly, a recent survey indicates that 64% of LGPS funds are planning to increase their commitment to local investments, signalling a significant shift. Addressing barriers Several barriers still need to be addressed to unlock PBII’s full potential. One of the most significant is the lack of standardisation in measuring social impact. Unlike financial returns, which are relatively straightforward to quantify, social outcomes are often more complex and multifaceted. This can make it difficult for investors to assess the impact of their investments and compare opportunities. There is a need for more robust impact measurement frameworks that can capture the full range of social outcomes generated by real estate projects. These should be flexible enough to account for the specific context of each investment but standardised enough to allow for meaningful comparisons. Another barrier is the perception that PBII necessarily involves a trade-off between social impact and financial returns. While it’s true that some projects may require longer timescales, there is growing evidence that PBII can deliver competitive financial returns while also generating significant social value. Role for public policy Public policy has a crucial role to play. Government initiatives, such as tax incentives, grants and regulatory support can help to de-risk impact-focused investments and attract more private capital into PBII projects. For example, government agency Homes England works with local authorities to identify housing needs and align investment with regional development goals. By fostering partnerships with local councils and regional bodies, it ensures that investment is focused on areas where it can have the greatest impact, such as addressing housing shortages, regenerating communities and supporting local economies. Working closely with private sector investors through joint ventures, co-investment and financial support, such as loans and grants, Homes England can help to accelerate housing development and infrastructure projects. Future of PBII As the real estate sector continues to grapple with increasing costs and economic uncertainty, PBII offers a powerful tool for investors who want to deliver positive outcomes for communities. By focusing on place, and by prioritising social impact alongside financial returns, it can help create thriving, sustainable communities. However, realising the full potential of PBII will require collaboration between investors, developers, policymakers, and local communities. It will also require a shift in mindset, where social impact is seen not as an add-on, but as an integral part of real estate investment strategy. Place-based investment in real estate plays a key role in shaping the buildings that make up our communities, and presents a shift away from traditional and often extractive investments. This presents a major opportunity for PBII. The question is how quickly and effectively it can be scaled to meet the pressing social challenges of our time. Case study Cheyne Real Estate Group has around £4.5bn assets under management and has a dedicated impact portfolio. This fund supports projects across the UK, delivering affordable housing, care homes and supported living tailored to local needs. One such investment is a development in Manchester city centre, providing 144 new-build homes. A key feature is that 35% of these are reserved for local key workers at discounted rents. This was not required by local planning regulations – it’s part of Cheyne’s impact-driven approach. Through active engagement with the local authority and stakeholders, Cheyne aims to go beyond addressing general housing needs, focusing on creating targeted, positive outcomes for residents. Mark Hall is a senior programme manager, place-based impact investing at Impact Investing Institute