Contributing to the SDGs through Real Estate – The Case for Social Infrastructure

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This article is part of NordSIP Insights – NordSIP Insights – SDGs 2020: 17 Shades Faster. Read or Download the entire publication here.

by Raymond Jacobs and John G. Levy

- Promotion -

Raymond Jacobs, Managing Director, Franklin Real Asset Advisors

John G. Levy, CFA, CAIA, Director of Impact, Franklin Real Asset Advisors

Buildings and services with a civic and social purpose underpin our economies. At Franklin Real Asset Advisors, we define these physical assets as social infrastructure. Examples of social infrastructure include hospitals, schools, affordable housing and buildings related to justice, emergency and civil services.

While social infrastructure is crucial to the health and vibrancy of communities, these vital assets have suffered from underinvestment during the past decade. Furthermore, the current COVID 19 crisis is not creating just a health crisis. It is creating a human crisis affecting all 17 Sustainable Development Goals (SDGs). In this context, we believe that private investors have an opportunity to make a great contribution through impact-focused strategies that align to some of the SDGs, while also achieving a financial return.

The SDGs guide our impact management system and we aim to measure and report back our specific contributions to the SDGs we target. Our impact strategy has two vectors, community and environment and it is aligned to six SDGs as shown in the exhibit. In this article we will provide detailed examples to show how social infrastructure can directly contribute to these crucial goals.

Contributing to SDG3 – The Case fo Healthcare

Challenge

At least half of the global population does not have access to essential health services1 despite the significant advances in medicine and medical technology. And where health services do exist, the challenge is to provide services of high quality2. While most of Europe enjoys universal health coverage, quality health care is not always available. As Europe’s population ages, demand for more and better health care-related infrastructure and services is expected to increase3.

The Role of Social Infrastructure

Healthcare is a key sector of social infrastructure. We aim to contribute to this SDG by improving and expanding healthcare facilities. SDG 3 can also be supported with sale and leaseback arrangements for healthcare operators that provide quality services.

Strategy in Action

Our strategy has acquired seven healthcare assets. Early in 2019, we were introduced to a struggling operator in Lido de Venezia, Italy. Given the location of the property, other investors saw the asset as a prime opportunity to redevelop the space into a high-end residential and hotel offering. By acquiring the asset and bringing in new and experienced operators, we ensured that Lido de Venezia would continue to have access to local healthcare services. In addition, through the utilization of a special tenant-financed capital expenditure (CapEx) plan, we are improving the asset which will, in turn, boost the quality of care that can be provided. Finally, through conversations with the tenant, we have identified opportunities to expand the space available to them through further reconditioning and development at the site, helping to increase the space dedicated to these services.

Contributing to SDG4 – Investing in Education

Challenge

Over the last 15 years, Europe has increased the rate of students completing secondary school. For most countries, between 80 and 90% of students graduate with a high school certificate4. However, there is still insufficient access to quality education at all levels—day-care, primary, secondary, and university—with adverse effects on individuals and communities. The need for safe, high quality education facilities is therefore clear.

The Role of Social Infrastructure

Education is a key sector of social infrastructure. We aim to support this SDG with investments in quality education assets in Europe. The strategy is similar to how we approach investments in healthcare: we look to preserve, improve, and expand education.

Strategy in Action

In June of 2019, we acquired the Valla Park property, a multi-tenant and multi-purpose building in the Swedish town of Sundbyberg that includes a number of educational facilities. These include IES, a free primary school; NTI Gymnasiet, an upper secondary school specialised in technology, IT design, and media; and Yrkes Akademin, a leading company in the vocational education and labour market training industry. In addition to the privately-run education services, the local municipality operates education services on the property, including an adult vocational school, a job centre to coach those in lower skill jobs, and a school for adults without high school qualifications. We aim to carry out physical improvements to the educational facilities and, through our engagement with tenants, develop community initiatives.

Contributing to SDG7 – Improving Energy Efficiency

Challenge

The EU’s 2030 climate and energy framework sets ambitious targets for clean energy and energy efficiency. The built environment has a significant role to play in meeting these sustainable energy goals.

The Role of Social Infrastructure

As owners of social infrastructure assets, we can contribute to SDG targets 7.2 and 7.3 by improving the energy efficiency of buildings and evaluating the installation of rooftop solar systems where appropriate.

Strategy in Action

In every business plan we include asset-specific improvements such as LED lighting, smart metering, and the use of energy management systems. In 2020, we will conduct solar feasibility assessments across the whole portfolio and install rooftop solar where indicated.

Contributing to SDG11 – The Growing Need for Affordable Housing

Challenge

Urbanization and associated community and environmental issues are central to SDG 11. Europe’s increasingly dense urban areas suffer a lack of amenities, inadequate waste disposal, high prices of basic goods, and not enough affordable housing5. As urban populations continue to rise, the need for urban mobility, energy efficiency, and community resiliency becomes increasingly critical. One in four Europeans are considered “rent burdened”— spending more than 40% of disposable incomes on rent—while ballooning housing costs are increasing the number of people at risk of poverty6.

The Role of Social Infrastructure

We believe social infrastructure is uniquely positioned to contribute to both aspects of this SDG. From a community perspective, the preservation of safe and affordable housing directly aligns with SDG target 11.1. From an environmental standpoint, we work with tenants to ensure that waste is minimised, and recycling practices are optimised to support SDG target 11.6.

Strategy in Action

In September of 2019, we acquired a portfolio of unoccupied homes and apartments in Cambridge, UK, where there is a shortage of affordable housing for students, senior residents and low-income workers. Local hospital staff, for example, are considered rent burdened. We aim to make our housing portfolio available to students at below-market rates, thereby meeting a community need We are also in talks with the local community council to learn more about which groups may best be served by this portfolio. We will then jointly develop an action plan to best address the housing needs of the community.

Not all the world’s problems can be directly addressed through impact investing, and even fewer can be addressed in a market-rate, core real estate strategy. However, much more can be done than at present. We hope to be a part of a paradigm shift where profit-seeking capital can directly address some of the world’s biggest problems. We aim to align investment strategies with the United Nation’s Sustainable Development Goals (SDGs), thereby creating a virtuous circle of financial growth and positive impact.
More information can be found is our recently released Annual Impact Report.

Footnotes:
1 Source: UN SDG3, United Nations, Sustainable Development Goals
2 Source: Improving healthcare quality in Europe. European Observatory on Health Systems and Policies, 2019
3 Source: Population structure and ageing, Eurostat, as of March, 2020
4 Source: Secondary graduation rate, Organization for Economic Co-operation and Development, as of March, 2020
5 Source: UN SDG11, United Nations, Sustainable Development Goals
6 Source: Housing statistics, Eurostat, as of June, 2020


This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. This material is made available by the following Franklin Templeton entities in those countries where it is allowed to carry out relevant business.
Luxembourg: Franklin Templeton International Services S.à.r.l. (FTIS), registered office 8A, rue Albert Borschette, L-1246 Luxembourg. Authorised and regulated in Luxembourg by the Commission de Surveillance du Secteur Financier (CSSF) and authorized to conduct specific investment business in other European countries via UCITS and AIFMD outward service or via any of the following outbound FTIS S.à r.l. branches as listed below:
Sweden: FTIS Branch Stockholm, Nybrokajen 5, SE-111 48, Stockholm, Sweden. Tel +46 (0)8 545 012 30, [email protected]

 

Picture: Franklin Templeton

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COVID-19 has led to a new appreciation of the importance of healthcare in ensuring all members of society thrive. So where should investors be looking to find resilience in an industry facing enormous change?

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