The often overlooked S in ESG is sharply coming into focus as more financial decision-makers wake up to the full, negative impact of the pandemic on people and the economy. Many social issues in the U.K. are in evermore desperate need of addressing. One of the most serious is arguably homelessness and rough sleeping.
A consensus that capitalism should be less short term and more inclusive of wider society was establishing itself in mainstream investing well before the coronavirus pandemic hit. For years considered niche, the growth of sustainable and impact funds is facilitating genuine change in many areas of society and the environment. The growing inequality between rich and poor and the existence of chronic housing shortages in hot spot areas make the provision of affordable accommodation a critical imperative to achieve the Sustainable Development Goals stipulated by the United Nations.
Recent years have seen increased appetite for residential property investment from institutional investors, and within that, social and affordable housing. Importantly, the pandemic has highlighted the diversification benefit of social and affordable housing, whose underlying revenues have proven relatively robust vs. many of its commercial and mainstream residential property counterparts. This is largely due to the source of rental income, which is often underpinned by a government-funded housing benefit, as well as strong structural supply/demand imbalance.
This has not been lost on institutional investors. Last year, we saw greater participation of local government pension funds investing in these funds, and we expect a broader suite of institutional investors to follow suit.