The four pillars of sustainability are: natural, social, economic, and environmental. The first pillar is the natural aspect of sustainability, where we strive to maintain a balance with nature by reducing our consumption. The second pillar is the social aspect which focuses on equitable distribution and ensuring that everyone has access to food, shelter, healthcare, and education.
Next up is the economic pillar, which includes sustainable businesses that provide income-generating opportunities for workers and support fair trade practices while also working to reduce poverty levels globally.
Finally, the environmental pillar looks at sustainable infrastructure such as green buildings that improve air quality for occupants through reduced energy usage or minimizing water use with rainwater harvesting systems.
Impact Investing in Real Estate
This pillar looks at the investment side of sustainability which embodies a triple bottom line approach to investing. An example would be purchasing land for conservation purposes. The return on this purchase may not come in the form of an immediate financial gain but instead as long-term social good through ecosystem services that benefit society. There are also economic benefits such as increased tourism due to access to nature or agricultural production with a higher quality water supply.
Institutional investors often make these investments because they can withstand short-term losses while also considering potential longer-term impacts.
In addition, there’s debt financing where lenders charge below-market rates for loans secured against properties with above-average energy efficiency features compared with similar properties within the same category (e.g., apartment buildings).
Opportunity Zones in Real Estate
Opportunity zones were created with the Tax Cuts and Jobs Act to increase green initiatives like sustainable development in low-income areas and spur economic growth in these communities.
Lastly, tax incentives such as the U.S. federal government’s new Investment Tax Credit for solar panels and renewable energy sources help to incentivize investment in sustainable technologies while lowering the overall cost of capital for these projects.
Social Good in Real Estate
How do investors use four different pillars–financial investments, debt financing, tax incentives–to make decisions on sustainability? What are the benefits of each of these pillars?
Investors use financial investments when they believe their return will not come in an immediate form but instead long-term social good through ecosystem services or economic benefits like increased tourism due to access to nature or agricultural production with a higher quality water supply (e.g., non-profit organizations).
