Impact Investing in Practice: Social Infrastructure
To understand how impact management can be applied in practice, our Franklin Real Asset Advisors team, in collaboration with consulting firm Tideline, took an example from the real estate sector and considered the specific demands of social infrastructure. The third post of this three-part series explores why social infrastructure can be seen as a natural fit for most impact investors.
Social infrastructure assets are the physical buildings that are essential to deliver social services, such as hospital, schools, courts and affordable housing. As such, social infrastructure plays a crucial role in the health and vibrancy of communities and the surrounding environment. Despite its important civic and environmental role, however, social infrastructure has suffered from underinvestment in the past decade. The High-Level Task Force on Investing in Social Infrastructure in Europe has estimated the minimum size of the annual investment gap to be €142 billion (US$159 billion).1
We think social infrastructure is a natural fit for most impact investors. It can deliver a positive impact together with the potential for financial benefits such as predictable, steady returns as well as a lower exposure to market and systemic risks.
We examine how investors can maximize the potential for dual returns in social infrastructure—an attractive risk-adjusted financial return as well as the social and environmental benefits—by actively managing for impact.
Impact Management Approach
Franklin Templeton Real Asset Advisors and Tideline developed an impact management approach based on industry best practices and aligned with a commitment to transparency and authenticity. A crucial aspect of the design is the integration of impact management throughout the investment process.
This approach integrates impact from the early stages of the investment process—for example, the sourcing and management of social infrastructure assets—informs investment decisions and allows for proper impact measurement at the reporting stage. And as we expect most of the desired impact outcomes will be achieved over the long term, this approach should support better tracking over time.