FHS IMPACT INVESTING: INDUSTRY ANALYSIS AND OUTLOOK

Impact investing is an area of investment consisting in the use of capital aimed at encouraging the achievement of social objectives, measurable and intentional, that can simultaneously generate a positive economic return for investors. Therefore, it’s not a non-profit investment, but appropriations with a social impact that is ideally halfway between sustainable and non-repayable investments. But with what approaches and perspectives?

The different investment approaches

To better understand how “impact” investments fit into a hypothetical scale that has in its extremes traditional finance and non-repayable, we can certainly recall that the traditional financial ecosystem is more closely linked to all those responsible (SRI) and sustainable (ESG) investments that, of course, are looking for returns at market level.

The priority of such investments is therefore to obtain financial benefits in line with expectations. And, in pursuing such targets, they can adopt responsible and sustainable models that while not allowing them to stand in the “pure” impact investing approach, they can still be associated to these.

More specifically, investments made with an SRI model will focus on portfolios that exclude securities issued by companies that are harmful to the environment and/or society, while investments that adopt an ESG model, as can be imagined, they will carry out a preliminary assessment and selection on the basis of social, environmental and corporate governance criteria.

Conversely, we speak of impact investing, and even more of impact first, to identify an investment model that does not aim at financial returns on the market, but at the principal repayment of capital. Companies that become targets for investment, respond to environmental and social challenges, and adopt economically sustainable business models. Of course, although the main objective is the repayment of capital (which is lacking in non-repayable investments), there is nothing to prevent yields from being expected, which are normally below market rates.

Well, in this context In-Domus proposes itself as an operator able to pursue an ESG approach, orienting its investments according to strict criteria and principles of eco-sustainability. Our member Fondazione Housing Sociale instead pursues an Impact First approach, aiming at the objective and the will to generate a positive social impact, and creating an equivalence between social and economic-financial assessments for the investor.

The Foundation’s investment portfolio

Given the context in which it operates, it should be recalled that since its establishment in 2004, the Foundation has sought to respond concretely and effectively to the growing housing emergency through the promotion of social housing initiatives that, together with the offer of accommodations with reduced canons, could favor the birth of smart communities which, at the time, constituted a concept substantially pioneering in Italy.

Even today, almost 20 years after its creation, the Foundation continues to play the role of promoter of the participatory social housing model, both directly and as a technical-social consultant of some of the best-known funds investing in the sector, providing the necessary assistance in the design of urban, architectural, social and economic-financial aspects of the projects.

In particular, FHS has supported the evolution of social housing funds in our country since 2006, when thanks to the active support of the Cariplo Foundation was launched in Italy the first social housing fund, the Fondo Abitare Sociale. A few years later it was followed by the Fondo Investimenti per l’Abitare, managed by CDPI SGR, and the basis of the Integrated System of Social Housing Funds (SIF), which carries out social housing projects throughout Italy.

In 2021, SIF, as a fund of funds with around 2 billion equity resources, is one of the main impact investing programs at a global level, with a capitalization of about 3 trillion euros.

The financial returns

In the awareness of a context of scarcity of available economic resources, FHS has identified the ethical real estate fund as the most effective tool for carrying out social housing interventions in Italy. A fund structured specifically to support accommodations with reduced canons, and therefore a financial instrument that can provide long-term risk capital with a return below market rates.

Therefore, by participating in ethical real estate funds, investors consciously choose to give up part of the return they could obtain by using the same resources on traditional real estate markets, in order to allow the implementation of economically sustainable social housing interventions, which will then apply to tenants the tiered prices which are lower than the reference market, both in terms of rent and in terms of sale.

The target yield of these funds is between 3% and 4%, in addition to inflation.

The forecasts for the future

In the margin of this brief sharing, we can only highlight how positive the forecasts for the future of impact investing are, also in the light of the strong integrations with responsible investments, according to ESG principles. In this scenario, it is the impact investments that constitute the most innovative and transformative evolution on the market, fueling an increasingly attractive “new” responsible finance.

It is certainly no coincidence that in recent years the European Commission has devoted increasing space and attention to the regulation of sustainable finance, intervening on the transparency of the sector and the other main terms of support for a fair and consistent development.

However, much more has still to be done. On the supply side, we need new capital, new financial instruments available to companies and the ability to accompany and support the players concerned. On the demand side, the need to strengthen entrepreneurial and managerial skills, as well as the ability to use impact measurement tools, can only be recalled. Furthermore, in relation to the market, it is desirable to strengthen support infrastructures, from research centers to incubators, from professional service providers to advisors.

Building on these assessments, the Foundation is contributing to the growth of the national ecosystem of impact investing through the implementation of capital offerings and programs to support entrepreneurship, experimenting new intervention models and new partnerships, and still providing consultancy and training activities to improve awareness in the sector.