It was the US politician, William Jennings Bryan who announced, “Destiny is no matter of chance, it is a matter of choice.” It’s a sentiment individual investors are embracing. Alternative finance has opened up a veritable smörgåsbord of opportunities and investors have jumped in feet first, capitalising not just on the chance to dabble in markets that were previously closed to them, but to invest in projects that align with their own ethical and moral beliefs. Three in five European retail investors now seek to balance their financial returns with personal values and the environmental or societal impact of their investments.  

Figure one: Taken from research by the 2° Investing Initiative, published May 2022, this chart shows the distribution of sustainability profiles among European retail investors.

The role of alternative finance

Most key environmental and social initiatives now have government and regulatory targets attached to them, ranging from carbon-neutrality (2050) to reducing deprivation (by 2030 the EU aims to shrink those at risk of poverty or social exclusion by 15 million). 

It stands to reason then that traditional financial institutions should be pretty pivotal in funding sustainable and social initiatives. Yet, there are a number of barriers for traditional finance, not least the very different risk and reward profiles involved with ‘green’ and ‘social’ lending. These projects are innovative, can be more 'risky', and require a huge amount of due diligence – particularly in the case of decarbonisation initiatives.

Just as it did in the wake of the 2008 banking crisis, alternative finance is stepping into the gap left by traditional finance. By opening up private markets to smaller investors, this sector is helping to increase funding for innovative green projects and giving individuals the opportunity to help fund the transition to a circular, carbon neutral economy that benefits everyone. 

Investing in the environment 

When it comes to environmental real estate investing, decarbonisation is THE goal. The real estate sector accounts for just under 40% of CO2 emissions globally, generated from the production of building materials and building construction, as well as the carbon contribution of buildings while in use – energy, waste, air pollution… it all gets assigned to the global real estate sector. 

Understandably, there’s a huge focus on decarbonisation and energy efficiency initiatives in the sector. CBRE reckons that real estate investment accounts for three quarters of all investment in these areas (Team Hedgehog dug into this topic in detail in an earlier article, click here to read more). 

Repurposing building materials and land – otherwise known as circular initiatives – are still relatively nascent. But the circular economy will pick up pace as restrictions around emissions and reporting tighten, and materials shortages really start to bite. 

Hedgehog’s first real estate partner, National Resources, is one of a few established players in this space. The company has thirty years of projects under its belt, and is driven to deliver a creative approach to energy and environmental preservation. Its success stories range from remediating and repurposing environmentally contaminated sites to installing geothermal heating systems.

Its iPark portfolio is more expansive and turns former industrial sites in New York state into vibrant workplaces. iPark 84 is one of the latest additions to the portfolio, a former IBM semiconductor plant currently being reimagined as a tech hub. The 300-acre site will be mixed use, a place where locals can live, work and play. Crucially for ethically-minded investors, it offers more than simply the promise of service fees and rent. Among many initiatives, iPark 84 includes a town centre complete with a fresh food market for locally grown products, helping to support independent producers and reduce food miles for residents and businesses on the site.

Investing for social impact

Break ESG into its three constituent parts, and historically it was the ‘S’ that was overlooked. Yet, as millennials invest in greater numbers, social investment opportunities are increasingly in demand. Research last year by the European think tank 2° Investing Initiative found that social initiatives have climbed rapidly in importance to retail investors. When given a choice of 30 ESG investment topics respondents overwhelmingly prioritised social and environmental, with 64% keen to invest in clean water initiatives (environmental), 62% in Health and Safety (social), and 53% in Education (social). 

Investments that supported local employment were also high on the agenda. Examples include initiatives like the fresh food market at iPark 84, which creates new opportunities for producers to expand their reach, giving them access to a community that travels in from a 50 mile radius around the site and enabling them to grow their businesses to, eventually, create new jobs. For many individual investors supporting this project, the fact that they are helping to build an economy intended to bolster local, independent businesses is just as important as any financial yield. 

Social impact is an increasingly important factor in real estate investment, and will continue to drive innovations like those seen in the iPark portfolio. Millennials and Gen Z are demanding more from their real estate investments and asset managers. The generation before them might have steered clear of deprived areas in favour of university cities, affluent towns and city centres, but 84% of millennials believe their investments can alleviate poverty, and they’re investing with that in mind. Over half of under 40s see the social implications of their investments as an important selection criteria.

Investing for people and planet 

This is a time of extreme change. At this point, we’ve all lived through more ‘once-in-a-lifetime somethings’ than we can shake a stick at, and investor priorities have shifted to reflect that. The right thing is not synonymous with a lower financial return, and most individual investors now rank environmental and social factors as a key element of their investment strategy. 

Alternative finance has risen to meet this need, providing opportunities to fund social projects, create housing, and reduce carbon. Destiny is no matter of chance, it is a matter of choice. And we now have endless choices to invest in the world around us – and help make our patch of it a little bit better in the process. 

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