How To Build A Sustainable Future Through Real Asset Investment
For many investors, both individual and institutional, sustainability has become an important part of their decision making. One of the keys to sustainable investment – perhaps the most important – is investment in real assets, or real asset (https://www.investopedia.com/terms/r/realasset.asp) investment.
The Importance of Real Asset Investment
Real assets such as infrastructure, housing, and transport are crucial to our lives and our relationship with the environment. They shape our carbon footprint and our ability to function as a society.
Well-designed real assets are therefore a great way of turning investment into social and environmental benefit.
The investment industry has the opportunity to transform how assets are built and operated. Its wealth and influence determine what is built, when, where, and how, as well as how it is handled afterward.
It’s a level of power that brings both opportunity and responsibility, as lazy investment in the wrong real assets can cause lasting damage.
Investing sustainably is difficult. Evaluating what makes a sustainable investment means considering a complex range of factors, including both one-off and ongoing environmental costs, impact on local communities, and the role the asset will play in the wider world.
That’s work that’s worth doing not only for the environmental and social benefits but for the financial ones.
A younger generation is more concerned with environmental investment than its predecessors, while government regulations increasingly push institutions to take sustainability into account in their investments.
Real Assets at Home
There are a wide range of ways in which investment in domestic real assets can encourage sustainability.
Renewable energy is the highest-profile case.
Green energy generation and distribution needs the creation of substantial new assets. It can create a dramatic and immediate effect on carbon output and through it climate change.
Housing is another important area. Improving the energy efficiency of buildings, either through new build or renovations, reduces energy expenditure on heating. It can also bring social benefits, as it reduces bills and so makes it easier for the less well-off to support themselves.
This is a great example of how sustainability can be profitable, as green buildings show evidence of greater occupancy, higher values, and higher rental income.
Investment in transport is crucial. Public transport needs to be substantially improved to get more people out of their cars and so make travel more sustainable.
Electric cars, though not as beneficial as getting people to share travel, are also a step forward.
Looking more broadly, regeneration projects can bring benefits to ailing towns and cities by reviving their social and cultural hubs.
They can reduce carbon output by helping people to live closer to jobs, shops, and leisure facilities.
Real Assets Around the World
Sustainable development isn’t just about what we do in this country. It’s also about how we interact with the rest of the world.
Investment in the infrastructure of developing countries can do a great deal of good.
Bringing electricity, water, and housing to previously deprived regions makes lives healthier and happier.
Investment in transport can support economic growth that will increase the wellbeing and stability of a whole region.
The way that these projects are carried out can make a further difference.
By building in green energy and energy efficiency from the start, we can encourage more sustainable economic growth, instead of the unwieldy and damaging form we have developed in rich parts of the world.
The way that we invest at home can also have a broader impact.
Reducing carbon output and so reeling back climate change is vital to letting life continue in parts of the world that will otherwise face drought and famine.
Environmental change contributed to Syria’s descent into war and will doubtless be a factor in other conflicts around the world. How we invest has huge repercussions.
Exit Planning for Sustainable Real Asset Investment
Investment in sustainable real assets isn’t always easy.
The failure of PFI in the British public sector has shown how, without proper governance, attempts to turn private enterprise into public good can lead to poorly run schemes and turn the public against investors.
There are a growing number of tools available to evaluate the sustainability of investments, as well as large amounts of data to use with them.
But even this is challenging, as there are different ways of measuring impact and interpretations of how best to invest.
This shouldn’t put investors off. Imperfect tools are a step on the path to superior ones and are, for now, better than nothing.
By looking at environmental and social risks and benefits when first investing in an asset you can avoid having your money tied up in something damaging.
Real assets are the solid core of a sustainable economy. Through them, investors have the chance to change the world.
Paul Connolly
Paul Connolly has been a journalist for more than 20 years, as a reporter and editor for Argus Media, Reuters, The Times, Associated Newspapers and The Guardian. He has covered Islamic Finance for Reuters in the 1990s. Paul has since helped launch three newspapers, as well as reported from Tokyo, Los Angeles and Stockholm.
