Institutional investors increasingly are looking for quantifiable metrics surrounding ESG and impact investing.
Do selected investment strategies deliver on what was promised? How do these strategies perform? How can investors be sure? Understandably, institutional investors are leery of greenwashing — the practice of making exaggerated or unsubstantiated claims about a product or strategy's environmental, social or governance benefits. Even as work progresses globally on standards and metrics, investors are moving forward with bespoke projects to get their arms around these questions.
A recent story in Pensions & Investments examined how the National Electrical Benefit Fund in Washington modeled its real estate program to show quantifiable impacts that include strengthening the pension fund itself. The $17 billion NEBF, the third largest Taft-Hartley pension plan in the U.S., is jointly administered by the International Brotherhood of Electrical Workers and the National Electrical Contractors Association. A second defined contribution plan, the $12 billion National Electrical Annuity Plan, covers utility and transmission line workers.
Analyzing more than 835 construction and tenant improvement projects managed by the funds' six real estate investment managers firms between 2012 and 2020, Pinnacle Economics found that the total impacts of the NEBF and NEAP real estate investments created $14.4 billion in economic activity for communities, $7.1 billion in labor income for workers and employers, 84,188 jobs and 162 million man-hours.
The NEBF/NEAP report notes the investments earn good returns and provide retirement security for current plan participants, but "also play a vital role in sustaining the plans' economic security," by driving increased demand for real estate, creating opportunities for National Electrical Contractors Association and IBEW members, and "growing employer contributions into NEBF and NEAP."
Those are impacts worth noting. As pressure only grows for "show me" results, the NEBF study shows how a creative and well-designed economic assessment can provide answers that investors are seeking.
Investors that are committed to ESG and impact investing should be interacting with their money managers and consultants about how the impacts of their investments are being measured and what can be done to tailor a portfolio more to an institution's needs. Digging deeper into the total impacts will benefit investors and managers alike and give them an added advantage as the industry transitions to an ESG-centric and impact-centric world as well.
