...considers social environmental consequences of investments, both positive and negative, within the context of rigorous financial analysis." (1) It focuses on the "triple bottom line" by which investments are evaluated in terms of their financial profitability, social equity, and ecological integrity.

According to the SIF, there were 2.16 trillion dollars in socially responsible investing of all kinds in 2003, including pension funds, mutual funds, foundations, religious organizations, and community development financial institutions. This includes all funds that are professionally managed and using one or more of the core socially responsible investing strategies--screening, shareholder advocacy, and community investing. One explanation for the magnitude of the SRI movement may be the size of the American sub-culture that's been dubbed the Cultural Creatives by author Paul Ray. (2) According to Ray, Cultural Creatives comprise approximately 26% of the American population and include individuals who place a high value on ecology, community, and social responsibility and other strongly held concerns.

Socially responsible investment typically entails 3 strategies that work together to promote sound business practices and societal improvements: Screening is the practice of including, excluding, or evaluating investments on the basis of social and/or environmental criteria. Shareholder Advocacy entails becoming involved as owners of corporate America. And Community Investing provides capital to communities that are underserved by traditional financial services.

Asset flows indicate that investors are finding socially screened funds more attractive than other funds. According to SIF, screened funds attract and retain investor assets longer than non-screened funds and socially responsible funds saw net inflows of $1.5 billion during 2002 compared to a $10.5 billion outflow for U.S. diversified equity funds over the same period.

Like many other investors, individuals interested in socially responsible investing increasingly realize that they should include real estate in their portfolios because it can "enhance the portfolio's returns while helping to diversify volatility and risk." (3) According to one study, an investor that put 10% of his or her portfolio into publicly traded real estate investment trusts in 1992 would have had 7.5% more in his account by 2001, compared to those who stuck with just stocks, bonds and cash. (4) And a recent review of the literature concluded that "real estate has a definite role in the formation of efficient portfolios. There are many works suggesting optimal allocations to real estate of approximately 10% to 20%." (5)

If 10% of the more than $2 trillion in socially responsible investing today were in real estate, it would equal nearly 75% of the entire REIT equity market capitalization in the U.S., which was around $300 billion at the end of 2004. Clearly then, the potential scale of a socially responsible property investment (SRPI) market may be very substantial. Yet despite this opportunity, there is no system in place for grading the social and environmental responsibility of various real estate investments and there are virtually no real estate investment funds that are either designed for or marketed to the socially responsible investment community. In fact, interviews conducted by the author with leaders in the SRI world have uncovered the remarkable fact that they are simply unaware of even a single real estate investment product that meets their needs. At the same time, they indicate that there's a great deal of interest in future opportunities, should any arise, that would allow them to invest in real estate in a manner that is consistent with their values.

SRI investors recognize that their acquisition of real estate cannot be satisfied by their simply acquiring conventional real estate investment products. This is because they understand that real estate is not a socially or environmentally benign commodity. Depending on how a property is sited, designed, or managed, it can produce either harmful or beneficial consequences for society and the natural environment. For example, the UN reports that inefficiencies in urban energy use, partly attributable to the nature of urban development, are a primary cause of the rise in greenhouse gas concentrations globally. And the under-investment of real estate investment in lower income, high minority urban areas has long been a concern to social reformers. (6) Given this understanding, socially responsible investors want to know whether the various real estate investment products they might select are consistent with their values. They're looking for real estate investments that can "do well while doing good." (7)

Pension funds, which now hold about 19% of all U.S. commercial real estate equity, (8) also have begun to express an interest in the social and environmental consequences of their real estate investments. California is perhaps the leader in this regard. The state's two large public retirement funds--the California Public Employees' Retirement System (CalPERS) and California State Teachers' Retirement System (CalSTRS)--hold over 200 million square feet of property. They have both set goals to reduce the energy use in their real estate holdings by 20% over the next five years. They also have increased their investment in urban, inner-city real estate to over $2 billion, including $300 million for affordable housing. And California is not alone. For example, TIAA-CREF recently received an award from the U.S. Environmental Protection Agency for their increased use of high-performance building management practices that promote energy conservation.

Given this situation, it is remarkable that SRPI products are either non-existent or impossibly hard to find. For example, despite the fact that there are over 300 real estate investment trusts in the U.S., the author has yet to find a single one that makes social responsibility or sustainability an explicit goal. Moreover, neither the real estate research firms that evaluate real estate funds nor the SRI screening firms that evaluate all kinds of companies collect or distribute information on the social or environmental practices of the many retail or institutional real estate investments that are offered in the USA. This is not to say that no real estate investment firms may be constructively engaged in these issues. But if they do exist, they're simply too hard to find. Of course,...

NOTE: All illustrations and photos have been removed from this article.



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