Legal development

Lessons in social impact investing from Spain

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    Although Spain’s social impact investment market is still in its infancy, the country has made significant strides towards growing the volume of social impact assets under management. According to a study published in December 2021 by ESADE’s Center for Social Impact in Barcelona, the market expanded to around $2.4bn of assets in 2020, up from just Euro90m two years prior.

    My own experience of the market tells me that there is still considerable room for growth. Currently, the main driver for social impact investments is coming from international investment funds looking to invest in Spain, rather than from the country’s domestic market, where social impact investment is more of a principle in everyone’s minds than it is a reality.

    In the absence of any achievable flagship policies to rally around from the national government other than rent control, the private sector is starting to take a lead in this space. Nationwide, developers wishing to undertake more lucrative residential developments already need to provide a certain amount of social housing, but there is a growing trend for social housing to be promoted as a signature mark of best practice in social impact investments. For today’s fund managers in Spain, this is increasingly important to their brands, as they are being urged to embrace the ESG agenda by their own investors. Everyone wants to be seen to do the right thing.

    In the construction space, we are also beginning to see good examples of social impact investing emerging. For example, we are currently advising a large international client in a major joint-venture build-to-rent scheme, and ESG principles – and actions – are being clearly set out in the contractual arrangements, with provisions for sustainability, and affordable housing. However, there is considerable room for growth.

    Another factor driving interest in social impact investment is the trend – post pandemic – of focusing on the wellbeing of employees. This is having a major impact on the real estate sector. For example, offices are now incorporating spaces for wellbeing activities, whether that’s yoga, mindfulness or chill-out areas.

    To a large degree, this is a defensive activity as companies find themselves in the centre of the so-called ‘war for talent’. As a result of the pandemic, people have been rethinking their priorities and changing their circumstances, leading to what’s been termed “The Great Resignation”. This has led to a shortage of talent in many sectors, and firms need to try to be competitive in attracting new workers. Part of this competitiveness is about flexibility, and showing that you care about the wellbeing of your employees.

    Spain’s experience is being mirrored across Europe, with the region’s real estate industry talking seriously about ESG and how to incorporate it into construction projects. MIPIM, this year, is full of talks on the topic, and through my involvement in the meetings of the global RE think-tank Urban Law Institute, I can see that there is significant interest in the legal issues surrounding how to refurbish buildings, and the importance of reusing as much building materials as possible, minimising the need for construction waste, and reducing the environmental impact of construction or refurbishment projects.

    This is still a relatively new trend for Spain, but you are increasingly seeing architects pushing forward projects that are designed to create as little building waste as possible, and to dispose of that waste properly, to reuse as much of it as possible in order to minimise the carbon footprint. Investors are also now imposing ESG and sustainability principles into their construction or redevelopment projects, including BREEAM Good or Very Good qualifications.

    In the domestic housing market, there are additional drivers within Spain. For anyone selling a property, they need to include an energy efficiency certificate which sets out the energy performance of their building or apartment. This is now compulsory, and is a sign that the legal conditions are changing and could well promote more sustainable activities. On a large scale – and within the commercial property space – these trends are being driven largely by international investors. Local investors and developers need to catch up.

    I believe that we will continue to see change being driven by the private sector rather from government. National and international corporations are publicly committed to sustainability and they recognise that it’s necessary and that it is a ‘good’ thing. Corporations also recognise that they can’t afford to be left behind and not be seen to be doing this. This ‘carrot and stick’ approach is what is driving forward change.

    At Ashurst, we are helping our clients really understand what’s going on in the marketplace. Because of the work we do – and where we do it – we have sight of what almost everyone else in the marketplace is doing. Clients will often ask us what we’re seeing and will use this insight to relieve the competitive pressures upon themselves, and to incorporate policies and commitments to drive forward progress. At the very least, this insight will help our clients to keep aligned with what the market is demanding at the moment.

    Author: Cristina Calvo, Partner

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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